Introduction to Online Ratings

If you are an experienced investor or professional trader, you understand the importance of using the right brokerage services. Choosing the right partners is a challenging and complex process. There are many factors to consider before making a final decision. The safety of your funds is always the most important issue whenever you deposit money with an online company. Other factors also play a significant role. The spread and commission fees directly affect a trader’s ability to earn long-term profits. In addition, poor technology can cause execution delays, which can seriously impact short-term trading.

To create a reliable way to assess online brokerage services worldwide, a rating formula was developed by Giorgos Protonotarios, along with a method for presenting the results. The first version of this formula was applied to Online Forex Brokers. The highest possible rating a broker can receive is 100%, and the lowest is 2%.

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  World Brokers Rating Formula 2.0 

The formula described below is version 2.0 of the Trading Center Rating Brokers Formula.

• Applied to Forex Brokers

The rating formula was first introduced and used for Forex brokerage services. It is based on four key trading factors:

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FACTOR 1) Safety of Funds, Weight 26%

Most financial companies—such as investment firms and brokers—often take on more risk than they can handle. This usually happens when the potential profit from a decision is higher than the risk involved. As a result, these companies may accept high levels of risk and become vulnerable to failure. This is exactly what happened during the 2008 financial crisis in the US. But as a trader, you’re not concerned with your broker’s potential profits—you care about how much risk they take on, because that directly affects the safety of your funds.

Table: Safety of Funds Analysis

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FACTOR-1 EXPLANATION:

1.1 Brokerage Regulation, 12%

Strong regulation by a trusted authority lowers the risk of a brokerage acting improperly. In developing countries, financial regulators monitor Forex brokers closely and issue heavy penalties for risky or unfair practices. On the other hand, regulation from offshore jurisdictions is often less reliable.

1.2 Headquarters Base, 5%

The country where a brokerage is based plays a big role in how trustworthy its financial operations are. Regulatory fees and potential penalties give brokers strong motivation to follow the rules and protect client funds.

1.3 Years in the Market, 4%

A broker that has been operating for many years likely has a stable and successful business model. This also shows it has experience in managing business risks over time.

1.4 US Residents Allowance, 2%

If a broker accepts US clients, it must meet strict US regulatory standards—especially those introduced after 2008. This adds credibility to the broker’s operations.

1.5 Web Ratings, 5%

This factor helps fine-tune the results. Two popular sources are used: Forex Peace Army and Earn Forex user ratings. Since these ratings are based on user reviews—and can sometimes be manipulated—this factor carries only a 5% weight.

FACTOR-1 ANALYSIS EXAMPLES

i) A Forex broker based in the UK, founded in 2000 and regulated by the FSA, receives 15.0%. If this broker does not accept US clients and has a web rating of 3.5%, it gets an additional 3.5%, for a grand total of 18.5%.

ii) A Forex broker based in the British Virgin Islands, founded in 2010 and regulated by the BVB, receives 1.0%. If this broker also does not accept US clients and has a web rating of 2%, it gets a total of 3%.

The difference between these two brokers’ ratings is significant (15.5%)—just as significant as the risk you take by choosing broker (ii).

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FACTOR 2) Competition, Weight 30%

Table: Competition Analysis

FACTOR-2 EXPLANATION:

2.1 Spread on EUR/USD, 12%

We use the typical minimum spread on EUR/USD, as it is the most important and most liquid Forex pair globally.

Filter: Applied to 2.1

If the spread is more than 5.0 pips, the 2.2 rating is automatically set to zero. This is because such a high spread cancels out the benefit of having no trading commissions.

2.2 Commissions Charged, 7%

Some brokers charge trading commissions; others do not. We favor brokers with no trading commissions and rate them more positively.

Filter: Applied to 2.2

If the trading commissions are very high, the 2.1 rating is automatically set to zero. This is because high commissions cancel out the benefit of low or zero spreads.

2.3 Deposit / Withdrawal Commissions, 1.5%

Fees for deposits and withdrawals reduce trading capital, so they are considered an important factor.

2.4 Maintenance / Inactive Account Fees, 1.5%

Some brokers charge maintenance or inactivity fees. These are extra costs that negatively impact traders.

2.5 Leverage, 4%

Higher leverage increases trading potential, which is why it’s a key indicator of a quality Forex broker. In version 2.0 of the formula, the highest available leverage is used as the input.

2.6 Customer Service, 4%

Quality customer service is essential for online trading. We rate brokers based on whether they offer 24/6 or 24/7 support, and we give extra points for providing Phone, Skype, and Live Chat options.

FACTOR-2 ANALYSIS EXAMPLES

i) A Forex Company which provides 2 pips spread on EUR/USD by not charging commissions of any kind receives 11.0%. Now, if it provides leverage of 1/200 and offers also Live Chat and Phone support on a 24/6 base receives an additional 4.5%. The Grand Total rating is 15.5%.

ii) A Forex Company that provides a 2 pip spread on EUR/USD by charging high trading commissions plus withdrawal and maintenance commissions, receives 4%. Additionally, if it provides leverage of 1/100 and offers just Phone support on a 24/5 base receives an additional 2%. Grand Total rating is 6.0%.

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FACTOR 3) Trading Options, Weight 26%

Table: Trading Options

 

FACTOR-3 EXPLANATION:

3.1 Available Number of Currency Pairs, 8%

The higher the number of currency pairs available, the higher the potential for traders to exploit trading opportunities in the Forex Market.

3.2 Other Available Trading Assets, 2%

Furthermore, the wide variety of trading assets (CFD trading, etc) indicates a Forex Broker company that tries today to expand its offering services and adapt to more customer needs.

3.3 Bonus / Rebate, 8%

The higher the bonus or rebate offered, the larger the available funds. In version 2.0 of the formula, ratings are based on the maximum bonus/rebate plan available.

3.4 Scalping, 1.5%

Forex scalping is an important option for some traders. For us means 'freedom of the will', and that is why scalping is considered a rating factor.

3.5 Hedging, 1.5%

Hedging provides traders with the ability to protect their positions and funds, and that is why it is considered an important trading option.

3.6 Deposit Methods, 2.5%

The wide variety of Deposit Methods makes a broker more suitable for each customer's needs.

3.7 Withdrawal Methods, 2.5%

A variety of withdrawal methods is of equal importance.

FACTOR-3 ANALYSIS EXAMPLES

i) A Forex company offering a 2-pip spread on EUR/USD without any trading commissions receives 11.0%. If it also offers 1:200 leverage and provides Live Chat and Phone support 24/6, it earns an additional 4.5%. Grand Total rating: 15.5%.

ii) A Forex company offering a 2-pip spread on EUR/USD but charging high trading commissions, as well as withdrawal and maintenance fees, receives 4%. If it also offers 1:100 leverage and only Phone support during 24/5 hours, it earns an additional 2%. Grand Total rating: 6.0%.

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FACTOR 4) Technology & Innovation, Weight 16%

Table: Technology and Innovation

 

FACTOR-4 EXPLANATION:

4.1 Available Platforms, 5%

Offering a wide range of trading platforms gives traders more flexibility and choice.

4.2 API Trading, 1%

Support for API trading shows that a Forex broker uses advanced, modern technology.

4.3 Expert Advisors, 2%

Access to Expert Advisors (such as ZuluTrade or Tradency’s Mirror Trader) is very important for some traders who rely on automated or signal-based strategies.

4.4 Mobile Trading, 2%

Mobile trading isn’t just a trend—it represents the future of how trading will be done.

4.5 MT4 / MT5 Availability, 1%

The MetaTrader platform is a widely used industry standard in Forex trading today.

4.6 General Level of Innovation, 5%

A broker that invests in innovation shows long-term thinking and a commitment to improving services for its clients.

 

FACTOR-4 ANALYSIS EXAMPLES

i) A Forex brokerage company that offers two trading platforms, including MT4, supports Expert Advisor signals, and provides API trading receives 7%. If it also offers two mobile platforms and is an innovative broker, it earns an additional 6%. Grand Total rating: 13.0%.

ii) A Forex brokerage company that offers three trading platforms but no MT4, does not support Expert Advisors or API trading, and receives only 3%. If it also provides a mobile app only for iPhone and shows no signs of innovation, it gets just 0.5% more. Grand Total rating: 3.5%.

 

Total Rating: If the 4 parts of the formula are linked, we get a total rating.

RATING FORMULA=

Safety of Funds (28.0%) +

Trading Cost (30.0%) +

Trading Options Offered (26.0%) +

Technology & Innovation (16.0%)

= (100.0%)

 

🔗 More: » Rating Formula 4 | » Rating Formula 5.0

 

Trading Center Rating Brokers Formula v2.0 (C) -2012

■ Giorgos Protonotarios, Investment Consultant / Financial Analyst

Msc in “International Banking & Finance”

 

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