Data Feed

Application Programming Interface (API) is your broker-dealer’s price data stream from its liquidity providers—usually banks—made available for custom programming. What sources it is composed of is usually difficult if not impossible to ascertain. No two are identical. Market makers use a composite of sources—that may even include its own micro-ECN. But given the enormous liquidity of the market, they do not usually vary a great deal. The exception is when market makers requote.

Most brokers offer their API as a separate service. A trader would use the API to drive third-party software or his or her own software program. On the flip side, third-party vendors offer their services using various dealers’ API. It can be confusing. If you use a third-party program for trading or even just for your charts, be sure it has a one-to-one or close correspondence with your brokerdealer data stream. Rolling your own integration is strictly for experienced programmer gurus. New traders should probably avoid third-party integration, also.

APIs are becoming less and less important as the integrated trading platforms now offer robust scripting languages. NinjaTrader’s NinjaScript is a subset of C# with many additional functions, objects, and libraries specifically designed for trading system development.

Historical Data

If you want to look at charts from months and years gone by, you will need historical data. Some brokers offer it in their trading platform, some as a separate service, and some not at all. For comprehensive historical data, you may wish to consider one of the data vendors in Chapter 13, “The FOREX Marketplace.” Historical data is available online, for download or on a CD. The vendor www.disktrading.com is a good value.

Both the MetaTrader and NinjaTrader platforms offer excellent tools for integrating historical data—and it is an easy task to import additional data, as needed.

The site www.disktrading.com offers historical data preformatted for all the major platforms—a big time saver!

Historical data is the inexpensive approach for developing and testing trading methods, systems, and theories. See the section Market Environments (ME) in Chapter 18, “Improving Your Trading Skills,” for approaches to effectively testing trading methods and systems.

Platform Stability and Backbone

As we have mentioned above, trading platforms are enormously complex software programs. Real-time delivery of information is also a daunting task. Put those factors together and it is a minor miracle they work as well as they do. But . . . things happen. One of the biggest brokers had their trading platform crash for almost 24 hours in February 2007. Platform stability has improved enormously in the past few years.

What backbone is a prospective broker-dealer using—Windows, Java, Web-based, or Flash? Windows is the most stable, and Java is cross-platform if you are using a Mac computer. At one time Java platforms had a bad habit of crashing under heavy loads but that seems for the most part to have been remedied. If you use Java do not install the latest Sun update without getting the okay from your broker-dealer. Updates are supposed to be downwardly compatible, but there is a lot going on in a real-time trading platform. Having owned a web conferencing business, author Archer has been leery of Java, but it has improved a great deal recently.

Flash platforms are available, but they do not have the years of development behind them that Windows and Java platforms do. Flash platforms have potential, once developers in FOREX get a handle on the immense Macromedia tool set.

The Internet is not perfect. You should not trade online unless you have a high-speed Internet connection. A backup connection from a different vendor is a good idea if you are a serious trader. Cable is more reliable than DSL in most locations. Some brokers offer their platforms on multiple backbones and even recommend specific browsers for their Windows-based venues. Traders should also invest in a reliable battery backup power supply for their computer.

Once you are trading with substantial amounts of money and taking larger positions, consider opening a small secondary account with a different brokerdealer in a different country on a different backbone. Should your primary broker go incommunicado and you need to execute a trade, you have an out. In your due diligence process, after you have sampled four or five mini-accounts and select a primary broker you may consider leaving a mini-account open as a hedge.

Trading platform stability has improved enormously in the past few years, but you must still be prepared for the occasional interruption of service.

The Trader’s Desktop

How easy is it to place and monitor your orders? View your charts and technical indicators? Most retail dealers do a great job of this but layout and organization vary. Those factors can be important depending on how you trade, especially if you trade frequently. Can that information be easily backed up or saved? Almost all broker-dealers and integrated platform vendors have this process down pat; much of your decision is a matter of personal style. (See Figure 7.2.)














FIGURE 7.2 Trading Platform Source: www.ninjatrader.com

Trading Tools

Traders are fascinated by charts, numbers, and indicators, and most brokerdealers are happy to accommodate them. Downloading a demo account will give you a good idea of the toolset available. In a few instances the demo does not offer the entire palette so you need a mini-account to see and test drive everything. Not sure? Ask the broker.

Most platforms offer integrated charting and technical studies capability. For those platforms that do not, you need to access a third-party vendor. We recommend an integrated platform for the novice.

Unless you have a unique trading tool, the days of needing to access a broker’s platform for order entry and a separate platform for market analysis are coming to an end. Today’s platforms do all the integration for you.

Most of the popular indicators are available—moving averages, stochastics, relative strength, oscillators, Bollinger bands, and many others. (See Figure 7.1).





















FIGURE 7.1 Technical Indicators Source: www.ninjatrader.com

Bar charts with a variety of settings for time frames and units are offered. The new MetaTrader-5 platform has 21 preset time frames and if that is not sufficient, you can custom configure more—as many as you like with NinjaTrader. Be sure the dealer has what you need; integrated charting capability is a must, especially for the new trader. Swing charts, candlesticks, and point and figure charts are also available.

Most platforms offer a palette by which you can customize the look and feel of charts. The size, scale, and coloring of charts can make a big difference to your interpretation of them. As an experiment, take a single pair with the same time scale and unit and make a half-dozen or so charts with different parameters. My advice to the beginner is to keep all charts in the same size and color scheme. Trading is an extremely delicate process, and even small differences matter.

It is best if you have some idea of what you want before beginning your due diligence. Some primary considerations: colors, sizing/scaling, time frames, vertical and horizontal scrolling, printing. As an old-time trader, the author still likes to print charts for analysis.

TIP: Do not let the plethora of indicators and charts overwhelm you. I recommend that you initially work with bar charts, moving averages, and an oscillator. Learn them one at a time. Once comfortable, pick an Indicator of the Week to add to your platform and study.

Platform Capabilities

Perhaps most critical to the trader is a broker-dealer’s platform capabilities. Due diligence, vis-à-vis your needs, will take some time and effort on your part. Here is what to look for in several categories. Learn everything possible before making a trade. Demo accounts are ideal for this purpose. Many brokers now offer one of several standard trading platforms from independent vendors. The three most popular platforms are NinjaTrader, MetaTrader, and eSignal. If you find a platform you like you will want to endeavor to trade only with brokers offering that platform. The trend today is clearly toward everything under one roof—quotes, charts, indicators, order-entry, and programming.

A Guide to FOREX Brokers

While regulation has indeed increased, it remains much less robust than it is in either the securities or commodity futures industries. FOREX has no central clearinghouse, making it a substantially different space from commodity futures or listed securities. Prospective traders need to understand the differences and ramifications when selecting a FOREX broker.

At last count I found more than 100 FOREX broker-dealers with online retail platforms. Although some of them are Introducing Brokers (IBs) for other companies, there remain many full Futures Clearing Merchants (FCM) brokers from which to choose.

One big improvement since the last edition: Several third-party trading platforms with a full complement of features are now offered by multiple brokers. Previously, moving brokers meant learning a new platform. But now, if you find a trading platform you like, you can have a wide selection of brokers to choose for your trading activities. The most popular platforms are discussed in Chapter 14, “Retail FX Platforms.”