Whilst browsing around the Boston Technologies website idly looking for a technical support number to call I noticed that they were offering a "free, very promising, MetaTrader 4 Expert Advisor".
I know that there's no such thing as a free lunch, but in all the circumstances I couldn't resist the temptation to download it and do some backtesting. The first thing I noticed was that unlike us here at the Trading Gurus they don't supply the source code for their EA, only the executable version. That means you have to take their word for it when they explain that:
This Expert Advisor is using the cross of 2 moving averages: A fast moving average and a slow moving average. When the moving averages intersect for the first time, a trade is opened. Then when the moving averages cross again the initial trade is closed and a new opposite trade is opened.
Their backtest results did indeed look promising, so I copied their BostonTechMA.ex4 file into the experts folder of one of my MetaTrader demo accounts. Firstly I tried to get backtest results as close as I could to theirs, by using the same input settings and timeframe. This is the equity curve I ended up with:
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I still haven't heard back from FXCM and/or Boston Technologies about the problems I'd been having getting one of our more complicated expert advisors working on their MetaTrader platform. I figured I'd try a very basic one instead. I fired up our second example robot, which enters the market at random with a fixed stop loss and profit target, and uses a Martingale style money management system. Or maybe that should be mismanagement? I digress!
I was surprised to discover that a very basic EA that works perfectly satisfactorily at other MT4 brokers totally failed to function! Here's an extract from the logs:
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The FXCM Limited MetaTrader banner promises:
No Dealing Desk Execution
Hedging Capabilities through FSA Regulated Entity
Spreads as Low as 1 Pip EUR/USD
Accept ALL MT4 Expert Advisors
The Trading Gurus are based in South West England, so we're not too unhappy about the idea of opening a live account with an FSA regulated forex broker based in the UK. Those bullet points sound exactly like the sort of brokerage account we've been waiting for, so I opened a demo account with FXCM UK, and fired up one of our Expert Advisors.
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Gain Capital are another foreign exchange broker who are now promoting their MetaTrader platform through an FSA regulated UK company. Gain have long used the FOREX.com brand in the United States. According to the press releases section of their website:
LONDON and NEW YORK, 4 May, 2009 – GAIN Capital Holdings Inc., pioneer of online foreign exchange (forex) trading, today launched FOREX.com, its market-leading online currency trading service, in the UK and Europe.
However a quick search of the FSA website reveals that the rather awkwardly named "Gain Capital – Forex.Com UK Limited" has in fact been FSA regulated since 2001.
If you visit the MetaTrader 4 section of the FOREX.com website you will now discover that:
FOREX.com is pleased to offer you access to the MetaTrader 4 trading platform through our UK entity.
Do you suppose that all this frantic marketing activity might in some way be connected with the new NFA ban on hedging, which comes into force later today?
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As zero hour approaches FXCM are taking a different approach to the NFA ban on hedging. If you go to their website today, and wait for a while the banner will change to promote their new UK based website.
The alternative banner proudly proclaims that FXCM now offer:
MetaTrader 4 – Hedging Capabilities through FSA Regulated Entity.
The FSA refers to the UK based Financial Services Authority, and the "FSA Regulated Entity" is Forex Capital Markets Ltd. The FSA website confirms that this company has been authorised in the UK since 2003.
If you search the US version of the FXCM website for the word "hedging" you will discover that a number of forms are now available to allow FXCM customers to transfer their money to new accounts offshore in the UK. If you are contemplating doing this I suggest you read the relevant terms of business very carefully. Here are a couple of clauses that caught my eye on a quick read through:
17.8 – We shall not be obliged to comply with the FSA rules on best execution.
19.2(a) – Your client money may therefore be held outside the United Kingdom and in such circumstances the legal and regulatory regime applying…. will be different from that of the United Kingdom.
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In an announcement on their website forex broker FXDD say that:
In our effort to provide the best solution for your trading regarding the NFA’s new rule on hedging, please know that we have been in contact with the NFA and have offered several solutions which we believe will accommodate almost all types of trading strategies and comply with the NFA rules. Our discussions with the NFA are ongoing and we will keep you advised. In the mean time, know that FXDD is making no immediate changes to any platforms and that you will be fully advised prior to any proposed changes.
In the Frequently Asked Questions section on their website FXDD still say that:
FXDD does offer hedging allowing customers to open short and long trades on the same pair simultaneously in our MetaTrader platforms.
This seems to imply that when the markets open again after the weekend FXDD will still allow hedging in their MetaTrader accounts. It also seems to imply that after the weekend FXDD will be violating NFA rule 2-43(b). This will be an interesting situation to keep an eye on!
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As we suggested it seems as though some forex brokers have complained to the NFA that they cannot implement the programming changes necessary in time for the original deadline of May 15th for the now notorious compliance rule 2-43(b). In their new notice I-09-12 the NFA say that:
NFA has received several requests to extend the effective date due to the complexity of the programming changes required to comply with the FIFO requirement. After considering those requests, NFA has decided to extend the effective date for the FIFO part of the rule until July 31, 2009. Therefore, FDMs may not carry offsetting positions in the same account if either of those positions was established after May 15, 2009, but FDMs may offset positions on some basis other than FIFO through July 31, 2009.
Although implementation of the first-in, first-out provisions has been delayed until the end of July this will be of no comfort to MetaTrader users who currently use more than one expert advisor per currency pair in a single account. Brokers will still have to offset positions entered on May 17th or later, though they now are free to use any method they choose until trading opens on August 2nd. If one EA is already long, and a different EA decides to go short on or after May 17th, the broker will be obliged to offset the two positions and both EAs will get awfully confused.
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Somewhat later than anticipated after my recent trials and tribulations, here are our Forex MegaDroid backtest results for April. This test was performed using version 1.11 of the robot, since the original version now refuses to run backtests. This test used the default input settings, with the following exceptions, mainly required because the test used Alpari UK as the MetaTrader broker, and they support micro-lots and 5 decimal places.
GmtOffset = +1; Slippage = 30; LotSize = 0.01
Note that we're still using MetaTrader 4.00 build 220, and also that the initial deposit was set to $500, which is sufficient to give the default money management system (RiskSize = 0.1) a bit of room for manoeuvre.
Total profit for the 5 weeks of the test was $73.36. Remember that the MegaDroid uses "new artificial intelligence technology called Reverse Correlated Time And Price Analysis" and currently costs $97.00?
Compare that with example 2 from the Trading Gurus course on how to build your own forex trading system. That uses essentially random entries, costs nothing whatsoever, and made a profit (in backtests only, NOT in a live trading account!) of $242.52 over exactly the same period?
Which do you suppose is the better trading system?
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I don't know about you, but when I use a forex trading robot I expect to be able to upload it to my server, set it running, then wait for it to start trading. Beyond that, I expect it to keep on trading whatever accidents might befall it, including recovering gracefully after losing its connection to the internet for a while, or restarting after an unanticipated server reboot. It seems that in the case of Forex MegaDroid this was far too much to expect.
I figured the beginning of May would be a good time to review the performance of the MegaDroid, with a month's results to pore over. It only trades EUR/USD, so there wouldn't be a whole lot of poring involved. First of all I tried a backtest covering the five weeks starting on March 30th (the day Forex MegaDroid launched), using the same parameters I had used for my initial tests. Nothing happened! No trades, no graphs, nothing whatsoever! Then I checked out my test virtual private server. The MegaDroid was sat there, it's little face smiling happily back at me, assuring me that it was waiting to trade. However the logs told me a different story – no trades for days!
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Yesterday I received another email from Forex MegaDroid support, containing what Albert and John say is "some exciting news… Version 1.10 of Forex MegaDroid is ready for release". Actually it seems it's not quite ready yet, because "we are simply finishing the updates to the manual before making it available."
In a section about "why 95% of traders lose money" their email also contains the following observation:
A high number of average (or worse) probability trades means that an account must be traded with a very low risk level i.e. about 1%, so mediocre returns are likely at best. Of course, there will be periods where good returns can be made through the volume of trades but this, without exception, eventually results in the total devastation of trading accounts – anyone who has traded a Martengale-style robot can confirm this… awesome results until the market makes a large move in one direction (as EUR/USD did last week – several times!) then the account balance drops to zero in the blink of an eye.
Call me pedantic if you like, but I feel that I must point out that the correct spelling is in fact Martingale, not Martengale. A quick look at Wikipedia will confirm that, although over there they talk about a "betting system" rather than a "trading system". Pedantry aside, it sounds as though Albert and John do not recommend Martingale-style position sizing.
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