Does it Pay You to Trade Forex with MB Trading?

Yesterday I spoke at some length with MB Trading's Chris Mercer.  Chris is in charge of various aspects of their business, including their MetaTrader 4 project. We started off by discussing MB Trading's recently announced "Get Paid for Limit Orders" initiative, then went on to talk about the intricacies of electronic communication networks. Finally I asked Chris about where the MetaTrader platform fits into all of this, both now and in the future.

The first thing to clear up was obviously exactly which orders now receive MBT's $1.95 per 100,000 credit, and how that affects the bottom line for both MB Trading and their retail customers. Chris assured me that every "non-marketable" limit order receives the credit, whether it's been resting on MBT's order book for a few milliseconds or a few weeks. Basically that means that any limit order used to exit at a profit, or to enter following a retracement, will receive the credit. However a conventional stop-limit order will not, since the limit part of the order usually is beyond the stop price in either direction (short or long), thus generating a marketable order after the stop price has been hit. Secondly that $1.95 really is a credit. If your limit order adds liquidity to MBT's forex ECN you don't end up paying a "reduced commission" of $1 net, after taking the new credit off the standard fee. You really do get paid that $1.95 in full.

The next obvious question to ask was what the effect of paying all these credits might have on MB Trading's own bottom line. Chris told me they expected to receive "a smaller slice of a much bigger pie.” When I then asked about quantifying the size of those slices Chris told me that MBT expected the percentage of retail limit orders to increase as people take advantage of the new incentive. That covered the "smaller slice,” but what about the "bigger pie?” Chris assured me that the publicity surrounding "getting paid by a forex broker" had led to a lot of interest from retail traders, and that even after less than a week there was already a significant increase in "customer to customer executions" on MB Trading's ECN.

Next I asked Chris about other potential benefits to retail forex traders beyond those headline credits. This took us into the murky details of exactly how an ECN operates. Those customer to customer executions happen very quickly. For the (currently much larger) proportion of orders that can't be matched internally MBT's smart order routing system tries to match a client order with one of their big liquidity providers, typically a bank. This process by definition takes longer. In some cases this literally involves transmitting information to the other side of the planet and back. If the bank that receives the order has already been hit in the intervening milliseconds, then that order will eventually be rejected by the bank in question and must be returned and rerouted until a match is found. At the end of the day more and more customer to customer executions will result in increased liquidity, reduced execution times and tighter spreads for all concerned. Everyone will be happy except possibly those banks, and MBT's remaining introducing brokers!

Finally we moved on to discuss automated trading in more detail, including MBT's assorted application programming interfaces (APIs) and good old MetaTrader.  Chris told me that whilst MBT had their own API long before they introduced MT4, they felt it was worth all the hassle involved in bridging MetaTrader 4 to their ECN because there were so many MT4 scripts and expert advisors in existence that people wanted to use to help automate their trading. However since MetaQuotes had failed to make MetaTrader 5 compatible with that huge installed base, and because a lot of effort was required to translate from MQL4 to MQL5, MBT were in no rush to repeat the process with MT5.  In fact this week they had received a "huge leap" in registrations to use their own APIs. Chris felt that "in a 2 to 3 month window" a significant number of automated trading systems will have been ported to one of those APIs. "We know we will see much higher levels of ECN executions!"

I told Chris that one of those new API registrations was from us here at the Trading Gurus, and we'll keep you posted on our experiences with getting paid to trade by a forex broker, and whether automated trading via something other than MetaTrader 4 really does deliver a significantly better quality of execution. Surely it can't possibly be any worse!

If you'd like to learn more about some of the trials and tribulations involved in bridging MetaTrader 4 to an electronic communication network, here's an enlightening video on that subject, courtesy of MB Trading: