Online platforms have made it easier than ever to trade FX and other asset classes, but not all platforms are created equally. So, what should retail traders be looking for?
In addition to obvious factors such as reliability, speed and ease of use, Adam Hickerson, a Director at Charles Schwab Future & Forex suggests that platforms should have robust charting capabilities and customizable watch lists to allow clients to enter multiple order types, including conditional orders.
“Quality and speed of order execution are crucial,” says Gavin Bambury, the CEO of Oanda. “In fast-moving markets such as FX the price may move as you place your order and the likelihood of price movement increases with execution time, especially during periods of high volatility.”
Retail traders typically can’t spend all day in front of a screen looking for well-timed market entries, determining ideal spreads, and manually managing exits or risk parameters. In this context, control means having access to a platform with the right order types and tools that minimize manual input.
Traders should prioritize deep liquidity to ensure they have the opportunity to have their executions as close to the actual deal being offered suggests Naeem Aslam, the Chief Market Analyst at AvaTrade.
“Without deep liquidity, the chances of slippage are quite high and that can work against the trader,” he says. “Successful retail FX trading platforms will also offer customers some form of risk analysis – which can come in the form of telling traders what the risks associated with a particular trade are – and the necessary tools to carry out detailed technical analysis.”
Retail traders have varying levels of technical ability, so platforms need to have flexible trading solutions and resources for all experience levels.
“Retail traders also need to trust that the platform will be available even in times of extreme volatility and that the provider is backed by strong, legitimate financial institutions,” says Paul Gyles, the Chief Marketing Officer at FXCM.
Pete Mulmat, the CEO at IG US, refers to a recent trend of demand for education and news-based content among the FX trading community similar to that seen in the equities and derivatives worlds.
“Given that access to market data has become an industry-standard in the retail foreign exchange dealer space, the overall experience for traders either new to the market or switching from a competitor has become a top differentiator,” he adds. “But, it is a balancing act to provide a platform that is both innovative in terms of features and standard in its execution process.”
Hickerson agrees, noting that retail traders tend to prioritize the user interface and trading platform over everything else since this is where they spend the most time, and it is their lifeline into the FX marketplace.
“Cost per trade is not the most important factor for many retail traders,” he says. “It definitely plays a part, but we have seen clients place more importance on the ability to execute their strategy and utilize a platform that is customizable to them.”
Bambury takes up this point, explaining that fair and accurate pricing is only valuable if traders also feel confident that their broker is fully regulated, that the platform is reliable, and that their trades are carried out in accordance with best execution standards.
“The emphasis placed on various features and tools can also vary depending on the type of trader,” he adds. “Fundamental traders following broader market themes may focus more on data releases and news events, whereas probability or technical analysis traders might spend more time on tools and charting functionality examining price action, indicators and candlestick patterns.”
While market sentiment is an important component of any well-rounded trading strategy, ‘news traders' who try to capitalize on the noise leading up to a news release as well as the market's reaction to the news prioritize receiving updates on important economic announcements and events directly in their platform.
For technical traders who trade price action rather than news, chart functionality will take precedence over breaking news integrations.
“The ability to aggregate information and leverage insight is vital,” says Bambury. “Research we carried out in November 2022 exploring the attitudes and habits of more than 2000 non-professional traders in the US revealed how social media is now the second most popular source of trading insights when trading crypto, but it still is only one of many sources of insight used by FX traders.”
Pre-trade analytical tools are just as important as the trading platform itself according to Adam Dance, the Vice President at FOREX.com and City Index, who notes that copy trading tends to appeal to newer traders “whereas everyone should be interested in cost per trade to maximize their trading returns.”
Mulmat agrees, stating that although interest in following experienced traders has grown over the years, competitive pricing and thus low barrier to entry is an important consideration to have before moving onto alternative forms of trade idea generation such as follow trading.
“Online trading markets have reduced in size since the end of the pandemic, with large numbers of these ‘newbies’ falling dormant according to Investment Trends’ recent leverage trading industry reports,” says Bambury, who suggests that experienced traders are more likely to want to develop their own strategies and seek ways to trade smarter for themselves, whether through APIs or advanced analytical and risk management tools.
“More knowledge of the market also means experienced traders do tend to be price conscious, but price alone isn’t the sole reason given for switching platform,” he adds.
According to Alex Kuptsikevich, the Senior Market Analyst at FxPro, copy trading services have lost their initial appeal. “We went down this road when we offered a similar service a decade ago,” he says. “When copying FX trades, traders face the limitations of accurately copying trade volumes and timings. These minor differences add up not in favor of the investor, creating frustration.”
Gyles refers to growing interest in algo trading with new tools enabling traders with no background in coding or programming to enter their strategy in simple terms and get their logic converted. “This broadens the scope for traders who have good ideas/thesis and want to test and automate them,” he concludes.
