Broker For Algorithmic Trading
What Is A Broker And Why You Need One
To understand what is a broker and why we, as traders, need to use one, we must first clarify the concepts of trader and broker.
A trader is an individual that trades in the financial markets, but individuals cannot trade directly in the financial markets. To access the markets individuals needs to engage with a finacial intermediary, a broker.
A broker is an authorized and regulated financial entity that sends the trader’s orders to liquidity providers, thus providing the trader with access to the financial markets. In addition, the broker is also responsible for the security of the funds that belong to the trader.
Therefore, to access the financial markets traders need to choose a broker, and as we will see below, this is not a choice that one should take lightly.
How To Choose The Right Broker For MT5 Or Any Platform
One of the common questions that every trader makes themself at some point in their professional career is in what broker he or she should trust their trading and capital. There are so many brokers and with so many different offerings that finding the right one can become a real odyssey. And don’t be wrong, the choice is not trivial: choose a bad broker and you will be charged abusive fees for your trades or, what is even worse, you will compete directly against the broker.
If the broker has a dealing desk, then the broker is a market maker and it will take the other side of your trades. For you this means that when you win, the broker loses, and vice versa. This conflict of interest is bad, but it can get worst. If the market maker also happens to be located on a remote island of a country with a lax regulation, we now have all the ingredients to have a broker that does not play fairly. In other words, you will lose money regardless of your trading skill.
And if you think it cannot get worse than that, think again, because there are also “brokers” that will just take your money and run away. These “brokers” are usually promoted by young fake successful traders on social networks and win credibility showing fake MT4 reports manufactured by the broker (not sure if also for MT5).
So, you must be extremely careful when choosing a broker to trust your money, but have no worries, here I will share with you which is the best broker for algorithmic trading with MT5. But first, let’s have a look at what are the key features that we need to look for when vetting a broker.
No Dealing Desk
NDD brokers do not pass your orders through a dealing desk, instead they send your orders directly to the market via liquidity providers.
Regulations
Supervision by a reputable financial authority like the FCA or ASIC is essential to give us the confidence that the broker will not “cheat”.
Reputation and Presence
Long-established with international presence brokers are more likely to be there because they are doing things right.
Fast Execution
Low latency and fast execution are important, specially for short-term styles. The fastest your trade gets to the market, the better price you will get.
Servers Location
Brokers send your orders to their liquidity providers, so the closer they are, the faster your orders will get to the market.
Market Offering
This is personal preference of each trader, just make sure the broker facilitates access to the market you are interested to trade.
Trading Fees
Really important. Short-term traders need to look for low spreads and comissions. Long-term for low overnight fees and swaps.
Security
Both in terms of information security of their systems and financial security measures for their traders.
Withdrawals
Simple call, avoid brokers that charge non-sense commissions or put barriers to withdraw your money.
Customer Service
Customer service is important. Look for brokers that offer customer service in your language and with prompt response time and good client satisfaction.
Best MT5 Broker For Algorithmic Trading
During my career I vetted a good number of brokers and there are quite a few that are good and meet all the criteria explained above.
However, there is only one, as of today and as far as I know, that stands out, and it is not because of its brokerage conditions, which are competitive and amongst the best, but because of the access they provide to third-party capital, Darwinex.
Darwinex is the broker I currently have most of my trading with and it is the best broker for both beginners and talented-seasoned traders.
In this article you will find out why, but first, let’s start by “What Is Darwinex”, because they are not just a broker, they are more than that.
What Is Darwinex
Darwinex is a technology company whose core business is to provide an asset management infrastructure for traders and investors. Traders can create an investible asset from their strategies and expose it to investor capital.
For that purpose, Darwinex also offers a brokerage service thus providing traders with the full package: access to financial markets under good trading conditions and access to manage third-party capital through Darwinex licenses.
Let’s see what Darwinex offers you as a trader in terms of their brokerage and asset management technology.
Best Brokerage Conditions For Trading
Overall, Darwinex brokerage conditions are competitive and very similar to what nowadays has become standard amongst regulated reliable brokers. However, if you are a talented trader, Darwinex stands out over the competition.
In order to create an index out of your trading strategy, Darwinex analyzes it and calculates its D-Score, which is a proprietary metric that assesses the capability of the index to make profits in the future.
Darwinex rewards talent and if you are a talented trader, your trading commissions will be discounted by up to 40%, depending on the D-Score rating achieved.
The discount on fees is amazing, but talented traders are not the only ones to benefit from trading in Darwinex, beginners and developing traders can benefit too. Here are the key details from their brokerage service:
Assets
Tradeable markets include Forex and CFDs of indices, commodities, US stocks and ETFs.
Platforms
Metatrader 4 and Metatrader 5 platforms with hedging position accounting system.
Ultra-fast Execution
Servers are co-located with those of their liquidity providers to minimize transmission latency.
High Liquidity
Liquidity aggregation to offer fast execution and liquidity during high-volatility conditions.
Low Spreads
Interbank spreads that range from 0.0 pips.
Talent-linked Pricing
Strategies with a D-Score from 55 to 60 get a 20% discount in fees, those higher than 60, a 40%.
Regulations
Regulations by the UK’s FCA and the Spanish CNMV.
Detailed Analytics
High valuable information from your strategies like VaR, loss aversion, correlation and more.
These are the points that are more specific to Darwinex and worth highlighting. However, it is needless to say that they also meet the other criteria exposed above to choose a good broker: good presence and reputation, security, customer support and easiness to manage your funds.
All of these points makes of Darwinex the best broker for retail traders, but that’s not all.
Unique Technology To Access Third-Party Capital
Traders that are interested in managing third-party capital can leverage Darwinex infrastructure to create an investible index of their strategy, which is called DARWIN, and expose it to investors.
Darwinex technology features a trader-investor exchange where all DARWINs are listed and ranked by several metrics, the most important, the D-Score, which as we said assesses the capability of the index to make profits in the future, but there are others also important like the experience, risk stability, loss aversion, correlation or divergence.
DARWINs are Adjusted to 6.5 VaR
A DARWIN is an investible asset that replicates the trader’s underlying strategy but with one important change. Instead of replicating the strategy with the trader’s risk, DARWINs trade under the Darwinex risk engine, which is an algorithm that adjusts the DARWIN’s risk to 6.5 VaR.
Trading under Darwinex risk engine is necessary to be able to compare DARWINs in equal terms and to protect investors. Overleveraged strategies will not lead the rankings because the DARWIN will be risk-adjusted; strategies that achieve the highest risk-to-return ratio will.
Win DarwinIA to Access Darwinex Seed Capital
In addition to investor capital, your DARWIN will also compete in DarwinIA, which is a monthly contest where Darwinex allocates up to €10 M notional capital to the best DARWINs: you will be paid 15% of the profits you make to the allocated capital as concept of performance fee.
There are two levels to DarwinIA, SILVER and GOLD.
DarwinIA SILVER
Your DARWIN starts participating in DarwinIA SILVER from the very first day it is created.
Depending on your Return/Drawdown and your final position in the ranking, you can receive allocations that range from €25.000 to €350.000.
These allocations last for 3 months and are cumulative, which means that if next month you win DarwinIA again, that month allocation will add up.
DarwinIA GOLD
When your DARWIN has proven to be sufficiently robust in the medium-long term, it will move to the next stage and start competing in DarwinIA GOLD, where it can receive up to €500.000 monthly allocations depending on last month’s performance.
These allocations last for 6 months and are also cumulative, meaning you could receive up to 3M € if you manage to win it every month.
Proprietary Label
Another way to approach capital mangement is through your own brand. For that purpose, Darwinex puts their techonology at your disposal to enable you to create your own brand to approach your investors with your own fees.
Main Benefits for Capital Management
To sum up, when you create a DARWIN you will have an investible asset and enjoy the following benefits:
Access to third-party capital from Darwinex investors
Participation in DarwinIA SILVER and GOLD
Get paid 15% of performance fee from the revenue your DARWIN makes from investor or DarwinIA capital allocations
Protection of your intellectual property, not disclosing your trades to investors or other traders
Is Darwinex Copy-trading or Social Trading?
Plain and simple, Darwinex is not copy trading. In Darwinex your trading account is a signal provider to create an investible index, the DARWIN. The DARWIN replicates all trading made by the signal provider account but hides all these trades to other traders or investors, in addition to adjusting risk to 6.5 VaR.
In contrast with copy-trading services, traders or investors cannot copy the trades of the underlying strategy, thus granting full protection to the trader’s intellectual property.
Darwinex Wants You To Win
The asset management infrastructure is amazing, and the strategy detailed analytics do not fall short either. However, there is another point that completely differentiates Darwinex from other brokers and that definitely made them win my trust, brokenomics.
Good reliable brokers make money from your commissions and spreads, so they only care about how much volume you trade. That’s how business goes and that is true for all brokers (not talking about scams and market makers that also make money from your capital).
Darwinex Busines Model Is Different
Sure, they also charge commissions, but the core of their earnings come from the fees they charge to investors (1.2% of amount invested as maintenance fee and 20% from performance fees, from which Darwinex retains 5% and pays 15% to the DARWIN’s owner).
This means that to have success, Darwinex needs 2 things:
- Successful traders
- Investors
Without one or the other, Darwinex business model fails. So, they want their traders to succeed, they want you to succeed, and that is something that completely blew my mind.
Traders can list DARWINS to attract investor capital and will receive 15% of the revenue generated for the investor as concept of performance fee.
That, by the way, is the reason why only 60% of traders lose money when trading CFDs with them, according to their risk disclosure warning. This percentage is significantly lower than those reported by other brokers, which usually ranges from 75 to 85% of traders that lose money.
In other words, Darwinex is a community of successful traders: there is no better environment to surround yourself with.
Darwinex Types of Accounts
In Darwinex you trade with an OTC account that ahs full access to Darwinex infrastructure, but there are other services or accounts that also join the benefits of Darwinex technology and you might want to consider.
In short, they have the following accounts:
- Darwinex OTC
- Interactive Brokers
- Darwinex Zero
Darwinex OTC
These are Darwinex brokerage accounts that allow you to trade forex, stocks, ETFs, commodities and indices CFDs and provide full access to Darwinex infrastructure. This means that these accounts allow you to access detailed analytics from your strategies, list DARWINs and access third party capital, including DarwinIA.
They run in MT4 and MT5 under the hedging position accounting systems have live and demo versions and are the ones we use by default in our courses.
Interactive Brokers
You can trade with an Interactive Brokers account and benefit from Darwinex infrastructure to attract investor capital. You will trade under IB trading conditions but you will be able to access detailed analytics and third party capital as if you were trading with a Darwinex OTC account.
While an IBKR account allows you to trade a large selection of assets, only assets supported by Darwinex are entitled to list a DARWIN. These include IBKR futures, USA stocks and ETFs.
Darwinex Zero
If you open a Darwinex Zero account you will trade under a real live account, which mean real market conditions, but with virtual funds. This allows you to start building a track record without risking your own capital (other than a monthly subscription) and it entitles you to participate in DarwinIA and access investor capital.
In a D-Zero account you can trade a wider variety of assets than in a Darwinex OTC account and it is open to traders from more countries, like the US, Canada, or Japan.
Any trader can open a D-Zero account, but I personally find it ideal for: (i) traders that do not have full confidence in their trading yet, as they might want to limit their risk to the monthly subscription fee and not to their capital, or (ii) traders that do not have their own capital.
Darwinex Zero should not be confused with a prop firm funded account, follow this link to learn the full details about the service.
Join The Darwinex Movement
Darwinex is without any doubt the best choice for talented experienced traders, since they can benefit from accessing investor capital and lower commissions. On the other hand, since Darwinex offers excellent broker conditions and their business model needs talented traders to work, it is also our preferred choice for beginner traders.
Want to check them out?
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 60% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Press here to find out more about them and open an account.
Registering with that link will grant us a small percentage of the commissions that Darwinex charges you when trading under a live account, so your commissions will not increase, trading costs for you will remain the same.
And what you get from this? Well, not much for now. As I told you, Darwinex does not make money from your trading volume or your losing trades, so they don’t give money away for free for opening an account with them as many other brokers do.
However, in the future we might release privileged content and bonuses restricted to active investors and/or affiliated traders, so you may want to register with our link to have access to them when they are available.