Forex Broker Ratings

The Forex Rating Formula 4.1Introducing the Forex Rating Formula 4.1

Mission: "Maximum Safety of Funds, Minimum Transaction Cost, and Reliable Trading Technology”

 

A Few Words about Online Ratings

In our modern online world, the process of evaluating online providers via reading reviews is very common. Internet users read the ratings made by other users (user ratings/reviews). Unfortunately based on statistics more than half (50%) of these user ratings are fake. This is happening as online corporations have a huge commercial incentive to hire outsiders in order to produce favorable reviews for them and unfavorable reviews for all of their competitors. Evidence comes from the fact that most of these user reviews/ratings receive extreme values (i.e. 10/10 or 0/10). The Rating Formula comes as an alternative solution for this problem. The Rating Formula provides a stable, objective and a common environment in order to rate all major Financial Companies with precision.

The Rating Formula is based on a 4-factor mathematical model including the 4 major aspects of Trading. The Rating Formula was introduced by TradingCenter.org and it is a concept of George M. Protonotarios. This is the version v4.1 of the Rating Formula which is developed to rate exclusively Forex Brokers.

 

The Four (4) Factors of the Rating Formula 4.1

There are four (4) factors incorporated in the rating formula. Each of these four factors includes several sub-factors as it is explained and analyzed later. The grand total of all factors combined equals 100% rating.

Here are the four factors and their weight:

(A) Safety of Funds (Weight 26%)

(B) Cost of Trading (Weight 28%)

(C) Variety of Trading Options (Weight 26%)

(D) Technological Efficiency (Weight 20%)

 

 

Rating Formula 4.1 Results (Online Forex Brokers)

Here are the results after rating several Forex Brokers using the Rating Formula 4.1. The first table presents the overall rating and the Rating-Per-Factor for each Forex Broker. The second table presents rating results based on three Trading Experience Levels (Beginners, Advanced and Professional Brokers.

Table-1: Overall Rating and Rating-Per-Factor

 

 

TRADING ASPECTS

 Full Rating

Overall Rating

Funds Safety

Competition

Trading Options

Technology

HOTFOREX

80.28%

63.58%

67.86%

97.12%

97.50%

» HotForex Rating

FXCC

80.24%

81.68%

85.71%

76.92%

75.00%

» FXCC Rating

IRONFX

76.90%

81.35%

62.50%

87.50%

77.50%

» IronFx Rating

DUKASCOPY EUROPE

77.75%

81.71%

83.93%

70.19%

73.75%

» Dukascopy Europe Rating

XM

77.26%

74.08%

58.93%

100.00%

77.50%

» XM Rating

LONDON CAPITAL GROUP

75.70%

73.85%

87.50%

71.15%

67.50%

» London Capital Group Rating

HYMARKETS

75.36%

89.85%

50.00%

92.31%

70.00%

» HY Markets Rating

ORBEX

74.37%

86.04%

76.79%

61.54%

72.50%

» Orbex Rating

ETX CAPITAL

72.20%

89.23%

46.43%

92.31%

60.00%

» ETXCapital Rating

AAAFX

71.42%

55.47%

66.07%

80.77%

87.50%

» AAAFX Rating

AVATRADE

68.66%

83.31%

42.86%

88.46%

60.00%

» AvaTrade Rating

FBS

63.03%

43.38%

66.07%

74.04%

70.00%

» FBS Forex Rating

INSTAFOREX

58.72%

39.31%

33.93%

100.00%

65.00%

» InstaForex Rating

ETORO

54.30%

63.65%

41.07%

58.65%

55.00%

» eToro Rating

In the following table, Forex Brokers are rated according to Different Levels of Trading Experience. 

Table-2: Rating Per Different Level of Trading Experience

 

 

TRADING EXPERIENCE

Full Rating

Beginners

Advanced

Pros

Overall Rating

HOTFOREX

83.12%

84.83%

82.77%

80.28%

» HotForex Rating

FXCC

82.74%

80.18%

79.58%

80.24%

» FXCC Rating

IRONFX

76.47%

73.19%

67.97%

76.90%

» IronFx Rating

DUKASCOPY EUROPE

79.04%

77.69%

76.90%

77.75%

» Dukascopy Europe Rating

XM

74.60%

73.28%

68.04%

77.26%

» XM Rating

LONDON CAPITAL GROUP

75.78%

75.35%

77.97%

75.70%

» London Capital Group Rating

HYMARKETS

75.11%

70.47%

65.73%

75.36%

» HY Markets Rating

ORBEX

76.28%

71.63%

69.54%

74.37%

» Orbex Rating

ETX CAPITAL

76.77%

65.92%

56.46%

72.20%

» ETXCapital Rating

AAAFX

67.58%

74.36%

76.22%

71.42%

» AAAFX Rating

AVATRADE

70.29%

59.74%

49.15%

68.66%

» AvaTrade Rating

FBS

67.52%

65.21%

60.78%

63.03%

» FBS Forex Rating

INSTAFOREX

48.82%

52.86%

50.93%

58.72%

» InstaForex Rating

ETORO

54.09%

48.88%

42.91%

54.30%

» eToro Rating


 

THE 4-FACTOR RATING MODEL EXPLAINED

Here is the full analysis of each and every of the four (4) rating factors and of all of their rating sub-factors.

 

FACTOR-A: Safety of Funds, Weight 26%

Most Financial Entities worldwide tend to accept more risk than they can really afford to handle. This is happening as the Management Fees and Management Bonuses (stock options etc.) are based on the Marginal Potential Profit and not on the Marginal Incorporated Risk. Historically speaking, financial companies tend to accept high levels of risk and to be exposed to a high likelihood of total collapsing. Evidence comes from the financial crisis of 2007-2008, originally in the US and after in the rest of the world. Ensuring the safety of your funds when trading online is extremely important. The Factor-A aims to evaluate exactly that. The Rating Factor-A incorporates several sub-factors that are designed to evaluate the ability of a brokerage company to protect and to ensure its client funds. For example, the Formula rates the level of the company’s regulation, the country of the company’s headquarters base and the ability of the company to offer segregated client bank accounts. The maximum weight of Factor-A is 26.0%. Here are all the sub-factors and their weight on the Factor-A of the Rating Formula 4.1.

A.  FUNDS SAFETY

MAX WEIGHT

26.0%

A.1  Regulation

FSC (BVI) = 1.0% rating | CYSEC (Cyprus) = 3.0% rating | FFMS (RU) = 3.0% rating | RAFMM (RU) = 3.0% rating | CBI (IR) = 4.0% rating | ASIC (AU) = 4.0% rating | FSC (NZ) = 4.0% rating | FSA (UK) = 6.0% rating | BAFIN (GE) = 6.0% rating | NFA (US) = 6.0% rating | CFTC (US) = 6.0% rating | FINMA (SW) = 8.0% | and MiFID (EU) = +4.0% rating

12.0%

A.2  Headquarters

Offshore Countries = 0% | Cyprus and similar = 2.0% rating | Spain, Italy and similar = 3.0% rating | Australia and similar = 4.0% rating | USA, Germany, UK, Switzerland and similar = 5.0% rating

5.0%

A.3  Years of Operation

0-1 Years Operation = 0 % rating | 2-5 Years Operation = 2.0 % rating | 5-10 Years Operation = 4.0 % rating | 10+ Years Operation = 5.0 % rating

5.0%

A.4  Client Bank Account Segregation

Yes Provided =  2.0 % rating | No it isn't Provided = 0.0 % rating

2.0%

A.5  Web Ratings (Used for differentiating rating results)

EarnForex Rating = 1.0 % rating | ForexPeaceArmy Rating = 1.0 % rating

2.0%

A.6 (+)  ADJUSTMENTS 

  (+)

A.6.1 Company Size Factor

1+ Million of Active Traders = +1.0 % rating

1.0%

 

FACTOR-A EXPLANATION:

Here is an analysis on each and every sub-factor incorporated in the Factor-A.

 

A.1 Regulation, (Weight 12%)

-Calculation Method: Accumulation

Reliable regulation by a trusty government authority reduces the risk of your broker to misbehave. Regulators can impose high penalties on financial companies and even take back their license if necessary. Regulation is an important issue for all trading styles and that is how it is treated by the rating formula 4.1 (weight 12%).

A.2 Headquarters Base, (Weight 5%) 

-Calculation Method: Selection

The country of headquarters base determines in a high extend the reliability of any corporate balance sheet. The rating formula rates favorably countries applying a strict legislative framework regarding the corporate entities and their operation.

A.3 Years of Operation, (Weight 5%) 

-Calculation Method: Selection

The long existence of a corporation in an industry highlights a successful business model and a proven ability to manage business risk over time.

A.4 Segregated Client Bank Accounts, (Weight 2%) 

-Calculation Method: Selection

The existence of client bank account segregation enforces the transparency of the accounting process and adds value in terms of funds safety.

A.5 Web Ratings, (Weight 2%)

-Calculation Method: Accumulation

This subfactor is based on user ratings and it is used as an external tool of differentiating the overall rating results of the formula 4.1. The rating formula uses two popular rating websites including user ratings, the ForexPeaceArmy.com and the EarnForex.com.

A.6 Adjustments

Adjustments are made in all of the four (4) rating factors in order to highlight the special capabilities of some online brokers.

Note: The maximum weight of Factor-A remains always 26%.

A.6.1 Broker’s Size, (Weight +1%)

 -Calculation Method: Adjustment

Large companies tend to fall harder than smaller ones. Forex brokers maintaining a client base of more than 1 million traders are rated favorably by the formula 4.1.


 

FACTOR-B: Trading Cost, Weight 28%

The transaction cost when trading Forex, CFDs, Futures and other Derivatives is an extremely important aspect for every trader.

B.  TRANSACTION COST

MAX WEIGHT

28.0%

B.1  EURUSD Spread

< 0.3 pip = 8.0% rating | <0.4 pip = 7.5% rating | < 0.5 pip = 7.0% rating | <0.6 pip = 6.5% rating | <0.7 pip = 6.0% rating, | <0.8 pip = 5.5% rating | <1.0 pip = 5.0% rating | < 1.25 pip = 4.5% rating | < 1.5 pip = 4.0% rating | <1.75 pip = 3.5% rating | >2 pip = 3.0% rating | < 2.5 pip = 2.0% rating | < 2.5 pip = 1.0% rating | < 3 pip = 0.5% rating

8.0%

B.2  GBPUSD Spread

< 1.0 pip = 5.0% rating | <1.25 pip = 4.0% rating | < 1.5 pip = 3.0% rating | < 1.75 pip = 2.5% rating | < 2 pip = 2.0% rating | < 2.25 pip = 1.5% rating | < 2.5 pip = 1.0% | < 3 pip = 0.5%

5.0%

B.3  USDJPY Spread

< 1.0 pip = 4.0% rating | <1.25 pip = 3.5% rating | < 1.5 pip = 3.0% rating | <1.75 pip = 2.5% rating | < 2 pip = 2.0% rating | < 2.5 pip = 1.0% rating | < 3 pip = 0.5%

4.0%

B.4  Trading Commissions Charged

No Commissions = 7% rating | Commissions < $5 / lot = 3% rating | Commissions < $8 / lot = 1% rating | Higher Commissions = 0% rating

7.0%

B.5  Funding Commissions

No Funding Fees = 2.0 % rating | Yes = 0 % rating  | One Free Withdrawal Per Month = 0.5 % rating

2.0%

B.6  Maintenance / Inactive Fees

No Maintenance / Inactive Fees = 2.0 % rating | Yes Maintenance / Inactive Fees = 0 % rating

2.0%

B.7 (+)  ADJUSTMENTS

  (+)

B.7.1  Execution

ECN / DMA Execution = +2.0 % rating | STP Execution = +1.5 % rating | Dealing Desk Execution = +0.0% rating

2.0%

 

FACTOR-B EXPLANATION:

 

B.1 – B.2 - B.3 Spread on three Pairs: EURUSD, GPBUSD, and USDJPY (Weight 17%) 

-Calculation Method: Selection

EURUSD, GPBUSD, and USDJPY are the most popular pairs traded by almost all Forex traders. In order to make ratings more comparable, we prefer to use as inputs Fixed Spreads without Commissions instead of Variable Spreads (if and when it is possible).

Filter:

If the trading spread on EURUSD exceeds 5.0 pips then automatically the B.2 rating receives zero (0) value. This is happening because a very high spread eliminates the advantage of not charging trading commissions.

B.4 Trading Commissions Per Lot, (Weight 7%) 

-Calculation Method: Selection

Lower trading commissions are rated beneficially. The evaluation of trading commissions is taking place in the exact same account type as in the case of evaluating the trading spreads of sub-factors B.1, B.2 and B.3.

Filter:

If trading commissions exceed $20 / full traded lot then the B.1, B.2, and B.3 subfactor ratings receive zero (0) values. This is happening as extremely high trading commissions eliminate the advantage of tight or even zero spreads.

B.5 Funding Fees / Commissions, (Weight 2%) 

-Calculation Method: Selection

Funding fees and commissions reduce the availability of trading funds. The Rating Formula rates unfavorably any funding commissions or fees charged either on deposits either on withdrawals.

B.6 Maintenance / Inactive Fees, (Weight 2%) 

-Calculation Method: Selection

Some Forex brokers may charge fees for inactive accounts. This means extra cost for traders and that is why it is rated unfavorably by the formula 4.1.

B.7 Adjustments

Note: The maximum weight of Factor-B remains always 28%.

B.7.1 Execution, (Weight +2%) 

-Calculation Method: Adjustment

The execution model of every broker is crucial as it affects slippage on order execution and the speed of execution.


 

FACTOR-C: Trading Options Availability, Weight 26%

The availability and variability of trading options add value to every trading account and it is an important issue.

C.  TRADING OPTIONS AVAILABLE

MAX WEIGHT

26.0%

C.1  Index of Forex Assets

45+ Forex Pairs = 8.0% rating | 40+ Forex Pairs = 7.0% rating | 35+ Forex Pairs = 6.0% rating | 30+ Forex Pairs = 5.0% rating | 25+ Forex Pairs = 4.0% rating | 20+ Forex Pairs = 3.0% rating | 15+ Forex Pairs = 2.0% rating | 10+ Forex Pairs = 1.0% rating | Less than 10 Forex Pairs = 0% rating

8.0%

C.2  CFD Trading

Yes CFD Trading = 2.0 % rating | No CFDs = 0.0 % rating

2.0%

C.3 Availability of Free Demo Account

Yes = 2.0 % rating, No = 0.0 % rating

2.0%

C.4  Capital Leverage

Leverage > 100:1 = 2.0% rating | Leverage > 75:1 =1.5% rating Leverage > 50:1 = 1.0% rating

2.0%

C.5  Promotions

 

6.0%

C.5.1  Welcome Bonus (%)

Welcome Bonus >50% = 6% rating | Welcome Bonus >40% = 5% rating | Welcome Bonus >30% = 4% rating | Welcome Bonus >20% = 3% rating | Welcome Bonus >15% = 2% rating | Welcome Bonus >10% = 1% rating

Added above 

C.5.2  Trading Rebate (%)

Trading Rebate >30% = 6% rating | Trading Rebate >25% = 5% rating | Trading Rebate >20% = 4% rating | Trading Rebate >15% = 3% rating | Trading Rebate >10% = 2% rating | Trading Rebate >5% = 1.0% rating

 Added above 

C.6  Minimum Account

Min Account < $500 = +1% rating | Min Account < $1,000 = +0.5% rating

1.0%

C.7  Deposit Methods

For every available deposit method = 0.5% rating max = 5 methods

2.5%

C.8  Withdrawal Methods

For every available withdrawal method = 0.5% rating max = 5 methods

2.5%

C.9 (+)  ADJUSTMENTS 

  (+)

C.9.1 Asset Index with more than 100 Forex Pairs

Yes more than 100 Pairs = 1.0 % rating / No = 0 % rating

1.0%

C.9.2 Interest on Unused Funds

Yes Interest on Funds = 0.50 % rating No = 0.0 % rating

0.5%

C.9.3  Contests / Championships

Yes Available = 0.25 % rating | No = 0 % rating

0.3%

 

FACTOR-C EXPLANATION:

 

C.1 Number of Currency Pairs, (Weight 8%) 

-Calculation Method: Selection

The greater the number of currencies contained in an asset index the higher the potential for Forex traders to exploit opportunities.

C.2 CFD Trading, (Weight 2%) 

-Calculation Method: Selection

The availability of CFD trading may cover extended trading needs.

C.3 Demo Account, (Weight 2%) 

-Calculation Method: Selection

The existence of a Demo / Practice Account can help traders to get familiar with a broker before risking funds and devoting precious time.

C.4 Capital Leverage, (Weight 2%) 

-Calculation Method: Selection

Capital leverage adds flexibility to all trading decisions. On the other hand, capital leverage adds also a risk. Therefore the weight of Capital Leverage as a rating factor is limited to 2.0%.

C.5 Bonus / Rebate, (Weight 6%) 

-Calculation Method: Selection

High welcome bonus (or rebate) means more available funds for traders. Note that the version 4.1 of the Formula rates differently a Credit Bonus and a Cash Bonus.

-Cash Bonuses receive 100% of the rating points

-Credit Bonuses receive 50% of the rating points

Explanation: Traders can use a Credit Bonus only as margin. On the other hand, traders can withdraw a Cash Bonus. Therefore a Cash Bonus is a better option for traders.

C.6 Minimum Deposit, (Weight 1%) 

-Calculation Method: Selection

Smaller the minimum account size, easier gets for a trader to test the real trading conditions of any Forex broker.

C.7 Number of Deposit Methods, (Weight 2.5%) 

-Calculation Method: Accumulation

Traders who are able to fund their account via their custom fund method save precious time. The more fund methods available by a Forex broker the better for traders.

3.8 Number of Withdrawal Methods, (Weight 2.5%) 

-Calculation Method: Accumulation

The same as C.7.

C.9 Adjustments

Note: The maximum weight of Factor-C remains always 26%.

C.9.1 Providing 100+ Currency pairs (Weight +1%)

-Calculation Method: Adjustment

Forex companies which are able to offer an extensive currency index containing more than 100+ currencies are rated favorably.

C.9.2 Interest on Deposited Funds, (Weight +0.50%)

-Calculation Method: Adjustment

Companies offering interest on unused funds are rated favorably.

C.9.3 Trading Contests / Championships, (Weight +0.25%)

-Calculation Method: Adjustment

A trading contest can prove a free educational tool for beginners. Advanced and professional traders can even make money by trading in a Contest, without risk.


                

FACTOR-D: Technological Efficiency, Weight 20%

The use of cutting-edge technology is an important aspect when trading Online Forex. Efficient technology makes trading faster and more reliable.

D.  TECHNOLOGY

MAX WEIGHT

20.0%

D.1  Trading Platforms Availability

For every Trading Platform = 1.0% rating max = Five (5) platforms

5.0%

D.2  Slippage on Execution

Slippage  < 0.5 pip =  4.0% rating | < 0.75 pip =  3.5% rating | < 1 pip = 3.0% rating | < 1.25 pip =  2.5% rating | < 1.5 pip = 2.0% rating | < 1.75 pip =  1.5% rating | < 2.0 pip = 1.0% rating

4.0%

D.3  Allowance of Automated Trading

Yes it is Allowed = 2.0 % rating  / No = 0 % rating

2.0%

D.4  MT4 Platform Availability

Yes it is Provided = 2.0 % rating / No = 0 % rating

2.0%

D.5  Mobile Trader Availability

For every Mobile Device = 0.50 % rating, max = Four (4) mobile devices

2.0%

D.6  Scalping / Hedging Allowance

Yes to both = 1.0 % rating | Only Hedging or Scalping = 0.5% rating | No to both = 0 % rating

1.0%

D.7  Customer Support

24/7 Customer Support = 1.0 % rating | 24/6 Customer Support = 0.5 % rating | 24/5 Customer Support = 0 % rating | email support = 1.0% rating | Phone support = 1.0 %. | Live Chat support = 1.0 % rating | Skype support = 0.5 % rating | Call-Back = 0.5 % rating

4.0%

D.8 (+)  ADJUSTMENTS 

 (+)

D.8.1  PAMM / MAM Accounts

Yes PAMM / MAM = 0.5% rating | No = 0 % rating

0.5%

D.8.2  Availability of API Trading

Yes to API trading = 0.5 % rating | No API trading not available = 0.0 % rating

0.5%

 

FACTOR-D EXPLANATION:

 

D.1 Number of Trading Platforms, (5%)

-Calculation Method: Accumulation

A wide variety of trading platforms provides Forex traders with more options.

D.2 Slippage, (Weight 4%) 

-Calculation Method: Selection

High slippage on order execution means more cost for Forex Traders, especially as concerns Scalpers and News-Traders.

D.3 Automated Trading, (Weight 2%) 

-Calculation Method: Selection

Automated trading is a common practice for Forex Traders nowadays. All Forex brokers should allow it.

D.4 Mobile Trading, (Weight 2%) 

-Calculation Method: Accumulation

Mobile trading is the future of trading. Forex brokers should provide specialized apps for all popular mobile devices and especially iPhone and Android.

D.5 MetaTrader Availability, (Weight 1%)

-Calculation Method: Selection

MetaTrader-4 is the clear industry’s standard. Most Forex traders are very familiar with MetaTrader and most Expert Advisors are designed exclusively for MT4.

D.6 Scalping and Hedging, (Weight 1%)

-Calculation Method: Selection

Scalping and Hedging allowance adds more options on behalf of Forex Traders. All Forex brokers should allow it,

D.7 Customer Service, (Weight 4%)

-Calculation Method: Accumulation

Online trading requires the existence of reliable and fast customer service.

D.8 Adjustments

Note: The maximum weight of Factor-D remains always 20%.

D.8.1 PAMM / MAM Accounts, (Weight 0.5%)

-Calculation Method: Adjustment

PAMM / MAMM accounts have become very popular nowadays so we rate them favorably.

D.8.2 API Trading, (Weight 0.5%)

-Calculation Method: Adjustment

The allowance of API trading indicates that a Forex company focuses on state-of-the-art trading technology.

 

 Forex Rating Brokers Formula 4.1

Concept and Implementation by George M. Protonotarios, Financial Analyst –MSc in “International Banking & Finance”

George on Linkedin: https://gr.linkedin.com/in/qexpert

The Rating Formula v4.0 in TradingCenter.org

 


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