subject: Metatrader Broker and how to Pick Traders [print this page] Metatrader Broker and how to Pick Traders
I'm hitting you with the meat of the subject early on here. This is the most important part of the whole business. In my mind, the number one quality you want to see in a trader is an aversion to risk. There are many different forms of risk, and they are all forms of losing money. And nobody likes that.
There's event risk, portfolio risk, overnight risk, sizing risk, market risk, psychological risk, style drift risk, and many others. Your chief job should be to minimize your risk. The most important thing is conservation of capital. If you lose all of your money with your first trader, you have to start over from zero, or even less as you have to make up any deficit in your account - and deficits are certainly possible. On the other hand, if you lose 5%, that's not so bad.
To me as a professional metatrader forex broker, the most important ratio to look for is reward to risk. Generally I want to see 2:1 if not 3:1 or 4:1. If a manager makes 20% annually on average, I don't want to take any more than 10% of pain in any month. I actually don't even want to take that at any time. I don't want to see that on a daily resolution, let alone on a monthly resolution. Monthly numbers can hide a lot of sins. It's an arbitrary cut-off point, and the manager can get lucky over the years, actually having 20% losses during a month, but recovering and showing a maximum drawdown of only 7%.
I watch my accounts every day, so I dislike any drawdowns. You may see things differently; regardless it is still wise to ask managers what their worst "peak to valley" drawdown has been, and what their worst expected peak to valley drawdown is going forward. Once you know these, you can decide what you are comfortable with and leverage your account accordingly. Beware that sometimes these guys will understate their risk to make a sale, so certainly add a few percent when doing your calculations. I know some people that like to double the worst drawdown, and plan for that when allocating.
If you're looking to trade forex, ask what kind of forex software they use. Are they a MetaTrader Forex broker or use other kinds of automated forex or forex robot for predicting trends? Do they read the charts themselves use stops and so forth?
Fees: The all important fees negotiation. I really don't like to pay management fees to traders. I don't think it's necessary in most cases. I understand they have businesses to run and bills come due regularly. However it just goes against the grain to have to pay somebody to lose your money. But that's just me.
Types of trading
There are about a zillion different trading styles. Some make money and most don't. The styles used in trading are about as numerous as the stars in the sky. Put any two people behind a screen or on a trading floor and not one of them will trade exactly the same as any other. They can be broadly categorized into such sectors as trend followers, break out traders, short-term, long-term, medium term, Meats, softs, and spread trader, energies, oil, corn, day traders, swing traders, Forex traders, contrarian trader, fundamental trader, mean reversion systems, contrarian systems, exhaustion systems, and on and on and on. In my opinion I really don't need to know a whole ton about a trader's system and how it works, as long as I know he has his risk control down and can be trusted to follow it and it makes sense to me and is reasonable.
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