What is MT4?
MT4 is the acronym for MetaTrader4, the revolutionary platform that was developed by Metaquotes Inc. in 2005 for the trading of FX and CFDs. The platform was specifically developed for the retail end of the market, offering traders a simple trading platform which is easy-to-use and has a pleasant user interface (UI). The MT4 has gained massive popularity over the years. Indeed it has been so successful that its successor (MT5) has been unable to gain traction among traders.
An MT4 forex broker is principally a market maker/dealing broker that offers its clients access to place FX and CFD orders using the MT4 platform. Execution of these orders are performed in-house by the broker’s dealing desk department. The trader’s orders usually do not get to the interbank market.
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What are the Advantages of an MT4 Broker?
There are some advantages in trading FX with an MT4 broker. These are listed as follows:
- Provision of Liquidity
FX trading is a high liquidity market event. Pricing that emanates from the interbank market is done at wholesale level, which means that only bulk orders worth millions (and even billions) can be accepted by a major bank operating as a liquidity provider. A Standard Lot on the EUR/USD costs $100,000 to execute. Banks typically deal in orders worth hundreds and even thousands of Standard Lots. No retail trader has such individual trading capacity, except such a person was to be a George Soros or a Warren Buffett. This is where the role of MT4 brokers becomes virtually indispensable. They provide bridging liquidity by purchasing contracts wholesale from the liquidity providers, and reselling these at a mark-up and in smaller chunks to their retail clients. That way, a trader with even as low as $200 can still trade FX.
- Lower Transaction Costs
Dealing desk brokers offer fixed spreads, and charge no commissions. This keeps the cost of trading lower than would be the case if an STP broker was used for such trading activity.
- Instant Executions
Retail traders get instant executions for their trade orders, if they come in at a price that the broker can fill in-house.
- Easy to Use Platform
Professional trading platforms are not suited for beginners as they are quite difficult to use. In contrast, the MT4 is very easy to use and is well suited for beginners.
Best 7 MT4 Forex Brokers 2019
Here is a list containing the best 7 MT4 forex brokers of 2019. This list presents MT4 brokers that have developed features that provide added benefit for their traders.
Mode of Operation of MT4 Brokers
MT4 brokers typically operate a dealing desk department, which takes on the risk of trades from its clients either by directly absorbing these trades, or by taking a counterparty position (i.e. taking the opposite sides of these trades). The 2nd component of the operation has come under some criticism for presenting a conflict of interest. However, some MT4 brokers have stopped taking counterparty risks and instead, simply resell positions that have been hedged or acquired at the interbank market. The snapshot below shows how the process works.
A practical demonstration of how MT4 brokers handle orders is shown below, and an example is shown below, using two traders that want to go long on the GBP/USD.
- Two traders BUY the GBP/USD at 1.2976 and 1.2970 respectively. These trades can be handled in two ways:
- If the traders’ positions are small, the MT4 broker will look at the price at which the GBP/USD contract was obtained from the interbank market. Assuming the MT4 broker obtained the GBP/USD from the interbank market at a price of 1.2974, Trader A’s offer to purchase the GBP/USD at 1.2976 will be fulfilled, while Trader B’s order to purchase at 1.2970 will be rejected, and Trader B will be asked to requote. This is because the MT4 broker will make a profit from Trader A’s price offer, but not Trader B’s price offer. When the market is volatile and prices are changing too quickly, this can be the case.
- If the positions of one or both traders are very large, typically going into millions of dollars, the MT4 broker will typically refuse to take on the risk for such trades, and will pass these on to another execution venue (either a prime broker or the interbank market).
- The MT4 broker will look at the trading history of both traders. Let us assume Trader A has a history of making profits, while Trader B tends to lose money in trades. What happens?
- The MT4 broker will usually choose to hedge Trader A’s trades by passing them on to a different execution venue. Trader A will be placed in what is known as the “A” Book liquidity bucket.
- The MT4 broker will place Trader B in the “B” book liquidity bucket. More often than not, the broker will opt to be the counterparty to Trader B’s trades. This model has come under criticism and some brokers have started to walk away from this approach. FxPro and FXCM have now instituted mechanisms to reduce the level of counterparty risks assumed by their in-house systems.
In essence, the MT4 broker is likely to absorb your trade orders in-house if it is small, but will likely send these to an external execution venue if they are large in an attempt to hedge their risk.
This has been a compilation of our Best 7 MT4 UK Forex Brokers for 2019. With this list, you can be sure to get brokers who can deliver the best that the MT4 has to offer.
Are MT4 brokers dealing desk brokers?
MT4 brokers operate in the retail end of the market. They provide liquidity by mopping up positions from the interbank market, and reselling these in smaller quantities to their clients. These transactions are done in a department of the brokerage known as the dealing desk. This is why MT4 brokers are in essence, dealing desk brokers.
How expensive is it to trade with an MT4 broker?
MT4 brokers charge fixed spreads, and typically do not charge commissions on trades (with the exception of very volatile CFD assets). So in terms of charges and expense, it is cheaper to trade with MT4 brokers than it is to trade with STP brokers.
What is a dealing desk?
Contrary to the erroneous belief that this is a desk on which some kind of a “Big Brother” entity sits to watch your every trading move, a dealing desk is not a single desk at all but is actually an entire unit in a brokerage firm made up of several dealers, sometimes numbering up to 50. The dealing desk unit is actually the operational unit of a brokerage, which takes in trades from clients for in-house execution, or passes same to an external execution venue to hedge the risk from large orders.
Are the spreads on an MT4 platform fixed?
The spreads on an MT4 brokerage are constant and do not change when there is market volatility. However, these may widen under extremely volatile conditions to produce a phenomenon known as slippage.
Can I perform technical analysis using the MT4 platform?
The MT4 platform is loaded with charts and all kinds of tools that are commonly used for technical analysis. Some MT4 brokers also offer their clients access to a technical analysis service from Trading Central.
What does MT4 stand for?
MT4 stands for ‘MetaTrader4’; a platform developed as a turnkey, customizable trading client that can be offered by retail brokers to their clients.
Can I use my forex VPS on my MT4 broker?
The MT4 platform is suitably built for use with a forex Virtual Private Server (VPS). Some MT4 brokers also provide free access to a forex VPS for traders who have funded live accounts.