Forex Trading Platforms – MetaTrader 4 and 5
The most popular trading platform is MetaTrader, and there is simply not a single trader in this world who hasn’t heard about it, or traded at least once with it. Not all brokers offer the possibility of trading with it though, as some have their own inbuilt trading platforms. MetaTrader is a common trading platform that any broker can use. It has its own app for mobile trading, and in that app one can choose the broker, type in the account number and password, and be granted access to the trading account.
MetaTrader 4 and 5
MetaTrader comes in two versions, 4 and 5, but MetaTrader 4 is far more widely used than MetaTrader 5. There are many reasons for that, but the most important one is that on MetaTrader 5 it is not possible to hedge a position. For example, it is not possible to open an EUR/USD long trade, and then at the same time a short trade for the same currency pair.
This is a major drawback, as it simply means that hedging strategies cannot be pursued, and there are many traders who use them. Just to give here an example of how a hedging strategy works, imagine the following. Traders have a specific trading system (a moving averages cross, or some oscillators offering divergence areas, etc.) and that system is applied on multiple timeframes, starting with the 5-minute chart and continuing with the hourly, 4-hourly, daily and even weekly charts – all on the same currency pair! Using this kind of strategy, often the 5-minute chart, for example, gives a bullish sign, while other timeframes may show the opposite direction, and traders simply follow the strategy and take all the trades. It is very possible that at one moment in time the account is fully hedged, or partially hedged until a stop loss or take profit order is reached on one of the timeframes. This kind of trading is extremely popular, especially with algorithmic trading, but the MetaTrader 5 platform does not allow it.
Mandatory FIFO Rule
Another thing that makes traders avoid the MetaTrader 5 platform is the fact that it is based on the First In, First Out (FIFO) system. This means that positions can only be closed in the order of their opening, and it is not possible to close a profitable one in order to free up some margin until you close a losing one that was opened earlier. Some traders in different parts of the world, such as the US traders, are forced to respect this system, as brokers are obligated by the financial regulators to obey the FIFO rules. From this perspective, I guess MetaTrader 5 is more popular in the United States than in other parts of the world.
MetaTrader 4 Basics
Enough about MetaTrader 5, though – what about MetaTrader 4? Well, this is a real beauty when it comes to charting and trade execution, as there is simply anything one could wish to have on a trading platform. Once you have opened a trading account with a broker who offers MetaTrader 4, you have to download it. After that, log in with the account number and password the broker provided, and the connection is made in the blink of an eye. Currency pairs and other financial products the broker offers are seen listed on the left side of the screen by clicking the Market Watch tab on the top left of the screen. If the Forex market is open, all those currency pairs will be moving in a frenzy, and the trading platform looks lively. Right-click on any currency pair on that list, and a list of things to be done with that currency pair appears: You can open a chart for it, place a pending order, etc. On the other hand, a double click on any currency pair will open a pop-up window that allows a trade on the market to be done. All you have to do is to set the target and the stop loss, as well as the trading volume.
MetaTrader 4 is a great platform to use for technical analysis purposes, because its charting tools are simply great. The tools offered in the default version are enough for charting a currency pair, but one can always look on the mql.com community (the MetaTrader developer) and find there many other indicators and tools that can be imported to the trading platform, either for free or for a small fee.The classical Fibonacci and Pitchfork tools, together with a great variety of both trend indicators and oscillators, are also well represented on MetaTrader 4.
Perhaps the most important function of MetaTrader 4 and 5, though, is the one dedicated to strategy testing and expert advisor building and programming. Assuming one has a trading system that can be automated, the MetaTrader platforms allows you to open the MetaEditor and simply code that robot. Upon completion, the Strategy Tester function of the trading platform allows you to see how the newly built trading algorithm performs using historical data, and whether it is profitable. Applying an expert advisor on a currency pair and running it is fairly easy, but this is the subject of another article here on our Forex Trading Academy. Any chart made on the MetaTrader platforms can be saved on the PC as well, with a simple Save As function; and the History Center allows you to find whether there is more historical data on a currency pair than the set offered as a default. Moreover, one can import one’s own data into the trading platform, providing the file type matches the one MetaTrader uses. To sum up, MetaTrader is a great trading platform and depending on the way you use it, both 4 and 5 offer great incentives. One thing is certain though: Once you get used to trading and charting with MetaTrader, it is very difficult to switch to other Web-based or new trading platforms offered by other brokers.
Other educational materials
- What is a Margin Call?
- Setting Up a Chart in Metatrader 4
- Forex Trading Accounts and the Value of a Pip
- The Importance of Swap and Spreads
- How to Enter/Exit a Trade
- How Do I Make a Profit from Forex Trading?
Recommended further readings
- Forex Trading using MetaTrader 4 with the Fractal Market Hypothesis. Blackledge, J. and Murphy, K., 2011.
- “Technical analysis of Forex by MACD Indicator.” Yazdi, Seyed Hadi Mir, and Ziba Habibi Lashkari. International Journal of Humanities and Management Sciences (IJHMS) 1, no. 2 (2013): 159-165.