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Forex Data Feed

If you are actively trading forex, it is important your broker provides you with a quality data feed on which you can base your decisions. A forex data feed contains the streaming market quotes that are fed into your trading platform.

All technical trading decisions are made based on these quotes, so it is extremely important the input data is timely and reliable. Making crucial decisions such as stop loss and take profit placement from faulty data can lead to losses that would otherwise have been avoided and missed targets.

What is a forex data feed?

As forex is traded on an OTC / over-the-counter basis rather than on-exchange, market prices can vary a great deal between brokers.

The prices you see in your terminal are based on the data feeds brokers receive. Brokers will either source their data feeds from a single source, and make a market around this data; or in the case of ECN and STP brokers, aggregate prices from different sources and stream these to the trader.

Some data feeds are slower than others and some broker’s feeds are excessively volatile or prone to gaps, some low quality feeds even lack volatility or are not at all representative of underlying movements in a market.

Low quality data feeds don’t necessarily mean the broker lacks the technology or buying power to provide quality data, but rather data of a low quality is deliberately presented to the trader in an effort to interfere with their trading or hamper profitability.

On the other hand, brokers with slow feeds can be taken advantage of by traders using forex arbitrage systems and feeds that aren’t representative of the underlying market can also be readily abused. This is why brokers that deliberately employ low quality feeds will expressly restrict the use of certain strategies and reserve the right to cancel your profits and refuse withdrawals

The role of liquidity providers in Forex

True ECN brokers on the other hand, do not manipulate prices in anyway. These brokers have partnerships with various banks, prime brokerages and dark pools from whom they get prices from. The broker will then aggregate all these prices together into a data feed and what you see in your terminal is the best available bid and ask prices on offer.

  • Imagine two brokers: Broker 1 is a true ECN broker, Broker 2 is a market maker.
  • Both brokers get their prices from two liquidity partners: LP1 and LP2
  • LP1 is quoting a bid of 1.0588 for EURUSD
  • LP2 is quoting a bid of 1.0590

As Broker 1 is a true ECN broker, you will see the best bid of 1.0588 in your terminal screen. With Broker 2 on the other hand, they will most likely offer you the worse of the two quotes, or perhaps quote an even more disadvantageous price – you can never be sure exactly what you are trading with Broker 2, but it’s safe to assume it’s always a bad deal!

Even amongst different ECN brokers there can be a lot of variance though. In general, larger brokers with more liquidity partners will be able to provide higher quality data feeds to their clients, as they are aggregating prices from a wider range of LPs.

How can you tell a high quality data feed from a poor one?

You can usually get a good idea of the quality of a broker’s feed by zooming into a 1m chart. A market maker’s chart tends to be near perfect: every open and close line up with very few gaps. If you zoom in and see this sort of perfection, you’re either trading with the ultimate broker, or more likely, the data feed is cooked.

A good ECN broker’s 1m chart is generally imperfect, there will be quite a few discrepancies between the close of one bar and the open of the next. This is because their feed is representative of the actual underlying market – though forex is the most liquid market in the world, there isn’t always a willing buyer or seller for every price, every second of the day.

By the same token, if the chart is all gaps and looks more like CFD chart than a currency chart, chances are, you are dealing with a lower tier ECN broker lacking adequate liquidity arrangements. You will often experience a lot of slippage with brokers like these.

The importance of a quality data feed

At the start of this piece we stated that you might put your stop loss order in the wrong spot if you are looking at a faulty data feed. Fair enough, you might lose an extra trade or two. Actually, the problem can be a lot worse than that. A good example is the recent GBP flash crash: most high quality brokers quoted a low in the 1.18 – 1.2 range, but at a few brokers the low was 600-800 pips lower, closer to 1.1.

Now imagine if you’d incurred a negative balance with each of the brokers. The difference between a good quality data feed and a poor and overly volatile one was literally 10’s of thousands of dollars in this case. This isn’t a hypothetical – right now people are being chased for debts equivalent to modest annual salaries after trading with these low quality brokers. Save yourself the trouble and trade with a broker that provides you with quality data and execution.

What does all this mean for Renko traders?

As Renko charts are based on price alone and specifically closing prices, filtering out time noise, it is even more important that you are trading off a quality price feed. Poor data in, poor data out. The less reliable your broker’s data feed, the less reliable your renko chart is going to be.

We hope you have enjoyed this article on forex data feeds and why they are important to all serious traders. Remember if you want to get a rough idea of the quality of your broker’s data, zoom into the 1m chart: a good ECN broker’s 1m charts are imperfect, but not riddled with gaps like a CFD chart.

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