The Forex market is the largest market considering the volume of trades, about $5.3 trillion in a single day. Amazingly, though, retail traders account for only 3.5% of this trading volume as of 2013, leaving the rest to major banks, hedge funds and multinational corporations. Of late, retail traders have increased in number, and they account for a larger percentage of the daily trading volume.
These facts are important to point out because they all lead up to the topic of this article, and why it’s so important to choose your Forex trading platforms wisely. The commonly thrown around statistic is that only 5% of these retail traders are profitable, so there is a real need to acquire an edge over other traders. This is where the MT4 and MT5 platforms come in, because they have certain differences that could tip the scales for an individual trader.
What’s new on MT5?
I’m sure anyone reading through this article is already familiar with MT4 and doesn’t need a lesson on how to use it. So we’re not going to get into that, you’re probably just interested in whatever is new with this new kid on the block. Here are the highlights:
The main selling point for the upgraded MetaTrader version is its capability to offer multiple assets beyond currencies. MT5 can offer stocks, commodities, indices and commodities for difference (CFDs) such as options and futures (compare CFD brokers) alongside the typical currency pairs. This is great for a Forex trader because it enables you to diversify your trading portfolio and take advantage of other markets.
Another addition to MT5 is more timeframes on which to trade. MT4 has only 9 timeframes but MT5 has 21: including the yearly charts for the long-term trader; 5 more types of hourly charts like 2-hour, 6-hour and 12-hour timeframes; and 7 more minute charts like the 10-minute and 20-minute timeframes.
At this point, an MT4 user is wondering how these could be useful, and I could just tell you it’s better to have something and not use it rather than need it and lack for it, but there’s a better reason. By adding more timeframes, every trader can be able to better craft their trading strategy exactly how they want, rather than being restricted to the typical strategies. This is why at the beginning I mentioned, that MT5 was supposed to tip the scales and provide an edge for any trader.
New trading order types
In MT4, there are 4 types of pending orders – buy and sell limits and buy and sell stops. MT5 includes 2 more types of pending orders with the addition of the buy stop and sell stop limits. The buy stop limit is a combination of a stop order and a buy limit order, whereby once the specified price is reached, a buy order is placed above and a stop loss below. The sell stop limit is the opposite of this.
With a simple buy limit or sell limit order, the order is placed at the specified price, but without the stop loss and take profits added. With these new types of order types, a trader is able to place pending orders with more confidence because the amount of losses or profits can be controlled and predetermined. This gives a trader more flexibility and allows them to step away from their trading station without having to worry about being stopped out if their predictions were wrong.
Integration with the economic calendar
The economic calendar Forex is a very important tool in any trader’s, well… toolbox, but even more so for the fundamental trader. Important news announcements have a huge impact on the direction of the markets, and traders can anticipate these movements if they know what impact the announcement will have.
Besides just indicating what the news announcement was, the built-in forex calendar in MT5 can indicate the level of impact certain announcements may have, and suggest how that might affect market sentiment. A pro trader may not need this extra information, but it’s very informative for the novice who still doesn’t fully understand the markets.
This is the holy grail for a technical analyst, because these indicators inform a trader on critical points at which the market shifts and allowing them to plan ahead. MT5 has 8 additional inbuilt indicators and more analytical objects than its predecessor, all which provide added information about the markets.
Major differences between MT4 and MT5
Now that you know what’s new in MT5, it’s not enough to determine the better trading platform until you compare them head-to-head. To do this, we’re going to classify the main differences into 3 important categories, including one from a broker’s perspective for those who either have a brokerage company or planning to start a Forex brokerage:
The Forex broker’s job is to provide as much support to their clients as possible, and this means offering them a variety of trading platforms that suit their individual trading styles. However, MetaTrader 5 is a fairly new trading platform since its release in 2010, and a Forex broker comparison will show not all brokers have it. This is mainly because most retail traders don’t know how to use MetaTrader 5, thus it’s not a viable investment.
The MetaTrader platform is developed by MetaQuotes, so every broker that wants to offer the platform to their clients have to buy the license from the company; then set up a server for it. This license may be not that expensive from the perspective of a broker with millions of dollars in capital, but business is business, and even the biggest companies in the world don’t spend hundreds of thousands of dollars on an asset that is not profitable.
In this case, the MetaTrader license could cost something like $200,000, and the broker would rather use that money for hedging if the program isn’t in demand. As a result, most brokers on the Forex broker list don’t offer MT5 to their clients seeing only a handful of traders are able to use it. MT4, on the other hand, is the standard trading platform offered by nearly all brokers, so any trader can be assured to be able to download it with ease. If you feel like you really need the MT5 platform, then you should consider this when choosing a Forex broker.
Whenever a trader first gets into the Forex market, they learn to trade on MT4, and most online tutors and Forex trading forums will use MT4 in their courses. Therefore, most traders first learn to trade using MT4, and although MT5 isn’t vastly different, the subtle differences in the interface can be a hurdle to many.
When it comes to technology, it’s always good to have the latest software, whether it’s an updated iOS, Android or Windows version, because the updates provide more features. Now imagine the amount of stress that goes into Forex trading – sifting through news articles, reviewing the Forex calendar, understanding the Forex charts online patterns and so on, would you want to add the difficulty of understanding a new trading platform to the mix? No trader would, they would rather stick to what they know has been working for them and focus on their trades.
MetaQuotes has been pushing for the acquisition of MT5 by brokers recently, as you can tell by the number of brokers now offering the platform, but traders still don’t download it as much. This is an example of how reluctant traders are to upgrade their trading platforms, and brokers wanting to retain clients and attract new ones used to MT4 have to keep offering the platform regardless of the supposed advantages of MT5.
A broker’s perspective
We’ve seen how MT5’s multi-asset capabilities are great for the trader, but what about the broker, is this an advantage for them? Definitely yes. The Forex market is proliferated with numerous brokers offering the same service, currencies, and economics determine that this kind of competition causes a drop in profits for the service providers.
For example, to attract new clients and retain the original ones, brokers have been forced to tighten their spreads and reduce commissions significantly, which is their main source of profit. Thus, today’s brokers don’t make as much money from their clients’ trades as they did before.
MT5 offers brokers a chance to make more profits by offering more assets other than just currencies. Since some brokers still don’t offer other assets like stocks and indices, the broker who does can make more profits from trades on these assets and offset the little returns from currencies. This is only possible with MT5, since it’s the platform that has the capability to offer multiple assets.
Downsides to getting the MT5 update
Newer isn’t always better, primarily because it sometimes presents a steep learning curve to a lot of people. When it comes to a choice of trading platform, there are several reasons most traders have refused to upgrade:
Expert advisors (EA)
When you download the MetaTrader platform from your broker, it only has the basic features created by MetaQuotes, and perhaps a few additions by the broker themselves. This might be enough for most traders, but others prefer to download and install additional EAs and trading advisors which have been created by independent developers. These can be very beneficial, but they are not available for both platforms.
Since most traders are still using MT4, the developers of these plugins don’t create a lot of plugins for MT5 because it’s a lot of work and may not be in demand. EAs for MT5 are coded in MQL5 format while those for MT4 are coded in MQL4 format. If you don’t understand what these terms mean, suffice it to say they are different programming languages that are incompatible. To make one system compatible with the opposite trading platform, you would have to rewrite the entire code, which is a lot of work which would be for not if there aren’t as many users. For a trader who regularly makes use of such EAs, the upgrade to MT5 may restrict them from their preferred plugins, and they choose not to get the update.
The MT5 platform is larger than MT4 in terms of download size and the amount of resources it uses on a trading station. Granted, computers are faster than ever right now, and can run the MT5 platform very well despite the larger files, but it doesn’t apply to all traders. Besides the very tech savvy and enthusiasts, there are people still running older versions of computers and smartphones, and their machines may be bogged down by MT5’s resource-intensive nature.
As you know, speed is of utmost importance when you’re trading, and any second wasted because you were using an updated trading platform can cost you money. From this point of view, you can see why even those with superior machines still stick to MT4, because it’s very ‘light’ and can execute trades faster.
Limited trading styles
MT4 allows you to trade whichever way you want according to your trading strategy, but MT5 is much more regulated. For example, it was only until recently that hedging was allowed in MT5 due to public demand, but it wasn’t available before that. There are other restrictions in MT5 that may turn traders away, because the platform is highly regulated as MetaQuotes tries to curb broker market manipulation and adhere to more strict Forex regulators demands. The idea was to protect the traders, but the restrictions also stifle some innovative trading strategies which may be unconventional.
Should you upgrade?
By now, you should already tell if you would like to get the update to MT5, after going through the pros and cons. If you’re still interested in my verdict, I say stick to what you know, but don’t ignore the alternative. If you have been trading profitably with MT4 for months or even years, then don’t just get the upgrade because it’s exciting. Yet you should still take some time to learn about MT5 just in case MT4 becomes phased out.
Most people don’t think this will happen, but most people also didn’t believe Apple would do away with the 3.5mm headphone jack, until they did. To avoid getting caught unaware, start demo trading on the MT5 platform whenever you can just to see how it functions, you might even find that you like it.
As for the novices and beginners who are still learning, train yourself with MT5 because its numerous additional features are very helpful and make trading easier. Most Forex brokers offer the platform anyway, so you should have no problem finding the download and give it a try.