We have been quiet in our communication outlets but working diligently in the background and after a very challenging 2017 we managed finally to reach another all time overall record. After 3 years and no year with negative return, Arion has touched it’s all time highest overall return of 72% since its inception date.

What a good way to celebrate a 3 year anniversary!

Visit the statistics of our verified account here:

https://www.myfxbook.com/memb…/odysseiacapital/arion/1860913

BROKER CHALLENGE – A new look on FXCM

Some days ago we have published in our blog our first conclusions of the broker challenge we started in September 2016. In that blog entry, we have made several considerations on each of the brokers and we have highlighted FXCM as being a very promising broker.

We bring back the following table published in our last blog entry.

In fact, if we had computed the percent return of the time period since the FXCM was started, we would have had the following results in the total compounded return for the top 3 accounts:

1st – FXCM: 5.9% return

2nd – ActivTrades: 5.0% return

3rd – GlobalPrime: 4.3% return.

The apparent excellent results from FXCM since May intrigued us and made us want to go deeper and learn more.  What we found wasn’t a totally pleasant surprise.

It appears that the rollover swaps and commissions charged by FXCM are not recorded as commission or as rollover swaps as an integral part of the trade, but rather as separate withdrawals and deposits (in the this last case only in positive rollover swaps).

Take a look at typical FXCM trade record in MyFxbook from where we drew our aggregated results to our study.

It’s evident the high number of associated extra transactions (withdrawals and deposits) resulting from each single trade. The problem occurs because that these transactions are (correctly) not accounted by MyFxbook as swaps and commissions being part of the trading activity, but rather just for what they are (according with the way they were recorded): as withdrawals and deposits.

Withdrawals and Deposits shouldn’t affect trading performance indicators, but commissions and swaps should definitely be accounted for as they are part of the cost model for the trader in accordance with the revenue system the broker implements at the core of its business model.

With FXCM we face then a rather peculiar situation where the main performance indicators associated with the trading as published by MyFxBook don’t represent the net performance for the trader. However, the MyFxBook reported figures are closer to the performance a trader would have if there would be no brokerage costs (namely swaps and commissions). On one hand, this brings some transparency, as one can easily now understand how high are the costs and how much from one’s trading success is landing in the broker pocket, but on the other it also creates confusion as the overall performance figures such as returns, profit and growth charts as published by MyFxBook (and to which the trader’s eyes are naturally drawn to) are simply and factually incorrect, indeed very incorrect.

So, returning to our broker challenge, regarding FXCM we have to compute, month per month, the impact of the broker’s costs which are wrongly recorded as withdrawals/deposits. The following table, after corrections results:

The first conclusion we see take is that, after all, since May the overall return for FXCM was not 5.9% as previously thought, but of 3.5%.

A divergence in a 5 month return of 2.4% it’s a huge difference for a strategy aiming to get a couple of percent per month. Mind you, that FXCM still seems to be performing well as it maintains itself in the top 3 brokers’ ranking for the 5 months it has been trading (surpassing Thinkforex which during these months had a return of -0.2%). However, we ask ourselves what makes a broker to record costs, including commissions, in such a strange and awkward fashion. We can only come up with the explanation that the aim is of creating information asymmetry, when so many traders in the community are using reporting tools such as MyFxBook. in fact , with FXCM it seems at first sight, that one is achieving a very interesting performance, but a closer look will tell us that almost of half of the “performance” shown by MyFxBook is, after all, going directly to the broker’s pocket.

We had already encountered similar practices in other brokers but restricted to rollover swaps, which cause much less impact in MyFxBook performance indicators. For instance in our now “retired-from-challenge” Oanda account , you can verify that since inception in September 2016, only 88 Eur were subtracted from the account in rollover swaps (and recorded as withdrawals), whereas in a FXCM account, of the same size and trading equal position sizes, in 5 months about 280 Eur were withdrawn, this because FXCM also records commissions (not only swaps) as withdrawals. Concerning rollover swaps, even if it annoys a bit because it impacts MyFxBook performance indicators, we can understand the concept behind it: what the broker aims is to charge you on a daily basis for the financing costs (swaps) as they are occurring in your account since positions can remain open for long times. Luckily, other brokers embed the swap in the overall trade cost and only effectively charge you when the trade is closed. In this last model, each trade enclosed all the costing information related with it and the net profit you see will be the final net profit of the trade.

So, what can we conclude from this lesson:

• Brokers go a great length to create the maximum information asymmetry possible, are at least to present you information in the more pleasant way possible to make their case (i.e. to maximize their revenues).
• It’s good to the broker that you think you are gaining more than you effectively are. This builds confidence and encourages trading. The more the trading the more the broker wins in commissions, spreads etc.
• Even experienced traders can be tricked when observing a MyFxBook report. That was what happened to us. The close to 6% return shown by FXCM MyFxBook was, after all, no more than 3.5%.
• Short term strategies aiming for low pip gains per trade (such as Arion) are much more prone to be affected by this phenomenon, as the lump sum commission doesn’t depend on the gain/loss made or the time each trade is open, but on the position size and number of trades.
• Traders have to be on high alert when analyzing their performance, especially on short term trading strategies, like Arion. This is also particularly true when analyzing the performance of service vendors such as ourselves in MxFxBook. Is the aggregated key performance indicators real ? Can they really be taken for face value ? 
• Traders should question brokers why do they opt for this kind of awkward recording practices and tell them they are not happy with it. That’s what we’ll do with FXCM.

BROKER CHALLENGE – 13 months and 2.000 closed trades later…

So, more than 1 year ago we started a broker contest with the aim to understand in what extent brokers matter, when choosing the right environment to host a client account for a signal service relying in short term strategies like Arion. See more detailed information about our brokers under test in our “Brokers” webpage here.

We have enrolled the following brokers in this challenge:

• Global Prime (Master account in this test)
• FxPro UK
• ThinkForex UK
• HotForex
• Oanda UK
• Forex Time
• LMAX
• ActivTrades 
• FXCM (added since May 2017)

More details about each of the account types here.

All brokers’ MT4 trading platforms have been installed in VPS with enough capacity and residing as close as possible to the broker’s servers in order to reduce latency. This means that brokers MT4s trading platforms have been installed in a close to an ideal infrastructure to allow all brokers excel or fail in similar fashion. All accounts are of REAL MONEY so with direct real money investment from Odysseia Capital.

After 13 months and close to 2.000 trades we think it’s now time to take some conclusions. And the conclusions are quite interesting, in our view.

Let’s take a look to the monthly percentage return achieved by each one of the tested brokers. Grading colors mean relative position of each broker in the ranking (green, leading, red lagging)

As it can be noted, the test resulted in huge differences across the board. From a total compounded return of close to 12% in the leading broker (Activtrades) to -3% in the lagging broker (FxPro). It’s a whopping 15% of return in little more than one year. More than enough for opposite decisions between continuing with the signal or drop it.

Now, because some accounts have some specifics (for instance Lmax has not always allowed micro lots for Gold trades during the total test) and different instruments can have different different position sizes (as per defined internally by the Arion strategy team) we decided also to also perform a comparison on Pips, which provides a similar, but not totally coincident view:

Please note that FXCM account only joined the test in May and therefore didn’t have the same time available to accumulate Pips. In fact FXCM is one of the accounts we trust will be within the best performers, provided that enough time is allowed.

The main differences we found when making the analysis by Pips are that Lmax jumped to the third place (the Gold trades surely weighted on Lmax) and Hotforex has also jumped up in the ranking, possibly because this account is the only small account in the challenge (with only 2.500 EUR starting capital) so smaller positioning is harder to balance in this account and granularity of positions is not possible.

In brief, our conclusions are:

• When selecting a broker to follow a trading signal (any signal, not only Arion) one should monitor closely the adherence of the its own account to the account of the Signal Provider. There are very significant differences between brokers (and possibly account types), which become very evident when a comprehensive long term test is undertaken.

• When contacted, bad brokers will tell you that they cannot guarantee they have the same prices than other brokers, that their pricing depend on liquidity providers, etc, etc. The reality is that this can all be true, but what matters is that it translates in much worse trading conditions for customers and can transform a profitable strategy into a losing one. It’s as plain as that: prices are different between brokers, but if there was no clear disadvantage in some brokers towards others, over 2.000 trades and 13 months and several market conditions, variability between the brokers should cancel each other. If there are big accumulated divergences between brokers, it means only that brokers with poor performance provide you with worse conditions for  the requirements of your strategy. As all in life, some brokers are good, others poor and we should be able to accept that as a plain fact when operating in this market.

About how we will proceed with each broker:

• Regarding FxPro and Oanda, tests will finish immediately. It’s evident enough that the tested accounts don’t make the cut to allow Arion to excel. However, regarding these two brokers we will still initiate two tests in two different account types and give them a second chance. We have contacted both these brokers, which have suggested other account types
• ThinkForex is a puzzle we still have to understand how such a poor Pips performance has still managed to place Thinkforex in the clear profitable group. We still have to decide what to do.
• ForexTime has behaved averagely broker, but we cannot drop it easily as this is our long term history showcase account.
• Hotforex: we believe that it deserves the benefit of the doubt, so we will increase capital in order to give it the same conditions as the other accounts under test.
• Lmax will continue in the challenge. It suffered in the % return due to the overweight of the Gold positions, but now Gold positions in micro lots seem to be allowed, so we expect to perform better from now on.
• FXCM is still young in our test but the performance so far seems to be promising. It will continue in the challenge.
• Active trades is our best in class (client account). It will continue to be part of the challenge.

All accounts in the challenge be assessed here.

All in all, Odysseia Capital is extremely satisfied by having setup this challenge. After 13 months we believe we have provided valuable information to our customers and feel proud that, as far as we know, we are the only signal provider in the world which tests its signals in so many different brokerage environment with significant real money accounts for the sole benefit of our customers.

Note: Odysseia Capital has no relation or affiliation with any broker, other than a normal client/supplier relationship. The above conclusions are not intended to serve as a generic recommendation or evaluation about any broker. The results and conclusions are limited to the scope of the trading within the Arion product, as per described above. When expressions such as “best” or “worse” are used, or alike with similar value, they are to be understood only as within the scope of the test, as per described above.

September 2017 ARION Wrap-up 

September marked the return of ARION to a clear month of profits. Several events affecting the Euro the  US Dollar and the Cable contributed for a very nice month and even if part of the profits were given away back to the market towards the end of the month, the 7.4% with which we ended September brought the profit back to close to the all time highs. We are happy to have closed a large part of the marginal losses that had been accumulating in the last few months. Quite relevant also is the that maximum drawdown (DD) of less than 13% since the begging of the year, which was when the strategy started to result in less than satisfying results. The maximum drawdown registered in this period was less than half of the maximum DD planned for the service, which shows the maintenance of a good risk diversification of the portfolio.

Nobody likes to see losses small or larger accumulating for mote than a couple of months and ARION has seen some clients defecting the service. We try hard to fight the natural human behavioral pattern to systematically loose money in the markets. Humans have a natural tendency, shaped by psychological constraints of by buying high and selling low. In fact humans often need confirmation to buy a financial asset and are extremely sensitive to losses. This means that financial products are often bought after gains have been made (confirmation need), so at an high price point, and sold at a low price when a less than good period arrives (out of fear of losses) This behavior is exactly the opposite of what should be the rule to be successful when investing in the markets. We have seen that happen in these last months in Arion, but we are aware it’s really hard to overcome customer’s fears and to convince them to enter the product when it is loosing money, as even one of the best managed funds ever – the Fidelity Investments Magellan fund – managed to have the average customer loosing money on its best 13 year period, despite the fund averaged a hefty annual return of (a positive!) 29% per year over that very same time period! (read more here). 

Anyway, to the customers who decided to stay with us, we are happy to bring them to profits again and strive to continue  to. To the ones who decided to leave in the recent drawdown period we are sorry we couldn’t argue strong enough to convince them to stay and recoup their losses, for some it was just a matter of a couple of weeks.

Currently ARION’s new subscriptions are suspended. The suspension will last until we have in place all the adjustments we foresee and until we a achieve a smooth come back to our long term target of +2% long term average monthly return.

ARION NEW SUBSCRIPTIONS TEMPORARILY SUSPENSION

Despite the North Korea/US showdown and the increasingly evident Trump’s isolation in presidency and other factors that could spike the volatility to other higher levels, market keeps showing a reasonable degree of complacency as shown by VIX index, which has peaked at around 17 on Trump’s comments regarding the recent Charlottesville’s events or at around 16 when Kim Jong-un decided to fly a missile over Japanese sovereign territory. Last year, on a mere less than clear comment from the BoJ governor, VIX jumped to over 20.