What is a VPS server?
Forex VPS stands for “forex virtual private server”. A forex VPS is a server which serves as a remote computer on which an expert advisor could be mounted on a forex account to perform round-the-clock trading services. Virtual private servers have been around for several years, but it is only within the last decade that we began to see an influx of VPS services specifically adapted to the needs and requirements of forex trading.
Four Reasons to Use a VPS for Automated Forex Trading
There are advantages that can be derived from using a forex VPS for automated trading. There is a perception among newbies that success in forex is dependent only on having a great strategy. A good strategy without the right tools is useless. These four reasons for using a forex VPS for automated trading highlight some of the other aspects of trading that need to be in perfect order for success in forex.
1. You can gain access to your VPS server from everywhere.
One limitation that forex traders face is being tied to a location. This means having your trading station and work tools only in one, unmovable location and being constrained to trade in that single location. In today’s world, mobility is essential. You need to be able to trade forex even if you are away from your primary base. Working remotely is now the in-thing in today’s digital world, so today’s traders need not be tied down to one location. Even proprietary trading firms have virtual traders spread out all over the globe. If you are trading for yourself or trading for such firms as a remote trader, you would probably not want the hassles of relocating to another country just to be able to gain access to the right tools. You can get ahead of all this by using a forex VPS. Simply wire your PC remotely to the location of the VPS or VDS and you are as good as being there yourself. Even if you need to travel, all you need is your local trading device, which you can hook up to the forex VPS.
2. Faster trade execution.
The fastest trade executions in forex are seen when the trading software’s servers are located close to the server of the broker or exchange. Typically, the forex VPS should be located close to the location of the trading server. Companies offering forex VPS services spend a lot of money to provide infrastructure that give the forex VPS stable Internet connection with minimal traffic. Imagine trying to trade from your local wireless internet connection while a family member is streaming a movie with the same connection. The scenario and impact on your trades is better imagined. Overcome these obstacles to your trading (as well as conflicts with loved ones) by using a forex VPS service.
3. Power and Internet Backup Provide More Secure Trading Environments
Traders who live in resource-challenged countries where power and internet connections are unstable will benefit from this. Effective forex trading requires system resources with great stability and at least 99.99% uptime. A forex VPS system will provide higher stability, uninterrupted power supply and internet backup with at least 99.99% uptime. This will bypass whatever infrastructural lapses a trader is confronted with.
4. Continuous Operations for an Expert Advisor
The forex VPS ensures that the trading software works 24/7, whether or not the trader’s home computer is on. This ensures that trading opportunities are never missed. It also spares the trader the time and effort of having to be on the computer for long hours.
Forex VPS and Latency Issues
Perhaps the greatest advantage of using a forex VPS system is the ability to reduce latency.
- What is latency?
Latency can be described as the time it takes for packets of data to travel across the internet from the source network to the destination network. In the world of forex, several kinds of data are transmitted from the trader to the broker and vice versa.
- From trader to broker: entry orders, exit orders, stop and limit orders.
- From broker to trader: order executions and price information.
- Why does latency matter?
Traders who want to get ahead of the competition have to seriously consider the issue of latency as it affects their trading results. Where latency is high, trade execution times are increased significantly, which in turn increases the chances of encountering higher slippage and re-quotes. Even where the affected trades have made a profit, you would find that the extra negative pips incurred by the slippage have eaten into your profits. For instance, a slippage of 5 pips a trade on a Standard Lot, incurred on 100 trades in a year, would amount to $5,000 in lost profits. Re-quotes lead to non-execution of trades, which can incur even greater loss of revenue. This is why it is essential to ensure low latency so as to increase trade execution, reduce the possibility/incidence of re-quotes and nullify the effect of slippage.
What are the Average Latency Times Among Forex Market Participants?
The latency between ticks under normal market conditions is about 200 milliseconds. A millisecond is 1/1000ths of a second. This translates to an average of five ticks per second.
- High Frequency Trading (HFT) software come with an average execution time of 5 milliseconds (200 ticks per second) with virtually no slippage.
- Experienced traders working with ECN platforms have an average execution time of 20milliseconds (50 ticks per second). Slippage rate is highly negligible; it almost never occurs.
- Experienced traders with true direct market access (DMA) platforms can expect an average execution time of 100 milliseconds (10 ticks per second). At least 9 out of 10 trades will not experience slippage.
- Experienced traders working with MT4/MT5 (a retail forex platform) with a trading environment that has been highly optimized can expect an average execution time of 250 milliseconds (4 ticks per second).
- Beginners or traders without much experience working with MT4/MT5 on a home PC without a VPS can expect average execution time of 800 milliseconds (average of 1.25 ticks per second). More than half of all trades done under heavy market volatility will experience slippage.
An overlooked aspect of this calculation has to do with entry and exit prices. The faster execution times also give the quants (HFTs) a massive advantage over retail traders. By buying large volumes of a currency, it is possible to enter and exit trades with very minimal difference in price and walk away with huge profits. Is there any wonder why the institutional traders are making money from forex and retail traders are struggling?
Decreasing Latency and Trade Execution Times
Here are some tips on how to reduce latency and execution times.
a) Use a Forex VPS Co-located with the Trading Server
This is very easy to figure out. New Jersey is closer to New York than Los Angeles. It will take a traveler much longer to get to New York from Los Angeles than from New Jersey. Connecting your trading software to a forex VPS located in New York while your trading server is in Edinburgh, Scotland is a very bad idea. Co-location is however an expensive option. Why not simply use a forex VPS in the same area for much less? Some brokers will even offer you a free forex VPS simply by opening and funding a live account with them.
b) Pick a High Quality, Reliable Internet Connection
Not all forex VPS are created equal. Low-priced forex VPS usually share the hosting with several users. A single user that overloads the server will slow things down for others. Use VPS services that offer virtualization technology, which compartmentalize users and insulate the activities of one user from another.
c) Use the Forex VPS Responsibly
The forex VPS service should only be used for trading purposes. Do not use it for other data-thirsty activities such as video streaming and online gaming.