Friday, July 10, 2020

MetaTrader 4 or MetaTrader 5 – How to Choose a Trading Platform?

NBHM Research Team

Both MT4 and MT5 are widely regarded as the best trading platforms for modern traders. But, which one should you choose?

Choosing the right trading platform is an important part of any trading plan. It is obvious that a great platform should be able to provide features like in-depth technical analysis, robust risk management, fast trade execution and a high degree of customisability. But, what is also necessary is a platform that suits the trader’s personality and trading strategies.

MetaTrader 4 (MT4) and MetaTrader 5 (MT5) are trading platforms that are known for their exceptional features. While most forex traders resort to MT4 for its user friendly interface and great technical analysis tools, MT5 provides access to exchange markets with advanced back-testing capabilities. So, how to choose between the two? Let’s take a look.


Supported Markets

FX trading is taken a notch higher with the MetaTrader 4 platform. Traders have the flexibility to adapt strategies of any complexity, by combining different types of market orders, pending orders, stop loss and trailing stops. MT4 provides 3 types of execution modes. It is definitely a tried and tested, glitch-free trading platform to trade the FX market.

But, in case traders want access to other markets, such as stocks and commodities, MetaTrader 5 is the solution for them. To support exchange trading, MT5 is better designed to plug into a centralised exchange. Stocks and commodities need to be traded through a centralised process, before there is transfer of legal ownership. This is especially true of commodities, which are largely traded through futures contracts with different expiry dates.  To support this, MT5 provides the “Depth of Market” feature, where real-time bid/ask prices of different financial securities are shown, depending on the volume being traded. This feature is absent in MT4.


Management of Trade Positions

There is a vital difference in the design of the two systems. MetaTrader 5 cannot deal with hedging. It complies with the US markets’ no hedging rule, where traders have to execute trades on a FIFO (First In First Out) basis. So, if a trader goes long on one lot of GBP/USD, and then goes short on another lot of GBP/USD, the trade opened first has to be closed before the second can be executed. While traders in the US might find this feature helpful, traders in other countries see this as a shortcoming.

In this regard, MT4 offers a more flexible option, since it logs each trade separately and allows manual management of each trade. MT5, on other hand, automatically aggregates all positions. Some traders might find this easier, making it a more efficient system.


Building Custom Trading Tools and Back Testing Capabilities

MT4 is built on a programming language called MQL4, while MT5 uses MQL5. MQL5 is considered a better development framework to build custom indicators and expert advisors (EAs). Additionally, the MetaTrader Market features more than 2,000 indicators and trading robots, compatible with MT5. These include scalpers, martingale robots and neural networks, a wide range of applications to comply with trading strategies of all levels.

However, such development capabilities have been introduced in MQL4 as well. The capability of “black box programming,” which made development exciting with MQL5, was introduced in MQL4 in 2014. Moreover, MQL4 scores higher on backward compatibility. This means that programs designed for MT4 cannot be used on MT5. Traders, who are using the old version, cannot upgrade. In MT5, traders can create and alter scripts.

But again, in terms of backtesting capabilities, MQL5 is the preferred choice. Programmed forex strategies can be executed at a faster rate due to its ability to support multi-currency pair backtesting. In short, the MQL5 can be said to be more versatile than MQL4.


Technical and Fundamental Analysis

In terms of technical and fundamental analysis, there are only a few differences between both the two systems. MT5, which was developed later, has more indicators than MT4, so traders might find some additional tools here. For instance, MT5 has 38 in-built technical indicators, while MT4 has 30. MT4 offers chart analysis in only 9 timeframes, while MT5 can support this in 21 timeframes.

For fundamental analysis, MT5 might be the more suitable platform. It has an in-built economic calendar feature, where traders can track daily news and economic releases, which impact their positions. Along with the time and date of the upcoming release, the forecasted values are also provided, so that traders can be prepared. They can set email alerts to be notified of the releases.

Advanced traders might find MT5 more useful for technical and fundamental analysis. However, both systems feel and look the same and offer the same degree of comprehensive market monitoring.


Order Execution

More options for order execution are present in MT5, as it caters to more markets. MT4 supports 4 pending order types and 3 order execution modes, whereas MT5 has 6 pending order types and 4 order execution modes. Moreover, MT5 also supports partial filling of orders. It also supports other order filling policies, such as “fill or kill” and “immediate or cancel.”


Which One Should You Choose?

While logic dictates that MT5 is the newer version, and thus could be superior to MT4, this is not entirely true. If you are looking for hedging capabilities, MT5 might not be the answer. But, in case you want advanced back testing abilities and more options for financial instruments, MT5 is the preferred option.

On the other hand, MT4 could be suitable if you are a new trader. MQL4 is simpler for beginners, in terms of development capabilities as well. You can choose to trade on MT5, when you proceed to advanced trading strategies, or if you choose to add stocks and commodities to your portfolio.

One way to choose the right trading platform is to opt for a demo account to test which one fits your trading style and feels easy in terms of navigation and trade execution.



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