MetaQuotes Software officially released MetaTrader 5 (MT5) in June 2010. Nearly eight years later, we would expect MT5 to have entirely replaced its predecessor MT4, and yet, the old stalwart of retail forex traders seems as entrenched as ever. MetaQuotes desperately wants the switch to happen, but the industry holds on to the outdated tech with gritted determination.
The truce has ended
MetaQuotes no longer allows new brokers to offer MT4 and has removed its vanilla MT4 version from the marketplace entirely, while support for MT4 has been discontinued. The message from MetaQuotes is loud and clear: MT5 is the future.
So what’s holding things up for the Russian software company with its virtual monopoly on the forex market? If MT5 is a far superior product, why are so many brokers still offering MT4 and vast hoards of retail traders clinging to it like there is no alternative?
MT5 is better
What significant advantages does MT5 offer brokers? We will consider four aspects:
- More markets, better features
- Better control (fewer third-party plugins)
- Gateway liquidity solution
More markets, better features
Brokers could offer their clients a few hundred symbols to trade on MT4. MT5 has no limits in this regard. MT4 only supports forex and CFDs, whereas MT5 supports these as well as futures, options, stocks, and bonds. MT5 should appeal to a broader audience.
MT5 also offers a host of new features for traders, including new order types, more indicators, and more timeframes. In short, more markets for clients to trade and more tools to analyse and manage those trades are significant benefits to any broker. Both should encourage traders and thus push volumes, the lifeblood of any brokerage.
Better control (fewer third-party plugins)
MT5 comes with ‘built-in order routing’. Brokers using MT4 would either need MetaQuotes’ own ‘Virtual Dealing Desk’ to handle this function or require third-party plugins like ‘Panda’ or ‘Ashira’ to provide the same features. The built-in order routing available in MT5 is astoundingly powerful.
MT5 also offers extensive API support, allowing brokers to build custom applications, reporting tools, and even integrate MT5 with their websites. Customization and control are two very apparent themes that come to the surface with even the most cursory review of MetaTrader 5.
Gateway liquidity solution
MT5 offers access to a host of liquidity providers like LMAX, Interactive Brokers, and Currenex to name a few. MT5 goes a step further than MT4 ever could, providing brokers with the ‘MetaTrader 5 STP Gateway’. This gateway allows any MetaTrader 5 broker to connect directly to any other MetaTrader 5 broker for liquidity.
By using the Gateway, MT5 liquidity providers can boost their profits by offering zero-cost liquidity services, while other MT5 brokers have access to an increased liquidity pool within minutes. The MT5 Gateway thus creates a seamless and cost-effective solution to run a hybrid A- and B- book model business.
A new entrant could expect to pay $100,000 for MT4. MT5 starts at $75,000 for 1,000 users and runs up to $300,000 for 200,000 trader accounts. It appears as if MetaQuotes, in a bid to encourage adoption from new brokers at least, has not made MT5 more expensive than its predecessor.
What if an existing MT4 broker wants to make the plunge and move over to MT5 or offer both options to their client base? A full new license is required. One would expect that longstanding clients of MetaQuotes might be able to negotiate reduced pricing, but there will be a cost involved.
As one broker put it, “we can certainly see that when it comes to operations and the backend infrastructure, MT5 is much more evolved than MT4, and hopefully someday, we’ll see it surpass MT4 in terms of popularity which will make it easier for us [to] manage things from a technical point of view for both our clients and IBs.”
Should a new broker be concerned that they cannot offer MT4, while entrenched competitors can? In one word, yes.
The new broker conundrum
The same broker went on to say: “we’re still finding that MT4 is the leading platform across the industry as there is a constant and overwhelming demand from clients to continue its use.”
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An existing broker finds little difficulty in offering MT5 alongside MT4. The majority of existing clients choose MT4. Those that want MT5 can have it. Everyone is happy. As Ziad Melhem from Amana Capital (offering both MT4 and now MT5) encouragingly put it: “we have witnessed a significant increase in the demand for MT5” and “a big percentage of our new clients are choosing the MT5 over its predecessor.”
The challenge comes in for new market participants who have no choice but to use MT5. A new broker has an unknown brand to establish, a tough industry to break into, and software that most traders do not want as of yet. Given the substantial financial outlay and increased risk of client rejection, new market entrants might be discouraged, or turn their attention to other solutions like white-labelling.
We have looked at MetaQuotes push to brokers, but where is the retail pull?
The irony of MT4’s success
MetaQuotes might be its own worst enemy. With the emergence of MT4 as the industry standard, the monopoly that it enjoys ironically works against it now directly and indirectly.
Of note, traders are comfortable with using MT4 – complicating this fact is the trend that human nature is to avoid change. It is stable, it is available, and it works. MT4 is also already installed on millions of computers globally.
Indirectly, it is the periphery of ‘extras’ that MT4 spawned that have become an addictive drug for the retail trader, and probably the biggest reason slowing the retail move. Copy trade solutions are mostly MT4 based. The number of electronic advisers (EAs or algorithmic trading bots) available is astounding.
Custom indicators for MT4 litter trading forums and community boards. The problem these add-ons pose cannot be ignored because they cannot just be taken off their MT4 charts and slapped onto MT5. They have to be redeveloped from scratch.
Interestingly, some of the most reluctant to move to MT5 are the very same coders who develop for MT4. Brokers feel this pain too. Unlike MT4, we’re facing challenges related to the lack of reliable third-party solutions or plug-ins; brokers need these additional features to customize their service,” Ziad Melhem went on to say.
Compare MetaQuotes to Microsoft. When Microsoft released a new version of Windows back in the 1990s and early 2000s, paying customers clamored for the latest version. Stores could not keep up, turning Bill Gates into a billionaire. (MT5 is free for the individual trader, but in contrast, customers paid happily for the newest versions of Windows.)
Why does MetaQuotes struggle to give away MT5 to retail traders? Customers eagerly paid for the newest version of Windows because it was faster and better for them, the end users, while MT5 has been designed to benefit the middleman – the broker. MT5 does not exist primarily to help the millions of mom and pop traders clicking away, generating trade volume flow for their brokers. MT5 is first and foremost an improvement for brokers.
MetaQuotes turned the lights off on MT4 sometime ago, but the community has not let it die. Could they finish the job and snuff it out, forcing everyone’s hand? Sure, but it is doubtful for reasons you would expect – brokers deploying MT4 still pay MetaQuotes every month, a revenue stream MetaQuotes would surely like to keep.
Millions of traders globally are still dependent on MT4 and the industry-wide chaos that would occur, should MetaQuotes suddenly pull the plug, would cause irrecoverable damage. It would be suicide. Finance Magnates reached out to MetaQuotes, who were unavailable for comment.
Imagine a scenario where MT4 is permanently turned off, and all those EAs no longer have a home. Then imagine just a little further ahead where an ambitious organisation builds an MT4 clone that runs those homeless EAs. The king could be usurped by a cheeky upstart offering a platform for millions of EAs floating around in cyberspace. It is not an impossible scenario.
Unless MetaQuotes find a way in which MT5 is seen exceptionally favourably with retail traders, we expect the transition from MT4 to MT5 to remain slow. The majority of retail traders do not know why they should move. If retail clients do not want it, why should brokers who rely on that business force a change?
Furthermore, new market entrants face the insurmountable task of asking clients to open accounts, and not being able to provide those same clients with industry standard software to execute their trades. This status quo no doubt benefits incumbent brokers by discouraging new competition, something that has surely not gone unnoticed.