Broker to Trading

A VPS is a Virtual Private Server. This is software which can run multiple programs hosted on physical servers. In the case of traders, these programs include 'robots', which are computer programs implementing trading strategies codified as algorithms - hence the label 'algos'. A VPS has a number of advantages which can be useful to certain types of trading.

Traders may be satisfied with making their own trading decisions, for example using trading platform tools to analyse markets and then making trading decisions. However the trader may find that some types of trading may be more optimally implemented by robots, that is computer programs programmed with trading strategies (though these have their potential downsides).

Robots can be hosted on the trader's own computer. However there may be issues with connections or other errors and processing speed is limited to the capacity of the computer. Additionally when the robot is hosted on the trader's computer, then the total time taken to execute orders will be the time taken from the trader's computer to the provider to the liquidity providers and back. For short term higher frequency trading, this can be an issue, especially if reliability is required.

So a VPS aims to solve these and other problems with self hosting. VPS are generally offered by or through providers (assuming they cater to robots). These normally co-locate their servers (where the robots will be hosted) in or near major centers of liquidity, for example a finance related data center such as Equinix New York or London. Thus the time taken to trade (the latency) can be very short indeed, down to around 1 milisecond (contrasting with speeds of perhaps around 30 milliseconds when self-hosting and using a provider with rapid order processing).

A Virtual Private Server is based on a software concept called a virtual machine, which allows for multiple programs to be run 'privately' on shared harware resources, i.e. tailor made for the vast economies of scale in a data center.

In a data center, multiple hardware servers can be in physical proximity using optimised routing algorithms and fast cabling to transmit signals, reducing latency (delay). This is a more subtle but potentially important difference between self-hosting and using a VPS, especially for those requring low latency order execution (e.g. to and from liquidity providers). VPS hosters may also provide 100% uptime guarantees within market hours, T&Cs apply, which points towards another potential advantage, namely potential reduction in errors.

There is normally a cost associated with hosting algos (another name for robots). However some CFD providers (aka 'brokers') do have offers for free or discounted VPS hosting, which normally come with conditions, such as minimum deposits and trading amounts. The VPS providers may themselves have offers.

Factors with VPS hosting include speed of order transmission and storage space, different plans can have different features and pricing, for example number of cores (for processing speed), RAM (short term memory) and data storage (longer term memory). Some strategies may need faster processing times.

The needs of the trader wil be evident from experience, however it is possible to start with the basic package and move from there. Choosing one through a provider may allow for discounts and ease of integration. A pick is made of CFD providers which offer VPS packages.

Care should be taken with robots whether self hosted or on a VPS, as they can produce rapid drawdown (losses) in the trader's account. Robots can be run on demo accounts at providers, and if available tested live on accounts with small trade sizes (e.g. a MetaTrader 'Cent' account), as well as backtested.