The fact of the matter is that if a forex trader is careful while choosing his forex broker then he would not end up being a victim of malpractices and scams. However, this requires the forex trader to be aware of how to evaluate forex brokers. Evaluating fx brokers is not easy unless you know what to consider. Here is a list that should help you in this regard.
History and Financial Capabilities
The strength and authenticity of a business can be measured by two things: its history and its financial capabilities. Checking the history of forex brokers is a fairly straightforward exercise as this information would be easily available on the internet. Financial capabilities of FX brokers can be seen in terms of their capitalisation as well as their market share.
The People behind the Organisation
An organisation is only as good as the people holding its reins. If the people behind the organisation cannot be trusted then the organisation is suspect as well. When it comes to forex brokers, their senior management determines how honest and efficient they are going to be.
Ideally, the senior management teams of FX brokers should be experienced in the forex market or at least in investment markets. Moreover, they should also have flawless professional records.
Volume and Liquidity
The operational efficiency of the forex brokers should also be analysed in terms of whether they are going to be beneficial for a trader or not. For instance, the forex market is known for the liquidity it offers forex traders on the back of the volume of trades it sees on a daily basis.
The bigger the liquidity and turnover is the more opportunities a trader can expect. However, while the market’s turnover is huge, FX brokers have their own liquidity and volume statistics.
As the forex trader would be operating in the market provided by forex brokers, it is important for him to see what kind of liquidity and volume they are offering.
Margin Calls and Rollover Considerations
Most forex brokers offer leverage up to 400 to 1 or at least 200 to 1. However, the leverage being offered must be paired with margin requirements before being evaluated. Margin calls are dangerous for forex traders which is why they should consider how the broker in question deals with them.
Rollover policies should also be assessed by those forex traders who plan to leave positions open overnight. Most forex brokers charge negative rollovers and only a few provide positive rollovers. Needless to say, the latter is desirable.
The Forex Trading Platform on Offer
This is the most obvious consideration for forex traders. The trading platform that forex brokers offer is crucial for the success of a trader because he would be relying on it for his entire trading process.
Ideally, trading platforms on offer should be tested by forex traders with the help of demo accounts before they actually open live accounts with forex brokers. Moreover, the trader can also choose to consider if any rebate programmes are on offer.