Given the size and exponential growth of the global forex and derivatives market, it should come as no surprise that the sector has become a prime target for rogue operators and scammers in 2021.
One of the latest threats in the world of derivative trading exists in the form of high-frequency, black box trading within low latency exchange markets. This can see traders record extended losses far beyond a reasonable rate of leverage, which impacts both individual investors and the wider economic community.
To negate this pressing and constantly evolving risk, it’s crucial that you perform due diligence and check the reliability of your chosen forex broker. Here’s how you can do this effectively.
- Is the Platform Secure?
The single most important characteristic for any reputable broker is its level of security, even when trading derivatives and opening optimal positions with relatively small deposits.
The good news is that it’s relatively easy to distinguish between licensed operators and rogue alternatives, depending on which country you’re based in.
In the UK, for example, brokers are governed by the Financial Conduct Authority (FCA), so you’ll need to look for accreditation from the FCA on a particular site or check online to ensure that a broker is an official member of the regulatory body.
- The Transaction Costs
While you may be able to access the forex market with minimal capital holdings, you should note that individual orders will always be subject to transaction costs.
More specifically, you’ll have to pay your broker every time you enter a trade, whether you cover the spread or a fund a nominal commission fee. So, you’ll need to compare the transaction costs across different brokers, so that you can make an informed and ultimately beneficial decision.
Just try to avoid being overly obsessed with the cheapest rates, as rogue traders often use reduced transaction fees to target customers. Instead, compare transaction costs with the quality of service available, while once again ensuring that brokers are fully licensed in the UK market.
- How Easy is it to Deposit and Withdraw Funds?
Reputable and licensed forex brokers will allow you to deposit and withdraw funds with the minimum of fuss, primarily because they generate profit through the transparent transaction fees that they charge.
Because of this, they have no reason to hold onto your profits for any length of time, with this only really required to facilitate individual trades.
Not only should the withdrawal process be quick and efficient, but brokers should also refrain from charging you to access your earnings. So, keep your eyes peeled for this and check individual broker T&Cs before you commit your hard-earned cash.
- Consider the Basics of Execution
It’s mandatory for licensed brokers to execute transactions at the best possible price for your orders, despite the volatility of the forex market and its potential for sudden, seismic price movements.
So, unless truly unusual or unique market conditions are present, your order should be executed at the price displayed when you hit the ‘buy’ or ‘sell’ button.
Of course, this is particularly important if you’re a scalper or day trader, as these individuals look to profit from real-time market volatility and require their orders to be fulfilled quickly and efficiently.