The forex market has found itself at the centre of several controversies in the digital age, with the global rigging scandal of 2015 seeing dozens of big banks and individual traders fined in excess of $10 billion.
Beyond this, forex traders across the globe continue to be exposed to the machinations of rogue and unsecured brokers, which in turn places their assets and most sensitive data at considerable risk.
Choosing an uncertified or unprofessional broker can also impact on your profitability, so it’s imperative that you partner with a reputable partner that’s focused on helping you to achieve your objectives. We’ll explore this further below while considering what to look for in a reputable broker.
Why is it Important to Choose a Reputable Forex Broker?
In practical terms, one of the first issues posed by an unprofessional broker is an underlying lack of data security. More specifically, you’ll be required to provide your broker with a great deal of personal information, including your bank account details, passport data and credit card numbers.
Now, in instances where your broker has an unreliable Internet connection or operators across an unsecured wireless network, this information could be placed at risk and ultimately stolen.
They’ll also need to boast effective SSL encryption, with 128-bit encryption though to set the standard for financial service providers.
Similarly, an uncertified or rogue broker is unlikely to comply with the regulatory guidelines that have been set by the Financial Conduct Authority (FCA) and similar institutions, meaning that your capital could be placed at risk and potentially used unscrupulously.
Occasionally as a forex trader, you may incur some transaction costs when executing orders. These include a fixed commission and spread cost, which applies to all trades that are placed on the market.
Some of the market-leading brokers have taken huge steps to minimise commission and transaction costs, in order to optimise the profitability of their clients. In contrast, rogue operators tend to maximise these costs in the quest for short-term profit, so this is something to watch for as a trader.
Just try to weigh these costs against the service and the features provided, as you look to make an informed decision that helps you to achieve your goals.
How to Identify a Reputable Broker
By understanding these issues, you can take practical steps towards identifying rogue brokers and determining which service providers offer the best value for your capital.
Beyond this, you need to understand the motivations of reputable brokers in comparison with rogue alternatives. In the case of reputable operators like Oanda, for example, their goal is to put traders on the path to profit by minimising fees and providing users with access to a huge range of analytical tools.
In contrast, rogue brokers are more likely to optimise their own short-term profits, by charging sign-up fees and maximising the commissions applied to trades.
They’ll also fail to provide a secure and compliant platform, as it costs significant amounts of money to create this.
