Categories: Ratio

Solvency Ratio: An Essential Tool for Forex Trading

Solvency Ratio in Forex is a metric used to measure a broker’s financial stability. It is calculated by dividing the broker’s total assets by its total liabilities, and it is commonly used to evaluate the lenders’ ability to fulfill their financial obligations. A higher solvency ratio indicates that a broker can make timely payments while a lower ratio indicates that the broker may not be able to do so. A solvency ratio of 1.0 indicates that the broker has sufficient capital to cover its liabilities, whereas a solvency ratio of less than 1.0 means the broker may not have enough capital to cover its liabilities. Forex brokers should maintain a solvency ratio of at least 1.0 as an indication of their seriousness and stability in the industry.

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