How to Choose the Right Dealer? (Part II)
You must have read Part I of this article. When choosing the forex broker, you should ask the broker what are the spread size and its dependence on the contract size? Spread is the difference between the bid and the offer price given at any moment on the trading terminal of the broker. The smaller the spread size, the better it is for the trader as spread is your cost of trading.
Many forex brokers charge spread up to 5 pips. Spread up to 5 pips is reasonable under steady market conditions. It should be acceptable. Some brokers will lower spreads even further if you trade large contracts of $500,000 or more.
ECNs (Electronic Communications Networks) offer spreads of 1-2 pips maximum. But they require initial deposit of $10,000. If you have this much money, then its better to open an account with an ECN. The rates offered by ECNs are interbank. They are far better than most of the retail brokers.
You should look at the additional services like analytical, data, news, quotes, graphics and such offered by the forex broker before opening an account. Online forex trading has become very popular now. You can monitor currency market movements by following current real time prices, graphics and even news on your laptop or PC monitor or even your mobile.
Does the dealer provide trading software? Does it come with the opportunity to manipulate, modify, and customize graphics? Can you do technical analysis using indicators? Can you draw trend lines with support and resistance lines on it? If yes, this can save substantial money. It will eliminate the necessity of buying an expensive market quote service. It will also eliminate paying monthly fees for analytical and charting software for conducting technical analysis.
Is it necessary to pay commissions and other payments and dues? The most reputable dealers and brokers charge no transaction fees from their clients. Reputable dealers transferring an open position to the following day execute the rollover operation in accordance with the current LIBOR rates and reflect it in their daily statements.
It depends on the currency pair and the direction in which the position was opened. At the moment of its transfer the next day, the client could actually win as the result of the transfer. A certain amount of interest would be added to his account just for holding the position for more than one day. This interest is the difference between the interests offered on the deposits on the two currencies in the pair.
Sometimes you as a currency trader will hold two opposite positions overnight. For example, you may have a USD/CHF transaction for the total of $400,000 long and $200,000 short. The net long position of USD/CHF pair equal to $200,000 would be transferred to the next day. The corresponding interest deposited or charged to your trading account by the dealer accordingly.
Most forex brokers always charge the client interest for holding the position overnight regardless. They do not bother with these calculations. Many brokers will charge interest for practically non existent positions. You as a new trader should know these facts. You need to choose you dealer after due diligence.
