Choose The Right Forex Broker (Part II)
June 10th, 2009
Discover Forex Magic Machine.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. Develop your own Forex Trading System.
Most forex brokers give spread up to 5 pips under steady market conditions. Spread up to 5 pips is reasonable and should be acceptable. Some brokers will offer spreads lower than 5 pips if you trade contracts of $500,000.
ECNs offer spreads of 1-2 pips maximum but they require initial deposit of $10,000. If you have this much money, then head straight to a good ECN. The rates offered by ECNs are interbank and far better than most of the retail brokers.
What are the additional service like analytical, data, news, quotes, graphics and such offered by the forex broker? Online forex trading is the fad now. Now you can monitor market movements by following current real time prices, graphics and even news on the PC monitor.
Does the forex broker provide trading software? Does the trading software come with the opportunity to manipulate, modify, and customize graphics? Can you do technical analysis using indicators and draw trend lines with support and resistance lines on it? If so, this can save substantial money. It will eliminate the necessity of buying an expensive market quote service and analytical and charting software for conducting technical analysis.
Does the broker charge commissions and other payments and dues? The most reputable forex dealers and forex brokers charge no transaction fees from their clients. Reputable dealers when transferring an open position to the following day execute the rollover operation in accordance with the current LIBOR rates. The rollover is reflected in your daily statement.
Depending 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 interest would be added to his account just for holding the position for more than one day.
Sometimes a trader will hold two opposite positions overnight. For example, a trader may have executed USD/CHF transaction for the total amount of $400,000 buy and $200,000 sell. Then the long position of USD/CHF amounting to $200,000 should be transferred to the next day and the corresponding interest deposited or charged to the trader’s account accordingly.
Most forex brokers do not bother with these calculations. They charge the client interest for holding the position overnight regardless. Many brokers will charge interest for practically non existent positions. You as a new trader may not know these facts. You need to choose you forex broker after due diligence.
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