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.
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 (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 service like analytical, data, news, quotes, graphics and such offered by the forex broker. Online forex trading is quite popular now. You can monitor currency market movements by following current real time prices, graphics and even news on your laptop or PC monitor.
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.
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.
Interest charged or deposited 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 and get an interest deposit. 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 deposit accounts on the two currencies in the currency pair.
Sometimes you as a trader will hold two opposite positions overnight. For example, you may have executed USD/CHF transaction for the total of $400,000 buy and $200,000 sell. The net long position of USD/CHF amounting to $200,000 should be transferred to the next day. The corresponding interest deposited or charged to the traders account accordingly.
Many forex brokers do not bother themselves with these calculations. Instead they charge the client interest for holding the position overnight regardless. Many brokers charge interest for practically non existent positions. Many new traders may not know these facts. They need to choose their forex broker after due diligence.