The popularity of forex trading is clearly at its peak at the moment and the global currency market has a promising future ahead as it keeps growing in every aspect. Whether it is about the ease of access or technological upgrades, forex brokers are leaving no stone unturned to provide the best trading conditions and advanced software solutions to their clients. When it comes to unlocking your true potential as a forex trader, you need to practise a lot and pick the perfect tools to sharpen your trading skills. Having knowledge about the new and improved forex tools is essential for beginners and professionals alike.
In this article, I will tell you about the top forex tools that every trader should use to minimise the effort and optimise their performance.
- Forex Economic Calendar
Before you step into a financial market, you need to understand the factors that influence the fluctuations in the market as that is the only way to make sound decisions. When it comes to the forex market, macroeconomic indicators, geo-political events, international news and even environmental issues can cause turbulence and sudden shifts in market sentiments. The value of currencies is very volatile and the prices of currency pairs keep moving.
The interest rate policy of a country’s central bank and the key economic data releases that reveal the strength or weakness of an economy can result in sudden volatility in the related pairs. It would be hard to know everything that is happening around the world and that’s why an economic calendar is an essential item in a trader’s toolkit. It tells you the date and time of important events that are likely to impact the prices of a currency pair along with forecasts based on past data.
- Forex Calculators
Forex calculators are a bunch of simple tools that are programmed to perform trade-related calculations on your behalf. Whether it is about finding ideal trade setups or determining the best prices for entry and exits, it all comes down to the accuracy of your analysis and calculations. Even the cost of trading needs to be estimated in advance or else your earnings will be lesser than what you expected in the beginning. You can use a profit calculator to compute the gains from a trade in the currency of your choice. It’s a very useful tool for all traders, especially those who maintain a trading journal.
There are different types of calculators designed for different functions and they save your time while simplifying the calculations.
- Currency Conversion Calculator – Conversion of one currency to another is the very essence of forex trading. Thus, you must be using a currency conversion calculator that applies the currency conversion rates to convert the amount that you enter into it. Then, you have to select the currencies. If you want to convert $100 to Australian Dollar, you can simply enter ‘100’ as the amount and pick USD in the ‘From’ drop-down list and AUD in the ‘To’ drop-down list. Then, the online calculator will display the current conversion rate and the amount after the conversion right away.
- Margin Calculator – A specific amount of money should be there in your account to open and hold trade positions. This amount is calculated by using a margin calculator. When you trade with leverage, the margin amount will be a percentage of the total money needed for opening a trade. The margin will be lower for a higher leverage ratio, allowing you to enter bigger trades with a smaller amount of money.
If your account balance is not enough to meet the margin requirement, you will be asked to deposit additional funds to keep the trades running (margin call) and in case of default, the broker will close the trades to prevent further losses. You have to specify the trading instrument, lot size and leverage ratio along with your base currency to determine the margin.
- Pip Calculator – The standard forex unit that tracks and measures the price changes in currency pairs is the price interest point or pip. Thus, counting the pips is very important to manage your risk and maximise the profits which can be done by using a pip calculator that converts the pip value to the currency of your choice. The value of 1 pip is 0.01 for pairs including Japanese Yen and 0.0001 for all other pairs.
The trade size and current conversion rate are applied to find the value of pips. By knowing the pip value, you can set the profit target based on the number of pips by which the price has to move from the entry price. The same can be done to find the best price level for a stop loss to limit the potential losses.
- Profit Calculator – As I said earlier, the profit calculator is used to estimate the earnings of a trade in your base currency. You just have to select the currency pair and enter the lot size, opening price and closing price into the calculator. It is a straightforward method to assess your profitability.
- Time Zone Converter
A time zone converter can be used to find the timings of various trading sessions in your local time zone and take advantage of the round-the-clock nature of the forex market based on your schedule and preferred currency pairs. Because some sessions are better for trading certain currency pairs due to the market activity and liquidity.
- Currency Correlation Matrix
The currency pairs in the forex market tend to move together in the same or opposite direction depending on the type of correlation between them. The currency correlation matrix is a useful tool to trade correlated pairs and all traders should use it to minimise the risk through diversification.
- Heat map
Heat map is a simple yet powerful tool that helps you to analyse the scale of movements happening in different currency pairs in a comprehensive way as it is presented in visual format. By using a heat map, you can identify the extent to which a currency pair price is fluctuating in a specific period of time. This tool is very helpful in adapting to the market situation while looking for trade setups.
- Trader Sentiment Indicator
This tool lets you know about the overall market sentiment by showing the percentage or proportion of buyers and sellers in the market. If there are more buyers, it suggests bullish sentiment and if sellers are more, the sentiment is bearish. The trader sentiment indicator can be added to your toolkit for discovering the directional bias before making a trading decision.
- Trading Journal
A trading journal is like a record to keep track of your trading activities in a systematic manner. By using this tool, you can track your progress and correct any mistakes by spotting them in time through regular assessments.
Key Takeaways
- The forex economic calendar must be used by every trader for fundamental analysis of the market situation.
- Forex calculators and time zone converters are very important to ensure precision in planning and execution of your strategy.
- The heat map, trader sentiment indicator and currency correlation matrix provide key information to make wise choices.
- The trading journal is a tool to stay true to your plan and track your progress.
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