Irrespective of your experience levels in forex trading, you can’t deny the importance of having tools that make your investment process easier. Some of the benefits of having a trading toolbox include:
- Helps you make better decisions
- Saves you a lot of time
- Provides you with a level of automation
Although it is the technical analysts who are known to rely heavily on trading tools, a good set of tools is useful to a fundamental analyst as well because it helps them make better decisions to augment their intrinsic value analysis. Here are some of the top forex trading tools you need in your repertoire:
1. Forex Calendar
A calendar detailing all the significant happenings (in the economic sense) is a useful tool to all kinds of traders, leave alone forex traders. The reason being it provides them with important economic data, future fundamental events, impactful geopolitical events, and other important variables that can affect the exchange rates and by extension, their returns.
When something happens, you will be in the loop and then you can use that information to determine how it affects your position, how other trades will be affected, and how you can take up better positions. Being informed is one of the most important forex management tips you can ever abide to because it will help you improve your returns in a massive way.
Economic calendars are provided by most financial news websites and forex brokers.
2. Pip calculator
It enables you to calculate the pip in any given trade. As you know, the term “pip” refers to the lowest unit of a currency pair that you can trade. It varies depending on the currency pair in question.
Since you will be most likely pressed for time, you need a tool that does your pip calculations quickly so that you can divert your time to other important decisions. A typical pip calculator will let you know the pip value of a currency pair based on the size of a given position. It can ask for other parameters like:
- The amount of money involved
- The leverage
- Position size
- Size of the trade
3. Time Zone Converter
Since the forex market involves different countries located on different ends of the earth, there are bound to be some time discrepancies in the periods of activity of the different markets. The major trading centers are London, New York, Sydney, and Tokyo – all with big gaps in their relative time zones.
As reported by Admiral Markets, A time zone converter will help you monitor when the forex market will be open during a 24 hour period. It is vital to be informed about time zone variations because they determine:
- The liquidity of the market
- The market volatility
Knowing when the markets overlap will ensure that you are active when there is intense economic activity.
4. Spread comparison tool
As you pick a broker, a spread comparison tool will be handy. The broker spread is an important consideration particularly if your trading strategy is spread sensitive. Therefore, before you find a broker, you will want to compare the dealing spread between a few of them to pick one that is most suited to your style and, of course, one likely to maximize your returns. Some comparison tools are advanced enough to come with filters that factor in the currency pairs as well as other considerations.
5. Currency correlation tool
There are correlations between the different currency pairs. It can be a negative correlation (also known as inverse correlation) where two currency pairs move in opposite directions in response to significant events, or it can be a positive correlation where the pairs move in the same direction after certain events.
A correlation tool gives you all the information regarding currency correlation based on historical data. As discussed here, currency pair correlations have a significant impact on your returns emphasizing the need to be on top of them at all times.
6. Market Volatility Calculator
This tool calculates the volatility of the different currency pairs a trader can be involved with. Calculating the volatility by yourself would be an impossible job given the wide variety of elements you need to factor in, not to mention how things change with time. It is a life saver.
There are numerous other tools not listed here that would make your life as a forex trader every bit simpler. Keep an eye out for other tools. Your forex broker will also be quite helpful in finding you the best tools – they mostly offer them for free or at a small cost. The bottom line is that you cannot live without forex trading tools.