When attempting to successfully trade in the forex market, the largest and most lucrative market in the world, dedicated forex trading tools are as indispensable and essential as is a pipe wrench for a plumber. In other words, without access to the right set of tools, your efforts are doomed to fail and highly likely to create more problems than they can solve.
In fact, the usefulness of dedicated forex trading tools cannot be stressed enough and their potential impact on the success of your trading strategy should never be underestimated. Knowing what tools are available, however, and picking the right ones is a daunting task for novice traders, who have limited or even no relevant knowledge and past experience.
This present post serves the purpose of equipping such beginner traders with the necessary insight on the topic of essential forex trading tools and reading it and subsequently making use of the tools discussed herein, which will greatly contribute towards maximizing every newbie forex trader’s chances for trading success and profitability. So, stop missing out and start using the essential forex trading tools today!
What are Forex Trading Tools?
Forex Trading Tools enable forex traders to reliably analyze markets, while also allowing them to set the relevant parameters to most effectively and efficiently select the trades to perform. Most such forex trading tools also greatly impact both the conception as well as the implementation of a trader’s forex trading strategy, while their effective and correct usage is bound to boost your trading derived profits, over and over again.
The majority of today’s online forex brokers offer their trading services to clients through the use of sophisticated trading platforms. As already discussed in previous posts, the most widely used and popular platform in the world of online forex trading is the MetaTrader4 which enjoys huge popularity and penetration, thus being considered as an industry standard.
Both the MetaTrader4 and its sibling the MetaTrader 5, are platforms that come packed with useful trading tools for traders and besides offering news feeds, charts, and automated trading, they are also largely customizable, which is especially convenient for the different types of traders and trading strategies. It is true that most brokers today offer their customers trading platforms of extreme sophistication, while it is also true that many allow the use of other platforms as well, such as the MetaTrader platforms, alongside or instead of the use of their own proprietary platforms. Moreover, it is not unusual for traders to be making use and taking advantage of powerful tools and innovative features available across several platforms.
Forex trading tools are a widely encompassing term that refers to services or tools that you must subscribe to, as well as those offered free of charge by brokers, trading platform providers, and other industry participants and stakeholders, for example, financial news websites offering economic calendars. Moreover, forex signal trading services, which are hugely helpful, especially for rookie traders, also fall under the trading tools spectrum and can be obtained either for free or by subscription.
Our overview below discusses both tools you can access and use for free as well as those offered for a subscription fee. Selecting which tool or combination of tools would be most suitable and effective for you largely depends on your trading strategies, style, and experience level, while also entailing you knowing what each tool has to offer, in order to make the right choice matching a tool’s capabilities to your own specific trading needs.
Forex Trading Tools accessible online for free
The foreign exchange market in general, and consequently the online, retail, branch of forex trading, functions on the prevailing exchange rate levels between currencies. These exchange rates reflect the relative values of national currencies, which are in turn greatly affected by the prevailing economic conditions in each country, as well as interest rate differentials and future market expectations. Therefore, economic news calendars which feature events, announcements, and developments that portray both the economic sentiment as well as hard facts and figures, are fundamental analysis tools, which are very useful for traders and hugely popular amongst them, exactly for this reason. The even better news is that there is an abundance of such economic calendars on offer, and they can be easily accessed online by anyone at any time, completely free!
Besides featuring such economic calendars, a great number of dedicated forex news websites and forex information blogs also put at the disposal of interested traders an array of other useful tools for free. Many are in the form of downloadable tools, such as spreadsheets, or in the form of augmentations to other existing programs, while a growing number, especially useful for those trading on the go, come in the form of dedicated apps that may be used online.
Choosing the best forex tools for you
The money management methods you wish to employ and the trading style you adopt as a forex trader are the two most determining factors, which will help you discern which are the right and most suitable forex trading tools for you to use, to complement and aid your overall trading endeavor. If for example, you trade as a trend trade, you will benefit more from the use of longer-term charts and moving averages, as these will equip you to more wisely establish your trading positions. On the other hand, if you trade as a day trader, your daily buying and selling decisions will be better aided through the use of short-term technical indicators and chart patterns.
When considering and choosing your preferred forex tools, you must therefore ensure that you know your own trading style and keep in mind that strategy-based tools that fit your particular trading needs are often included in most available trading platforms, such as the MT4 and MT5, which nowadays make available for free, technical analysis software as well as market analysis tools, which used to cost an arm and a leg in the past, when forex trading was at a nascent state and not open and accessible to small-scale, retail traders.
Let us now take a closer look, at the main types of forex trading tools out there, to help you better define and focus your quest for the best and most suitable to your own individual needs and wants as a trader:
- Trading Platforms
- Charting Software
- Copy Trading Services
- Forex Calculators
Having identified them, let us now explore each of these in greater detail:
Trading platforms count as tools, since today’s platforms incorporate several technical analysis software, which also boasts order entry abilities, and almost all feature real-time market feeds. In fact, on most platforms, the market data feed which shows real-time asset prices is directly displayed on the charting interface and an additional trading window allows traders to place trades directly off the displayed charts.
A great asset of trading platforms as trading tools is the fact that their dashboards are fully customizable and allow you to set your own trading preferences, as well as create watchlists with the assets that interest you. Being able to rely on the sophisticated trading software offered by your platform of choice and customize and automate your trades in accordance with the specific parameters you decide on and set, is a powerful tool under your belt as a trader. Moreover, the quality and reliable news feeds offered by trading platforms and the fact that platforms, with all their tools, also come in mobile apps versions to allow you to trade on the go, all mean that your trading experience is greatly enhanced and your success chances are greatly improved.
One of the most useful and popular tools among forex traders of all levels and types are charts since they give a visual representation of market performance while allowing traders to not only analyze the market conditions in real-time but also examine past historical performance. Moreover, charting software makes it possible for trades to be placed directly from the charts themselves, while it is also possible to customize them to trade automatically according to specific, pre-set, parameters.
Good charting software packages also usually feature added indicators and trading signals, also allowing traders to test their strategies with the benefit of hindsight and gain a clear view about how they would have performed in real-time. Moreover, some types of charts, for example, the Japanese candlestick charts, are tools in their own right, presenting continuation and reversal patterns based on the open, high, low, and closing prices of each asset.
Copy Trading Services
Social or copy trading can be clearly characterized as the most interesting and revolutionary innovation in the field of forex trading in recent years. As such, and since copy trading allows the duplication of trades placed by the traders you are following, copy and social trading services fully qualify as forex trading tools and can greatly enhance the trading experience of traders, especially novice ones.
To find out more and get a full grasp of the opportunities to be had when using such copy trading services, we urge you to read our comprehensive guide on the matter called "Social Trading Revolution: Copy Trading Brokers and Investing platforms", which covers all aspects and vividly illustrates how such services have indeed revolutionized the online, retail, forex trading landscape.
Forex calculators clearly top the list when it comes to forex trading tools as they are the most commonly used type of such tools and the one with the greatest impact on the performance of a trader. In fact, we could argue that the highly volatile and constantly changing forex markets are almost impossible to navigate and tame without using online calculators, such as pip, margin, volatility, and profit calculators, as well as currency converters. The topic of forex calculators is discussed in great detail in our dedicated guide, which we strongly urge you to consult. Moreover, in the next section, which contains our own suggestions, we briefly highlight those forex calculators, which we consider the most essential and useful.
Our own suggestions on the best and most useful Forex Trading Tools
In this section, our resident team of experts highlights those forex trading tools, which we consider to be the most essential and useful for traders to ensure access to and use during their trading endeavors. Prior to delving deeper into the matter, it is important to note that most top forex brokers do nowadays offers many forex tools to their customers as part of their service package, so it is advised to check what your current broker offers in this regard, or include the availability of such tools in your list of items to look out for when choosing your preferred broker. On the matter of effectively choosing your right broker you can also consult our relevant blog posts, while if you decide that your current broker does not fare well enough in this regard, you can always explore other options, such as checking out Osprey FX, an innovative ECN broker that we have also talked about recently, and which offers many forex tools that its customers can rely on.
The MetaTrader 4 and MetaTrader 5 platforms
In terms of forex trading platforms, which, as already discussed, themselves qualify as a type of tool, our vote of preference would comfortably go to the MetaTrader 4 and MetaTrader 5 trading platforms. This is based on the fact that they both feature a wide variety of tools, which traders can rely on, including expert advisor software, generating trading signals, and allowing the automation of the trading process.
Being so popular among traders, the MetaTrader platforms enjoy an extensive user community and many of those users have actually themselves devised many useful add-ons that others may use too. Moreover, the array of incorporated technical analysis and charting tools is truly impressive and their usage is further accentuated by real-time trading functionality, while the highly customizable interface means that every user can tailor-make their dashboard exactly as they need and want it to be.
A Trade Journal
Record keeping and their accuracy are a great way to earn invaluable insights into your trading performance, helping you to evaluate your strategies and make the necessary adjustments for future decisions. Our team thus feels that a trade journal is an imperative tool for traders and that entries in such a journal should be as detailed and accurate as possible, including explanations about the trade’s initiation, the decisions taken and what they were based on, and the final outcome, profitable or not.
Self-evaluation is crucial and keeping such a journal is a bulletproof method to protect traders from making the same mistake twice. Keeping track of your trades in a journal could be done the old-fashioned way, i.e. using a paper journal, but it is much more convenient to use spreadsheets or even a dedicated trade journal service, which you can find online in great abundance.
Financial News Wires and Economic Calendars
As already discussed, the prevailing economic conditions in countries, announcements of economic figures and data, local interest rates, and other central bank decisions, greatly impact the valuation of currencies, and as such also affect the trading decisions of those making transactions in the forex industry.
Having up-to-date, reliable, and accurate information on all such financial news and announcements, therefore, is crucially important for forex traders, rendering access to such informational tools, such as news feeds and economic calendars, truly vital and essential. By keeping a close eye on such news, traders can immediately react and adjust their strategies, positions, and decisions, thus greatly enhancing their chances for eventual trading success.
The all-important trading tools that are forex calculators are presented in detail in our dedicated, which we once again urge you to study carefully. However, for the purposes of this present post, we feel obliged to briefly outline those forex calculator types, which strongly feel are the most essential for every forex trader to ensure access too. Remember that most of these may already be offered free of charge by your broker or platform provider, so do check out what you already have access to, before proceeding to search online for alternative providers. All forex calculators are easily available online either for free or at a subscription fee.
In our view then, the must-have forex calculators are:
- Currency Pip Calculator
- Volatility Calculator
- Margin Calculator
- Profit Calculator
- Correlation Matrix
- Currency Converter
- Time Zone Converter
Having identified them, let us now explore each of these in greater detail:
- The Currency Pip Calculator, which calculates pips, i.e. the smallest units of movement in the exchange rate of each currency pair. By using such a calculator, you can calculate the amount a pip is worth in the local currency, based on the position size.
- The Volatility Calculator, which is a great tool for your money management strategy and helps you manage and adjust your risk exposure, by determining the historical volatility for each currency pair in real-time and for several different time frames, ranging from one week to one year.
- The Margin Calculator, which is used to calculate the required margin, the margin percentage, and the amount of each currency that is required to be able to open and hold a forex position in a trading account, based on the contract size and the currency pair being traded.
- The Profit Calculator, which is essential as it lets traders determine the profit or loss of a trading position at different exchange rate levels.
- The Correlation Matrix, which visually depicts the degree of historical interconnectedness between different currency pairs and allows you to avoid assuming offsetting positions in closely correlated currency pairs, leading you to unnecessarily tie up your money margin and missing other lucrative opportunities.
- The Currency Converter, which instantly helps traders know the relative value of a currency to another at the currently prevailing exchange rate and allows them to accordingly adjust their position sizing, using equivalent values.
- The Time Zone Converter, which helps you adjust your trading to different time zones, and identifies overlaps of different trading sessions across the globe when the market tends to be at its most liquid stage.
Having proved the usefulness of using dedicated forex tools and the catalytic impact they can have on your overall trading endeavors, it is also imperative to point out what characteristics you should look out for in all such tools when considering their usage, especially if your plan is to use them on a regular basis.
Prior to selecting any forex tool, therefore, make sure that this tool is reliable, consistent, functional, and affordable.
To establish a tool’s reliability the best method would be to actually test it in real-life conditions while ensuring its consistency can only can on reviewing its performance over an adequate period of time.
A tool’s functionality is assessed based on its ability to perform its intended purpose, consistently over time and under any market conditions, while, since a vast majority of such tools are available for free, affordability can be easily established, while you would be advised not to rush to subscribe to any tools with high price tags, risking to lose more than you are promised to gain.
In a nutshell, forex tools are a great way to make your life easier as a trader, especially if you are new to it all, while they can greatly enhance your trading strategies and lead to successful outcomes, provided you know well what forex tools are available and how and when to use each of them.