Winston Churchill once said, “Give us the tools, and we will finish the job.” And what’s the job of a forex trader? Finding opportunities to net some pips and increase the equity curve! The better your forex tools are, the higher the chances of achieving consistent success.
Fortunately, most forex trading tools are freely available online and easy to use. Most tools don’t provide buy or sell signals, but this doesn’t mean they are not worth using. The point is to offer insights and data not available on your chart.
Some tools help with managing your risk, knowing when the most anticipated news will be released, and observing your long-term performance.
Let’s also remember that a trader is also an instrument. This means that your mind and skills must always be sharp every time you engage with the markets.
So, let’s look at the must-have forex tools for trading and why they are necessary for traders.
List of useful tools for forex trading (and how they work)
Without further ado, let’s get straight into it.
It makes sense to begin this list by speaking about charting software. This is usually the first trading tool traders learn about when starting. One of the main jobs of charting software is to allow traders to place orders through their connected broker.
The second crucial aspect is analysis. The best trading platforms will have a suite of indicators like moving averages and stochastics, along with graphical additions like Fibonacci and ways to draw numerous chart patterns.
The more forex trading tools the software has, the better. It’s all about enhancing the experience and ensuring you can complete the best analysis possible.
Most people start using MT4 or MT5 as these are the most popular in forex (check out our guide comparing the two).
However, once you get more experienced, you’ll realise there are more advanced platforms like cTrader, NinjaTrader and TradingView. While a monthly subscription may be required, it is worth considering once you start making profits.
We know that forex is a math-based game of risk and money management. So, we have to use a range of calculators when making charting decisions. Fortunately, these forex trading tools are freely available online from countless broker and other third-party sites.
Let’s look at them in more detail.
- Position size calculator
This is the most crucial calculator when it comes to trader tools. Proper position sizing is the make or break of ensuring comfortable monetary risk. Unfortunately, many traders use any lot size without realising that the wrong one can quickly lead them to a margin call.
When trading any forex pair, you buy or sell particular units of the base currency. For instance, the base currency in USD/JPY is USD. So a buy order here would represent purchasing a certain amount of US dollars for Japanese Yen, while a sell order would mean selling a specific amount of the Yen for the US dollar.
We measure these units according to contract or lot sizes, for which we have four:
– Standard (1 lot, 100 000 units)
– Mini (0.10 lots, 10 000 units)
– Micro (0.01 lots, 1000 units)
– Nano (0.001 lots, 100 units)
Each unit for every pair has a quantifiable monetary value (for more info, check out our guide on pips). For most calculators, the only information you need is the pair, account size, percentage of account risked, and stop loss distance.
You should use a position size calculator before EVERY position you take.
- Margin calculator
We know that forex is trading on high margin, which can lead to substantial losses. Therefore, a margin calculator determines the precise margin you need to open a trade on a particular market. Why is this necessary?
Using too much leverage can increase the chances of blowing your account. Also, it is possible to use a larger lot size than what is available in your balance.
The margin calculator does a similar job to a position size calculator. The main differences are that it considers your leverage ratio in relation to the traded pair.
This results in the dollar (or currency equivalent) value of how much money you need to open a specific lot size.
- Pip calculator
A pip calculator is also quite helpful when looking at forex trading tools. In forex, we measure price distances in pips. Only a few pairs have standard pip values. It takes some time to work out the others through pen and paper.
This is why a pip calculator can speed up the process. There are several reasons for using this trading tool.
Firstly, it is necessary to track price changes. Traders need to measure these with the highest accuracy. So, a calculator helps us express pips in the quickest way possible.
The second benefit is that you can calculate the dollar value of spreads. Although spreads in forex are quite low, some traders like to compare them across brokers for pricier markets like exotic pairs.
The final benefit of pip calculators as forex trading tools is quantifying profits and losses. For instance, when we look at risk-to-reward ratios, we need to know the value of our stop loss and profit target in pips to gain a true reflection.
Although trading platforms provide pip values for these things, a pip calculator is useful in planning.
- Profit calculator
The profit calculator has a similar function to a pip calculator. The main difference is that you can add the open and close prices for a particular trade. Hence, it is more effective in helping traders work out their exact loss and profit amounts before entering a position.
Using the pair, lot size and base currency, this calculator computes the difference between the entry and exit prices and multiplies it by the pip value.
- Swap calculator
This forex tool primarily applies to swing traders and position traders rather than scalpers and day traders. A swap (or rollover) is interest that traders pay or are credited with for holding a trade overnight.
The amount of rollover depends on the interest rate differential between two currencies. This is where a swap calculator excels as a forex trading tool. You can use it before any trade you plan to hold for several days.
This is where you can see how much interest you’ll pay or receive depending on the traded pair. Swap calculators are available with individual brokers because the long/short swap rates will differ depending on the service provider.
Another useful addition for swap forex trading tools is the swap comparison tables you can find with sites like Myfxbook and Forex Church.
Here, you can compare swaps across multiple brokers. This is helpful for carry trading, where traders look to gain the most interest by holding their positions for the longest time.
Journals are some of the under-utilized forex trading tools. However, it is a professional method of logging your activity in the markets.
A journal is a way of record-keeping all your positions to help monitor your performance, fix errors and maintain consistency.
Think of it like a database of your orders to keep you on track. Trading journals are not only about numbers. They make traders accountable for emotional discipline based on their trading plan.
Your average journal will contain the following information (but not limited to):
~ The date and time when a new position has been opened
~ The traded pair of the executed order
~ The direction of the trade, either buy or sell
~ The position size in lots
~ The entry price, stop loss, and the exit price
~ The outcome of the trade, including whether it was a loss or profit and how much
~ Reasons for taking a trade
There are two ways of journaling: through spreadsheets or dedicated journaling software. While the manual is free, it is time-consuming. Also, it is more challenging to input other valuable data without mathematical or complex knowledge.
So, the best way to journal as a trader tool is by using software like Edgewonk, TraderSync, and Tradervue.
Here, you can export the data from your trading platform or input it manually. However, this software can provide other powerful insights or metrics like:
- Average wins/loss
- Profit factor
The only downside is you need to purchase this software for a yearly subscription. Yet, if you can afford it, a journal is one of the best forex trading tools to have.
Trade result analyzers
These analytics platforms share some functionality with journals when presenting advanced P&L statistics. However, the main job of a result analyzer is to show your results in real-time.
If you’re profitable, you can present this data to other investors or companies that may be interested in providing funding. Some traders can use these services to run trading competitions where it is simple to view the true top performers.
Also, like a journal, result analyzers offer a snapshot of your performance and areas of potential.
Using these forex trading tools is straightforward. You simply connect your account with a read-only password.
The software will present your performance and update it in real time as you execute new positions. The best part is that you cannot fake the data from your account, offering much-needed transparency.
Popular analyzers include Myfxbook, FX Blue and Tradervue, among others.
This free online trading tool shows daily scheduled economic releases across different countries. You can find economic calendars on various finance, trading or investing-related websites like Investing.com, Myfxbook, Dailyfx and FXStreet.
They work on a simple scale of low, medium or high-impact events, with traders paying the most attention to the latter. Low and medium-impact releases rarely make a difference to the price. Yet, high-impact news, like interest rates and job figures, usually generates volatility and powerful movements.
Economic calendars are non-negotiables when it comes to trading the news. But even if you are not doing so, they are helpful in anticipating potentially volatile movements.
For instance, interest rates can cause the markets to go haywire. As a result, it’s not always the best time to trade. So, some traders use the economic calendar as a warning to avoid such conditions.
Short-term traders use this forex tool to time their positions based on the anticipated effect. A negative result is expected to drive the price of a pair down, while we hope a positive result will have the opposite effect.
Currency strength meter
Currency strength meters are forex trading tools that provide a visual overview of weak and strong currencies across various time frames. They use the real-time exchange rates of different currencies and aggregate them against each other using a specific weighting.
Of course, there are many other forex trading tools you can use. But the ones we have provided here should be sufficient for all traders. Also, this isn’t to say that you should use all these tools for trading.
One of the secrets to trading success is keeping things simple. So, add a tool only if it provides a valuable edge.
Finally, we mentioned traders themselves are their own tools. This means that you must be pretty skilled and know your way around a chart. Your mentality and experience ultimately determine the quality of your trading decisions.
So, use yourself, along with these forex trading tools, to get the job done!