We all know that trading is a skill which needs to be developed and polished with continuous learning and practice. A forex trader needs some essential trading tools in order to upgrade their skills while moving forward. And today we will be discussing one of the most basic yet powerful trading tools that can be used for accelerating your trading. Forex trading involves many simple to complex calculations and performing them with accuracy is very much needed for getting the desired trading results. And forex trading calculators like profit calculators are an all-in-one tool which allows traders to perform all important trading calculations with ease. So, learning to use this tool properly would surely add up to your skill levels as a trader.
Introduction to Forex trading calculators
Forex trading is all about making profits from favourable fluctuations in currency prices. In fact trading in any market is all about taking advantage of the price changes taking place. So naturally, the one who is engaged in trading would have to plan and perform some calculations before entering a trade or opening a position. Even though trading in any market segment calls for calculations, trading in the forex market adds up to the complexity of these calculations.
The trading instrument here is international currency pairs. The calculation will start from conversion rates of currencies and would get more technical with number of pips, position size, lot sizes, risk percentage, margin, spreads and more. Hence, the number of calculations that needs to be performed by a forex trader is a lot more in comparison to someone trading in the stock or commodity market. And a beginner trader would feel overwhelmed, confused and burned out if they are left on their own to perform all these calculations manually.
That’s why forex trading platforms and brokers offer a forex trading calculator as a free tool to traders. These online calculators are not less than a blessing for an average beginner who is just entering the forex world. Using them is quite easy once you understand the basic technical terms related to trading. And today, we will be learning about all the major functions that are found in a standard trading calculator.
Basics of using a forex trading calculator
Mostly, all standard online calculators will have the following sub-calculators to perform the basic functions.
- Position size calculator: Position sizing is one of the most basic skills that you have to develop as a forex trader. Determining the optimal position sizes for your trades can be a tiresome task if you try to do it manually. Hence a position size calculator will save your time by telling you the suitable position size for opening a trade based on your risk tolerance.
You just need to specify your account base currency, the currency pair you are trading with, specify whether it’s buy/sell position, open price, stop loss/exit price, account balance and risk percentage. The unwritten rule is to not risk anything more than 2% of your trading capital. This is a part of risk management in forex. Once you state these values, the calculator will tell you the optimal position size/ trade size in lots.
- Forex pip calculator: Percentage in point or price interest point is the full form of pip. It is one of the most basic technical terms that we have to learn in forex trading. It measures and denotes the smallest movement or change that happens in currency rates. Pip value is commonly used by traders for calculating profits and also for managing their risk. A forex pip calculator serves the function of calculating the value per pip for each position. We just need to state the base currency, currency pair and trade size in lots to use the pip value calculator.
- Forex profit calculator: Calculating the trading results in terms of profits/losses in advance is important to arrive at the best entry and exit prices for a trade. For this you can use a forex profit calculator. You have to specify the base currency, chosen currency pair, type of position, trade size in lots, entry price and exit price in the profits/loss calculator. It will return you to the possible result of a trade you wish to enter or have entered already.
- Forex margin calculator: A forex margin calculator serves the function of calculating the margin levels to be maintained for a particular trade. A margin calculator needs to be used when you are availing leverage from your broker to accelerate your trades. Using a forex margin calculator is quite easy as you only need to specify base currency, chosen currency pair, trade size in lots and account leverage. Then the calculator will tell you the margin levels you need to maintain for successfully running a trade.
- Commission calculator: You will be paying a certain amount of commission for every trade that you enter. So, you can use a commission calculator to calculate the commission for a particular trade. For this you need to specify account base currency, position size in lots and the currency pair you are trading with.
- Swap calculator: Swap or rollover fees is the interest rate difference between two currencies in a pair you are trading with. Swap needs to be applied whenever you keep open an overnight position. You just need to state the base currency, currency pair, number of days for which you wish to keep the trade open and trade size in lots. The swap calculator will tell you the swap applied for both long and short positions.
- Currency converter: Last but the most important function found in a forex trading calculator is a currency converter, This is a basic yet crucial function for every trader. Just specify the amount and the currencies you wish to convert in the currency convertor. It will give you accurate results in no time.
Advanced functions in a forex trading calculator
- Multi-target: This advanced function is added for traders to maintain their desired risk/reward ratio. Basically it will tell you what part of your positions need to be closed at certain target levels along with risk to return value.
- Fibonacci: Fibonacci retracement tool is a popular technical indicator used by forex traders. You can make use of the fibonacci function on a forex trading calculator for calculating the retracements.
- Pivot points: This advanced function is added for traders to easily calculate the direction of a trend and determine support/resistance levels with ease.
Just note that these specific functions may not be there in every forex trading calculator that you find online.
A forex trading calculator is designed to serve as the personal assistant of each and every trader as it will help you with all the simple or complex calculations which come as a part of the trading process. They will do all the calculation work on your behalf so that you don’t lose your precious time in doing them manually. You will be able to upgrade your trading skills by adding a forex calculator to your trader’s toolkit.