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How and When to Use Basic Trading Tools
to Improve Trading Success

Benefits of various trading tools on trading performance

If heat maps were available on trading and brokers' websites, revealing to the general public where Forex traders spend their time and which areas of broker sites they regularly visit, then the sections containing trader tools and widgets would rank low. There's several reasons for this; many of us believe the various tools are irrelevant, we also believe that we already know, or can easily calculate, the information the various tools and widgets deliver. We're often too impatient to trade, we fail to see the benefits various tools (particularly calculators) can have on our trading performance, or we casually dismiss the tools as ranking low in terms of priorities and the potential impact on our trading performance.

Improve your trading performance with basic trading tools
With the help from various trading tools, you can minimize your risk and improve your trading performance.
(Image by Pixabay.com)

Trading calculators

There are several suites of trading tools currently available, which FOREX traders could (and should) take advantage of by ensuring the data produced is at the heart of their trading plan. But let's just concentrate on one range for now, trading calculators, the unique features each one offers and the benefits they provide.

Having a trading plan is essential, you wouldn't open a new business without a business plan, or operate a successful and growing business without a plan that's constantly being revised and adapted. Within this plan certain elements of your trading should remain steadfast, your: position size, risk per trade, the margin required and the overall cost of each trade should be known in advance, before every trade is taken. Trading calculators prove invaluable for generating these exact metrics and therefore managing your overall risk. Calculating pips, position size, margin, pivots and converting your domestic currency into the value of the currency peer you're trading, is essential when managing risk.

Before we briefly list the benefits of each individual calculator, let's use a generic trading example in order to explain how to use the various calculators. Once you've funded your initial trading account with perhaps €10,000 euros, then you need to regularly recalibrate each trade you take, or each order you place into the market. For example; if you're going to risk 1% of your account on every trade, then you shouldn't be risking 1% on the original €10,000 sum, you should be risking 1% on the variable account size, as the account will either decrease (or hopefully increase) as your trading ability evolves. If you don't know the exact risk per trade, then placing your stops will be mathematically inaccurate and when you come to calculate the percentage gain, versus account size, it will prove to be a random, imprecise calculation.

Many novice traders are impatient to trade and can often leave themselves wide open to basic but very costly errors, a pip calculator and position size calculator can prove to be essential in preventing such basic errors.

Margin Calculator

An invaluable tool controlling your market exposure on each trade, this feature calculates the margin required on each trade. As an example; if you want to trade EUR/USD, at the quoted price of 1.04275, at a trade size of 10,000*, using leverage of 1:200 then you'll need to have $52.14 dollars in your account to cover that exposure.

*one lot equals 100,000 units.

Pip calculator

A simple tool aiding particularly novice traders, when calculating their pips per trade. If you want to trade EUR/USD, at the quoted price of 1.04275, at a trade size of 10,000, then that's equivalent to one pip. Therefore you're risking one pip per point.

Position calculator

This calculator is essential for managing your risk per trade and monitoring your overall exposure into the market. Here's an example, using EUR/USD. You want to only risk 1% of your account per trade. You want to have your stop only 25 pips away from the current price. You have an account size of $50,000, therefore you'll be using a position size of two lots. You'll be risking $500 on the trade, should your stop loss be activated this will be your loss.

Currency converter

The simplest, most familiar of our trading tools, the currency converter allows traders to perhaps convert their domestic currency into another currency. For example if you want to convert €10,000 to $10,000 the result is 10,437.21USD. On the basis that 1 EUR = 1.04372 USD and 1 USD = 0.958111 EUR.

Using the suite of trading calculators on many brokers' websites only takes moments before you take each and every trade. And you can (in theory) alter certain elements of the trade once it's executed, in order to match your specific trading parameters. Whilst not using them open you up to possible expensive and easily avoidable mistakes.

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"Money is not an invention of the State. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the State."

Carl Menger - the founder of the Austrian school of economics