When you start trading forex, you’ll find out quickly that the best forex trading tools can be indispensable for analyzing markets and setting parameters for selecting trades. Top-of-the-line trading tools can also impact your strategy and profits.
Today’s online brokers like FOREX.com provide traders with some of the most sophisticated trading platforms on the planet. The MetaTrader 4 and MetaTrader 5 trading platforms represent some of the best examples of trading tools and offer customization, news feeds, charts and automated trading.
Most online brokers either allow you to use the MetaTrader platforms or offer them as an alternative to their own proprietary platforms. Advanced traders can also use powerful features and tools available on other platforms.
Quick Look: The Best Forex Trading Tools
- MetaTrader 4 and MetaTrader 5
- Trade Journal
- Calculators: Currency pip, volatility, margin, profit and currency converter
- Correlation Matrix
- Time Zone Converter
- Financial Newswire
- Economic Calendar
How to Choose the Right Tools for You
The right tools depend largely on your trading style and money management methods. For example, you might use short-term technical indicators and chart patterns to buy and sell if you’re a day trader, while a trend trader often uses longer-term charts and moving averages to establish their positions.
Strategy-based tools that fit your particular trading style are often included in most trading platforms, such as MetaTrader 4 and 5. In addition to technical analysis software, today’s free trading platforms now provide news feeds and market analysis tools that used to cost thousands of dollars a month just a few decades ago.
Charts give a visual representation of market performance and are one of the most-watched tools among forex traders. You can examine historical performance and analyze the market in real-time. You can often place trades directly from charts and they can be customized to trade automatically.
Good charting software typically features a number of other indicators and trading signals and you can backtest your strategies to determine how they might perform in real time. Also, the charting style itself is often used as a tool, such as the Japanese candlestick charts that show continuation and reversal patterns based on the open, high, low and closing prices.
A trading platform generally incorporates technical analysis software with order entry abilities and a real-time market feed. Most platforms have their market data feed with real-time prices directly displayed on their charting interface with a trade window that lets you trade right off the charts.
A high-quality financial news feed is another key component of a good trading platform. Today’s sophisticated trading software also lets you customize and automate trades according to the parameters you specify. Most advanced platforms also come in a forex mobile app version for Android and iOS devices.
Brokers are another good source of trading platforms. For example, FOREX.com provides its traders with an advanced desktop platform that features integrated trading strategies, advanced charting and professional analytics tools. The platform’s dashboard is fully customizable to create watchlists and set your trade preferences.
Online calculators save you time when performing basic calculations. Some of the most common online calculators used by traders include pip, margin, volatility and profit calculators. Currency converters are another popular type of tool that could also be considered a calculator.
Copy Trading Services
One of the most interesting trading innovations of the past decade has been social or copy trading. Copy trading uses technology to duplicate the trades of successful traders you follow (who are also known as forex signal providers).
Every time they trade on their account, you can automatically copy their trades scaled for your risk preferences directly into your account. Keep in mind that most markets experience exceptional conditions from time to time and that should be taken into consideration when you take positions based on a signal.
What to Look for in a Forex Tool
Look for several key characteristics in just about any forex tool you plan to use regularly.
Reliability. Most forex tools included on a trading platform or broker website can be considered reliable, but you’ll probably want to test them to make sure. Copy trading consistency will give you greater confidence in the reliability of a particular trader. As you trade on your own signals, your interpretation of them and how disciplined you are at following them should also be consistent for best results.
Functionality. This means that a tool performs its intended purpose and works well under normal market conditions. Knowing what forex tools are available, when to use them and how they work is an important part of developing a successful trading system. In addition to being consistent, a good forex tool should function repeatedly in a similar fashion for its specific purpose. Even if you use the best forex broker and tools, if your trading signals fail to suggest profitable trades, you can still lose money.
Affordability. Most basic forex tools are included at no additional charge in advanced trading platforms like MetaTrader 4/5 or on broker websites. You can also subscribe to copy trading or signal generating services that charge fees. Some advanced automated trading systems and signal generators are available as third-party software, such as expert advisors for the MetaTrader platforms and these often come at a price.
Our Picks for the Best Forex Trading Tools
Many top brokers like FOREX.com offer various trading and research tools you can use to enhance your forex trading experience. Among the many tools available to forex traders, those listed below are those we like best and find most useful.
1. MetaTrader 4 and MetaTrader 5
The MetaTrader 4 and MetaTrader 5 trading platforms feature a wide variety of tools and you can use and develop expert advisor (EA) software to automate your trading and generate trading signals. You can find MetaTrader 4 at FOREX.com, along with the broker’s own proprietary platform.
MetaTrader offers real-time trading functionality and an impressive set of technical analysis and charting tools. It also has a highly customizable interface and an extensive user community that has devised many useful add-ons for the platform.
2. Trade Journal
Keeping accurate records of your trades could give you valuable insight into your trading. When making entries in a journal, you will generally want to include an explanation of why a trade was initiated, the signals used to make the trade and whether the trade was profitable or not.
Entering trades in a journal lets you examine your mistakes and help to avoid repeating them on future trades. You can use a paper journal, a spreadsheet or a trade journal service like Edgewonk to keep track of your trades and your reasons for taking them.
Benzinga’s top picks for the best calculators include a currency pip, volatility, margin and profit calculators. You can usually find these on your broker’s platform.
Currency Pip Calculator
A pip represents the smallest whole unit of movement in a currency pair’s exchange rate. A pip calculator can help you determine the amount a pip is worth based on the position size in the local currency.
A pip calculator usually displays the pip value of a specific currency pair based on a micro-lot of 1,000 currency units, a mini-lot of 10,000 currency units and a standard lot of 100,000 currency units. You can also sometimes enter your desired position amount.
A volatility calculator uses a currency pair’s historical exchange rate information to determine the historical volatility for each currency pair in real time for several time frames from one week to one year. Some calculators can compute the implied volatility from option prices. Traders can reduce their position sizes in times of higher volatility to manage their risk as part of a money management strategy.
Margin is the percentage or accounting currency amount required to open and maintain a position in a trading account. A margin calculator usually computes the required margin, the margin percentage and the currency amount required to hold a forex position based on the entered contract size, the currency pair traded and your accounting currency.
A profit calculator is a simple tool lets you determine a trading position’s profit or loss at different exchange rate levels.
A currency converter computes the value of one currency relative to another currency at the prevailing exchange rate. This tool generally takes an entered amount of one currency and converts it into another currency at the prevailing exchange rate. This tool can be extremely useful for traders who need to calculate equivalent currency values for position sizing and money management purposes.
4. Correlation Matrix
How exchange rate changes in one currency pair relate to those seen in another pair is called correlation, and a set of currency pair correlations makes up a correlation matrix. Some currency pairs correlate strongly because they have a common counter or base currency or if an official peg is in place, while other pairs are not well correlated.
Since some currency pairs perform in a similar fashion, reviewing a correlation matrix helps you avoid establishing offsetting positions in currency pairs that closely correlate because it can unnecessarily tie up margin money that could be used to trade other opportunities.
A correlation matrix provides a visual representation of the existence of historical interconnectedness between the exchange rate movements of different trading pairs. The correlation is usually expressed in terms of a correlation coefficient, which is an indicator that shows the degree of correlation among different currency pairs.
The correlation coefficient has values that range from -1 to +1. A value of -1 shows a perfect negative correlation between two currency pairs, a 0 value shows no correlation, while +1 shows a perfect positive correlation.
Furthermore, 0 reflects no correlation, a weak correlation would be from +/- 0 to 0.2, a low correlation would be from +/1 0.2 to 0.4 and a moderate correlation would be from +/- 0.4 to 0.6. A strong correlation would be from +/- 0.6 up to the maximum value of +/- 1.0 that reflects a perfect correlation.
5. Time Zone Converter
Time zones can make a big difference to forex traders. The leading forex trading centers are London, New York, Tokyo and Sydney, and some of those centers’ trading sessions overlap during certain periods during the day. Such overlaps tend to be the most liquid markets for certain currency pairs.
Furthermore, because the currency market is open 24 hours a day from Sunday afternoon to Friday afternoon EST, knowing what trading sessions are open and what times are best to trade can affect market conditions like liquidity, volatility and trading volume. Since those are important elements to consider when trading forex, the time zones you chose to trade in can potentially affect your profitability.
6. Financial News Wire
Economic numbers and interest rates play an important role in the valuation of currencies. This explains why many successful traders keenly watch news events while they trade. Some analysts consider interest rates to be the most influential element that affects the valuation of a country’s currency and many economic indicators have implications for the benchmark interest rates set by central banks.
Furthermore, most central banks release those benchmark interest rates every month, along with associated official speeches and rate statements at press conferences. These announcements can have a strong effect on currency pairs that involve that nation’s currency, especially if they differ from what the market expects.
Other news items that affect currencies are geopolitical events, national elections and major economic releases, such as employment numbers and GDP. Traders who keep an eye on the news can react immediately after an important release or news item. Even if you’re a technical trader, you still need to aware of economic release times since the assumptions technical analysis are based on can break down during subsequent sharp market reactions.
7. Economic Calendar
Forex traders who plan their trading week typically examine an economic news calendar. An economic calendar lists all major economic releases, central bank interest rates and policy statements, national elections and speeches by central bank officials that could affect the valuation of all of the major currencies.
An economic calendar generally includes the expected number and the previous number. Any deviation from the expected number, either higher or lower, could significantly increase the volatility of the currency involved, as can revisions to the previous result.
Furthermore, a good economic calendar not only lists the actual event but also lets the trader know how much of an impact on the currency it can have. For example, a high-impact or red event could be a speech by a central bank governor, while moderate-impact or orange event might consist of the Core PCE Price Index, while a low-impact or yellow event might be the release of personal income.
You can find plenty of tools for trading the forex market. If you’re looking for trading tools to enhance your strategy or make your life easier as a trader, then be sure to check out the selection available at FOREX.com.