Important Forex Tools

Today we are looking to shed light on the existence of some free trading tools that will enhance the performance of your Forex portfolios.  Some of these tools are :

Carry Trade Calculator

The carry trade calculator is used to determine the interest that is accruable to the trader who has a long position on a carry trade where the base currency is the higher-interest yielding currency. The components of this tool are as follows:

a) The currency the account is denominated in.
b) The currency pair for the carry trade. By now you should know that the best yields are obtained from the AUDUSD, AUDJPY,
c) The position held on the pair (you should go long if the high-yield currency is the base currency and short if it is the counter currency).
d) Lending rate (interest rate of the higher yielding currency).
e) Borrowing rate (interest rate of the lower yielding currency).
f) Trade size (1 lot = $100,000 trade size. Extrapolate others from this figure).
g) Number of days that the position is held.

This snapshot of a typical carry trade calculator from Forexpros shows a calculation made for an account denominated in US dollars, trading 1 standard lot on the AUDUSD on a carry trade position that was held open for 60 days.

With this calculator, the trader can then decide on the carry trade strategy to use, and how long the position will be held in order to fulfill all the expectations for this trade type.

Forex Risk Management Calculator

Another tool that will help traders tremendously is the risk management calculator or the money management calculator. We addressed the issue of Forex risk management (click here for that article) and we identified inability to properly manage risk as the main cause of margin calls on traders' accounts. We would therefore recommend using a risk management calculator such as the one we see here:

The key components of the calculator are as follows:

a) Your account equity: how much does the trader have in his account?
b) Risk per trade: this figure should not exceed 5%
c) How many pips will be set as stop loss for the trade?

A simplified version of this tool is shown below:

The snapshot shows very clearly that this trader is expected to use 0.13 lots for this trade for the GBP/JPY if he is to conform to the acceptable risk management standards for his account size.

Pivot Point Calculator

The pivot point calculator is used to automatically determine the daily support, resistance and central pivot levels for a currency pair. This saves the trader the stress of re-calculating them daily with the previous day's high, low and close price levels. It also provides the trader a visual representation of the key levels of support and resistance, allowing the trader to use these levels in making trade decisions on entries and exits. This tool is freely available online.

Forex Order Book

You must have heard the saying that “the trend is your friend”. The truth however is that by the time you wait for the trend to form, you would have missed a lot of pips and probably just be feeding on the scraps that the trend creators have left behind. Who are the trend creators? These are the institutional traders whose volumes give direction to a currency pair. The only way you can truly make the trend your friend is by knowing where those who create the trend are putting their money. You simply need to see where the big dogs are putting their money and on which side of the trade they are on. This is where the Order Book comes in. This tool used to be the sole preserve of the Level II platform users (the institutional traders), but courtesy of Black Light Data, even retail traders can get access to the OrderBookFx software.

For $109 a month., traders get access to the source code and indicator for MT4, as well as the BookViewer software.  Now you can tell precisely where the bulk of the market orders are, and trade with the sentiment and not against it.

With these four tools, traders have the potential to witness a radical change in their trade results.   Trading with the right tools is like trading in the dark with the light switched on.  Give it a try!

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