For all forex market enthusiasts, this statement is well-known: “risk and reward go hand-in-hand.” The cliche is worn out but holds a fundamental trading lesson – what is a good risk and profit? A typical answer to this question would be, “that depends on your risk tolerance and profit goals.”
However, in practice, we predict the performance of our trades, even before executing them, with the help of trading calculators, which are offered by most of the brokers. This helps us in creating a trading plan, avoiding risk, and maximising profits. Going ahead, we will discuss what a trading calculator is, its benefits & types, and how you can incorporate it into your trading.
What is a Trading Calculator?
A forex trading calculator is a simple software program that helps traders perform calculations to see how a particular trade might impact their portfolios. The calculator can help you determine things such as how much you might gain or lose on a particular trade, how much you would need to risk on a trade to cover your losses, and how much profit you could potentially make on a trade.
One of the most helpful features of using trading calculators is that it can help you to properly plan your trades in advance so that you can make the most of your opportunities while minimising your risk.
What are the benefits of Trading calculator?
Trading calculators can be a great tool for traders. It can help you calculate your risk and reward and determine if you are making the most efficient use of your time while trading. Here are some of the benefits of using a trading calculator.
1. Calculating your risk and reward
You can use a trading calculator to see how much money you stand to earn or lose on each trade, which is useful information when deciding whether or not to take a chance with your next position.
- Maximising profits
You can use a trading calculator to figure out how much profit you could make if you were to trade all of your money in one particular market instead of spreading it out across various markets, which can help you decide whether or not it makes sense for you to do so.
- Predicting future performance
You may want to predict what will happen in the future with regards to the market performance and how much money you will make off of this prediction.
4. Checking the performance of trading strategy
They allow you to see how your strategy is performing, and what it will do in the future, based on past performance. By analysing your past performance and calculating your projected returns, you can figure out which strategies are likely to work best for you in the future.
- Providing a blueprint for your trading journey
Trading calculators provide a visual representation of how things will look when they’re done so that you can see how much money you’ll be making or losing before any actual trades are made!
What are the best forex trading calculators?
There are many trading calculators in the market. Let’s discuss some of the most common ones: trading calculators:
1. Position Calculator: A position size calculator is a valuable tool for forex traders, allowing them to quickly and easily determine how much of a particular currency to buy or sell in order to achieve their desired level of exposure.
While there are a number of different position size calculators available online, most operate in a similar fashion and allow users to input the following metrics:
- The assets they are trading
- Size of their trading account
- Amount they are willing to risk on each trade
- The stop-loss level they have set for each trade
Once this information is entered and submitted, the position size calculator will then determine the appropriate position size for the trade in question. While position size calculators are not mandatory for forex trading success, they can be a valuable tool, particularly for those who are new to the forex market and are still learning how to properly manage their risk.
- Margin Calculator: This is a calculator for calculating how much money you will have in your account if you make the trade.It helps you determine how much money you should deposit, which will help ensure that you do not lose any money by opening a position you don’t have enough funds; it also calculates what percentage margin would be required in order to reduce losses if there were a large price movement; and finally, it can help you determine how much money would be needed for additional positions or for closing out existing positions at certain prices.
- Pip Calculator: A pip calculator is a simple tool that allows you to determine the value of a pip in your chosen currency. All you need to do is enter the amount of your chosen currency, and the calculator will do the rest.
This tool is essential for anyone who wants to trade in the foreign exchange market, as it allows you to calculate your potential profits and losses.
- Profit Loss Calculator: This calculator allows you to see how much profit or loss you would make on a particular trade. So, you are prepared to take risks accordingly.5. Fibonacci calculator: It isused to calculate the Fibonacci retracement levels. This calculator works by analysing a series of price movements that are related to each other through Fibonacci number relationships.
6. Multi Target Calculator: A multi target calculator helps Forex traders calculate the ideal position size for their trades. It takes into account the entry price, stop loss, and profit target of a trade, and then calculates the ideal position size based on the account size and risk appetite of the trader. This tool can be very helpful in managing risk and ensuring that trades are properly sized.
7. Pivot Calculator: A pivot calculator allows forex traders determine potential support and resistance levels for a given currency pair. By entering the high, low, and close prices for a given period of time, the pivot calculator will generate several important technical levels, including the pivot point itself, as well as the support and resistance levels.
8. Commission calculator: With this calculator, traders cancalculate the amount of commission they would pay on a trade. This can be helpful in deciding whether or not to enter a trade, as well as what the potential profits and losses may be.
How do you use a calculator?: If you have used a simple mathematical calculator, you will not have a hard time using a trading calculator. It is fairly easy to use a trading indicator if you are aware of the use of calculator(s) and the parameters that they take in for input. The steps to use trading calculator are simple –1) Select the asset class of your choice and add your base currency.
2) Add the required parameters
3) Click on the “calculate” button. The result will give you all the information that is required regarding opening or closing your trade, such as bid price, ask price, margin, spread, leverage, etc. Hence, understanding of forex jargon is a prerequisite so that you can easily derive a conclusion..
Here are some terms that you should be familiar with –
- Stop loss
Stop loss is how far away from your current position (or “entry”) you set your selling limit, which is usually based on your risk tolerance and account balance limits. A stop loss is an automatic order and you should select a stop loss level beforehand.
Lot
A lot is the smallest unit of measurement in a Forex trade. In most cases, a standard lot is 100,000 units of the base currency.
- Order type
There are two types of order that a trader takes-Buy – this order is executed when you want to buy a currency pair.
Sell – this order is initiated when you want to sell a currency pair.
- Margin
Margin is the amount of money that you need to put up in order to open a trade.
- Spread
The spread is the difference between the bid and the ask price of a currency pair.
- Pip
A pip is the smallest unit of price movement in a currency pair.
- Leverage
Leverage is the ratio of the amount of money you have in your account to the amount of money you can trade. For example, if you have $1,000 in your account and you’re using 100:1 leverage, you can trade up to $100,000.
- Bid price
The bid is the price at which you can sell a currency pair.
- Ask price
Ask price is how much money you’re willing to pay for a currency pair at any given moment.
- Spreads
Spread is the difference between the bid and ask price of a currency pair. Spreads vary from broker to broker, and you can click here to find out live spreads offered by different brokers.
Conclusion
Here, we have discussed the use of trading calculators and how it can assist traders in their financial journey. A trading calculator is a tool that can help traders calculate the value of a pip, determine their risk-to-reward ratio, and identify potential support and resistance levels. By using a trading calculator, traders can make more informed trading decisions and improve their chances of success in the forex market.
