Tools for Online Forex Trading
Tools for Online Forex Trading
Success in online forex trading is a matter of using the right strategies. Knowledge of these currency trading methods can determine whether you are going to rake in profits or suffer losses. Hence, it is crucial for you to understand the tools and methods used in currency trading. Some investors who are used to stock trading underestimate the need to know currency trading. This is a mistake since forex trading is distinct from other markets. Applying forex trading strategies will provide you added benefits and assist you in reaping more profits even within a relatively short period.
Basics of online forex trading
Banks have provided online platforms to add to the liquidity of the forex market. While initially designed so that investment professionals could enter into the banks’ currency markets, online forex trading platforms are now being used by individuals who intend to profit from the rise and fall of forex rates. An online forex account is similar to an online banking platform. Your funds are held at the bank, which provides the online platform. Instead of just having one position, you may switch to dollar (or any other currency) positions as the market moves. In some cases, this may be done for you by a third party, such as financial services firms specializing in retail forex.
To get started in online forex trading, you would need a charting service. Forex charts are those complex-looking tables, which show timeframes and forex rates. They may be set to your preferred display style and time frame. Technical analysis is made based on these data. While there are lots of traders who do not base their trading decisions on technical analyses, these can be beneficial, especially for those who are new to forex trading. There are free forex charts on the Internet, but many people opt for charting services, as these usually include technical analysis tools. After subscribing to a charting service, the next thing you would need is a good trading platform or dealing station.
Once you have established a connection with a forex broker and deposited an amount to your margin account for leverage, you are ready to trade. Currency trading is done in pairs (e.g., EURUSD), and the basic principle is that you buy the currency that is expected to rise in value. This is why (using the EUR/USD pair as an example) when there are adverse political conditions affecting the European economy, traders anticipate the euro to weaken against the dollar and quickly sell.
You measure the profit you make on percentages in point or PIPs. A PIP is equivalent to .0001, the slightest price movement a currency can make. For instance, if the price of the EURUSD pair moves from 1.1350 to 1.1355, it has increased by 5 pips. Pips have varying values depending on currency pairs. Going back to the EURUSD pair as an example, the PIP value on a standard account is $10, meaning that for a movement of one pip toward your direction, you make $10.
When you view forex charts, you will see “bid” and “ask” columns indicating their prices. The current bids and ask prices are referred to as the spread, which your broker (or market maker) will charge you (plus commission, in some cases) for entering the market. For example, if the EURUSD bid price is 1.1438, and the asking price is 1.1439, the spread is 1 pip. Your total cost for entering the trade would be $10, which is computed by multiplying the spread with the pip value.
Tools for online forex trading
There is a wide array of forex trading tools that investors may use, and one of the most helpful, if not the most effective, is leverage. Leverage is a currency trading tool designed for enabling online forex traders to have more funds than the deposited amount. By applying this strategy, you can have as much as a hundred times more than what is deposited in your account, which you can use against any currency trade. This will facilitate backing for transactions with higher returns and allow better results in your trading activities. As an online forex trading tool, leverage is used regularly, enabling investors to exploit short-term fluctuations in the forex market.
The stop-loss order is another popular choice in forex trading tools. This is used to shield investors and makes a predetermined point at which the investor will not trade. As an investor, you will be able to reduce your losses by using this forex trading tool. However, there is also a catch to the stop-loss order: you may cease your currency trading activities when it could actually become more profitable if you continue.
Another option for the forex trading strategy is the use of an automatic entry order. It sets a predetermined price at which an investor should participate in the forex trading activities. The basic assumption in using this tool is that the right time for investors to enter the market–and ensure a profit—-is only when the predetermined price is reached.
These are only among the most commonly used strategies, and as mentioned earlier, there is a wide selection of online forex trading tools out there. All of them are designed to aid you in optimizing your profit and reducing your risks or losses. But while these tools are available, your success in forex trading will still depend on your understanding of currency trading and your choice of strategies to employ. Hence, doing some research before diving head-first into the market is a crucial step that you need to take.
Tips when looking for online forex trading tools
In choosing online forex trading tools, verify whether you can make a deposit toward the online account straight from your credit card or not. Using your credit card will allow you to engage in trading activities anytime. Just make sure that the platform provider’s privacy protection is highly secure. Choose online forex trading tools with real-time quotes, so you get the most updated data and won’t easily lose money because of misinformation.
When choosing which forex trading tool to use, research is important. Check out currency trading forums, where you will likely come across threads discussing reliable online forex tools or forum members who are experienced traders themselves. Also, professional traders usually have their own trading systems, so choose those that are reputable. You may do a background check by asking other traders who have been in the market long enough or better yet, with traders you know personally. You may also read up on forex software reviews to help you decide whether to use that online tool or not. However, do so only after you have done research on your own, so you don’t rely only on what the reviews say.