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The foreign exchange market—known by most as the Forex market or currency market— is unique in many ways.
The Forex market’s gargantuan presence, boasting a global daily currency turnover of US$6.6 trillion per day, is enough to leave most open-mouthed.
Until the 1990s, Forex trading, or currency trading, was a practice reserved for large corporations and institutional investors. However, thanks to the wizardry of technology, online FX trading has gained considerable traction, with retail Forex traders and investors embracing affordable access.
Nowadays, traders are almost spoilt for choice in terms of resources. Though often more of a curse than a blessing, this unfortunately leaves many new traders overwhelmed.
To help, the research team at FP Markets have banded together and provided an overview of some of the most useful Forex trading tools available to establish more informed trading decisions.
Charting Software—Trading Platforms
Most reputable Forex brokers facilitate access to a wide range of trading platforms, including MetaQuotes software MetaTrader 4 (MT4) and MetaTrader 5 (MT5) remain popular options, though MT4, although the older of the two platforms, continues to command a larger acceptance among retail traders.
Both platforms, nonetheless, deliver pioneering features and advanced charting functionality, with access to real-time prices and the ability to operate with a broad range of order types.
Both platforms also offer state-of-the-art automated trading features and multiple timeframes to work with.
MT4’s technical analysis tools comprise of 30 built-in indicators, along with over 2,000 free custom indicators and 24 drawing tools (lines, channels, the Gann and Fibonacci tools, shapes and arrows, for example). MT5, on the other hand, provides 38 technical indicators and 44 drawing tools. Both platforms, therefore, clearly cater for the majority of technical analysts, enabling comprehensive market analysis.
It should be noted MT4’s MQL4 and MT5’s MQL5 programming languages (MetaQuotes language) are in place to aid the development of automated trading strategies (think Expert Advisors [EAs]). A key point to bear in mind, however, is programmes for MT4 cannot run on MT5.
Newer traders, those with a focus on foreign exchange (think currency pairs such as EUR/USD [euro vs. US dollar] or GBP/USD)—could find MT4 more appropriate as its simpler to use. Those with an interest in more adaptable trading software, MT5 may be a valid contender.
(Source: FP Markets Iress trading platform)
Traders also have the option of test-driving FP Market’s industry-leading Iress trading platform. This is a web-based direct market access (DMA) platform offering an unparalleled trading experience that streams market data across more than 10,000 product types and multiple exchanges.
Demo accounts should be taken into consideration. This is a simulated practice account in place for the benefit of traders to familiarise themselves with the platform’s functions, trading tools and to forward test prospective trading strategies.
Having access to an economic calendar is crucial, both for fundamental and technical analysts.
An economic calendar displays scheduled macroeconomic news data, events associated with economic performance and the financial markets.
As evident from FP Markets dedicated economic calendar in figure 1.A, you will note events are characterised by way of time, currency and expected impact (colours [red signifies high impact, yellow refers to a potential medium impact and grey signals limited impact could be seen]). Actual, forecast and previous values are plotted to the right of the calendar.
Entering trades a few minutes ahead of a high-impacting news event can trigger sharp price fluctuations. While the move may generate profits, it can just as easily elbow the position into negative territory and, at times, even beyond protective stop-loss orders. It should only take technical analysts a minute at the beginning of their trading session to scan and note upcoming news events—a minute well spent.
Fundamental analysts are likely to require more dedicated news feeds. Free options are available, such as the news feeds on MT4 and MT5, yet some traders are likely to opt for premium news feeds.
(Figure 1.A: Source: FP Market’s economic calendar)
Precise risk management strategies are essential to longevity in the financial markets. Irrespective of the trading system employed, failure to adopt a sound risk-management approach can mean the difference between a consistently successful trader and one that throws in the towel.
For that reason, many traders employ the use of Forex calculators to help streamline their trading method. A number of trading calculators are available, including pip calculators (this determines pip value for a currency pair), margin calculators (helps determine initial margin required to open a position), swap calculators (the interest paid at the time of rollover – the end of the trading day. Holding open positions after 5pm [New York EST] incurs interest, either in the shape of a debit or credit) and, of course, a profit and loss calculator.
Consider checking out this in-depth article on Forex calculators.
- Time zone converters. Forex can be broken down into four main trading sessions: Sydney, Tokyo, London and New York. Trading session overlaps must also be taken into account. For example, London’s afternoon session overlaps with New York’s morning session. Liquidity and volatility tend to be relatively light during Asia, though often picks up heading into European hours. Knowing when volatility may increase or decrease is critical for some trading systems and this is where a time zone converter could come in handy.
- Trading journal. Noting daily interactions with the markets is crucial for trader development. It is a way of measuring performance and clarifying strengths and weaknesses (both psychologically [trading mindset] and in terms of the trading strategies employed).
- FP Market’s In-depth Market Analysis. Whether you operate a live trading account or a demo account, or just simply have an interest in the financial markets, FP Market’s research page deserves a visit. Our Traders Hub offers comprehensive fundamental and technical analysis research, using up-to-date trading tools on a number of key financial instruments.
- Trading signals. While some newer traders may find the notion of trading signals appealing, if your objective is to become a professional trader, there are no shortcuts. You must dedicate the time to learn about the industry, formulate a well-defined trading plan (this will include risk management strategies and any Forex trading strategies, as well as trading styles followed, such as scalping, day trading [short-term trading—sometimes referred to as a day trader] and longer-term investing) that’s designed to highlight high-probability trading opportunities. With this, you have ultimate control over your trading process.
DISCLAIMER: The information contained in this material is intended for general advice only. It does not take into account your investment objectives, financial situation or particular needs. FP Markets has made every effort to ensure the accuracy of the information as at the date of publication. FP Markets does not give any warranty or representation as to the material. Examples included in this material are for illustrative purposes only. To the extent permitted by law, FP Markets and its employees shall not be liable for any loss or damage arising in any way (including by way of negligence) from or in connection with any information provided in or omitted from this material. Features of the FP Markets products including applicable fees and charges are outlined in the Product Disclosure Statements available from FP Markets website, www.fpmarkets.com and should be considered before deciding to deal in those products. Derivatives carry a high risk; losses can exceed your initial payment. FP Markets recommends that you seek independent investment advice. First Prudential Markets Pty Ltd trading as FP Markets ABN 16 112 600 281, Australian Financial Services License Number 286354.