You should always carry a forex position calculator if you are a trader. It is essential to manage every possible risk along the way.
Effective risk management relies on accurate positioning. By doing this, you avoid the possibility that your foreign exchange account will be closed if you make a significant mistake during a single trading cycle. This is why forex traders use calculators to plan their trades better, so what is the benefit of a forex calculator?
Forex position calculators have been made better by technology. Experts would have to provide important information back then, and you will receive the results immediately. A result of the equation is an approximate buying or selling (in units of the desired currency) to control the maximum amount of risk per position.
An introduction to forex calculators
In terms of those kinds of tools, it is essential to note that traders have access to many calculators. As a result, they have the potential to make trade planning much more straightforward. They may even help increase a trader’s earnings.
These tools are also advantageous because one does not need to download an app to use them. Trades can be found on brokerage or forex news websites, as traders will need only access to the internet. Forex calculators are also available for download from some of those sites, so traders can, if necessary, use them offline.
The following is a comprehensive list of the essential Forex calculators available:
- Forex Profit Calculator
- Currency Converter
- Forex Margin Calculator
- Pip Calculator
- Forex Volatility Calculator
- Forex Swap Calculator
Now let’s take a deeper look at each of them.
Forex profit calculator
In the Forex market, profit calculators are among the most popular tools. Traders can see the potential gains and losses they can expect from a particular trade here. Traders must input specific information to use this tool.
To open a trading account, they must first choose a currency. Then specify the type of instrument and asset class. Consider, for instance, a market participant who is planning to open an AUD/USD long position. Therefore, Forex will be the chosen asset class, and AUD/USD will be the instrument.
Trading volume is next specified in lots. The standard lot equates to 100,000 units of currency here. The Forex lot size calculator is a simple tool that one can use if one is unsure of the lot size of one particular trade. The tool can help traders calculate the standard lot size of any amount of money.
The traders must specify the type of trade after filling out the profit calculator. Therefore, they must decide whether to purchase or sell the given currency pair or commodity.
Currency converter
The currency converter is the simplest Forex calculator. Traders can benefit from it in several ways. For example, a market participant might open a trade in a currency that is not the same as their trading account currency.
To plan the trade details, a trader can leverage a currency converter if, for instance, the participant’s trading account is USD and the long position is EUR/AUD.
Traders and investors can both benefit from a currency converter. The tool can be handy for investors who wish to make calculations in a short amount of time, such as those who wish to invest in foreign stocks, government bonds, or real estate.
It is pretty easy to use the currency converter. First, choose two currencies and enter a conversion amount. Then, you can see the current exchange rate and converted equivalent amount by clicking the calculate button.
Forex margin calculator
The next major item on our list is the Forex margin calculator. Traders can use this information to help them determine how much margin they need to open a specific position. The trader must also specify their account currency, asset class, instrument, and several lots they intend to trade.
However, traders have to choose how much leverage to use, which is significant. A lot of consideration goes into this.
For example, a trader needs at least $100,000 on his trading account to open a $100,000 position with 1:1 leverage. As a result, the required margin in the case of 1:50 leverage is only $2,000. In other words, the margin amount will be displayed when all parameters are selected.
Calculating whether a trade can be opened using this calculator is helpful for traders. The trader might reduce the trade size if, for example, there are not enough funds to open one particular position.
Risk management can also be made more accessible with the margin calculator. For example, you can calculate the trades to determine how much money a given trade will tie-down.
The risk level traders are taking with each position can now be more easily evaluated with this calculator. Alternatively, if they feel uncomfortable with the potential risk exposure of a specific trade, they can choose different pairs or smaller-sized trades.
Pip calculator
Forex traders can also benefit from a pip calculator. A pip represents one pip in a given currency pair. The trader must fill in settings, such as the currency of the trading account, the asset class, the instrument, and the number of trades. These settings are similar to those in the previous calculators described in this article.
The next step shows the results, including the current exchange rate between the account currency and the funding currency of the trade and the pip value. The pip calculator provides pip values for micro, mini, and standard accounts, depending on the account size.
Pip calculators are not necessary tools, but experienced, professional traders use them. One of the ways to tell if a trader is serious about the trade is to ask whether it is just a hobby or a substantial source of income.
Forex volatility calculator
Forex volatility calculators can be found on brokerage companies’ and Forex news websites. A trader can select from dozens of currency pairs, along with gold and silver price quotes.
For example, expecting the currency pair to gain 200 pips in a week is unrealistic since it only moves by 50 pips on average. In general, with less volatile pairs, the distance between taking profits and stop-loss orders should be smaller than with more volatile ones.
Since it measures the degree of fluctuation with each currency pair, you can even argue that it can be considered one of the Forex risk calculators.
To reduce risk exposure, therefore, a trader can choose to trade with the pairs with the lowest average volatility if they want to reduce it as much as possible.
Forex swap calculator
Traders using carry trade strategies may find the swap calculator another helpful tool. A rollover trader pays or receives the exact amount from the broker for keeping the open position overnight.
Even though this may seem like a rather complex term, the premise is quite simple. First, central banks set their key interest rates for each currency. So, for each day the trade remains open, a broker pays the participant the swap price if a trader borrows a lower-yielding currency to buy a higher-yielding currency.
Alternatively, it is referred to as a rollover. Daily swap amounts depend on interest rate differentials and brokerage commissions.
Traders should remember that if they borrow higher-yielding currency while purchasing a lower-yielding currency, they’re as long as the transaction remains open.
Therefore, traders can make the necessary calculations before opening positions using the Forex swap calculator. As a result, a carry trader can benefit significantly from this tool.
Are there any online risk management forex calculators?
The particular pair of currencies cannot be calculated using a Forex risk calculator, including all associated risks.
For example, there are multiple calculators for managing risk in Forex trading. A volatility calculator, for instance, measures the extent to which other securities fluctuate.
Using this tool to reduce risk exposure for traders with a low tolerance for risk will undoubtedly help them identify and trade less volatile currency pairs.
The correlation calculator also aids traders in identifying highly correlated currencies. As a result, traders who avoid trading those securities can reduce their risk exposure. The swap calculator can also prevent traders from incurring significant rollover fees.
Hence, as we can see, the Forex calculators that we talked about here that we discussed are also, in a way, risk management tools. Therefore, the regular use of those calculators can benefit traders who wish to lower their risks as much as possible.
Can forex calculators be used to make investment decisions?
A Forex calculator can also be helpful with investment planning and decision-making; it should go without saying. The currency converter is an obvious example.
Many investors are interested in diversifying their portfolios by including foreign currencies. This strategy is based on the reason that if market participants denominate all their investments in one single currency, then that particular currency is constantly exposed to the risk of depreciating against its counterpart at some point in time.
All major currencies worldwide, such as the US dollar, Euro, and pound, had depreciated significantly over the past few years. As a result, currency diversification helps traders reduce apparent risks.
So they can plan and invest in foreign securities by using the currency converter. Along with calculating interest, rent, or dividend payments from investments in this tool, investors can also calculate the equivalent amount in their home currency.
Can consumers price index (CPI) calculators be used in Forex trading?
Many official statistics agencies worldwide maintain consumer price index (CPI) calculators on their websites. The calculators can be helpful for traders in various ways. Firstly, it is a fact that virtually every central bank in the world has some inflation target.
In the case of divergent CPIs, policymakers will likely act by reducing or raising interest rates or even using measures such as quantitative easing.
Therefore, the CPI calculator can help traders understand inflation dynamics at different points in time for different currencies.
The central bank might consider reducing rates or increasing QE if the annual inflation rate is below its intended target over extended periods. The market participant may decide to sell the currency as a result.
In addition to being useful for short-term investments, you can also use the CPI calculator for long-term investments.
In long-term terms, currencies with lower inflation tend to appreciate against those with higher inflation, according to Purchasing Power Parity theory (PPP). Accordingly, traders can use the CPI calculator to determine which currencies have a positive PPP trend.
What is the difference between a position size calculator and a loss calculator?
It is similar to the profit and loss calculator in that it calculates the size of a Forex position. The similarities do not end there, however.
For example, in the former case, instead of stating the exchange rate at which traders should place stop-loss orders or buy orders, they can specify the degree of distance in pips from the current exchange rate towards the desired orders.
In this case, the trader only needs to enter the number of pips, and the calculator will handle the rest.
Traders can also specify the size of their account and risk ratio through the position size calculator. For example, a market participant is willing to risk a percentage of their trading capital for each transaction. In this case, the calculator will indicate the risk amount and the size of the position in currency and standard lots.
However, a position size calculator does not consider the possibility of gains or losses. Therefore, the profit and loss calculator is better for traders interested in those details.
Bottom line
A forex calculator is a valuable tool for managing the risks associated with forex trading. We don’t just carry one calculator to school as we did as children. There are over a dozen different types of forex calculators, each of which aims to make it possible for anyone to become a top-level trader, regardless of their mathematical abilities.
There are many different types of calculators available, and only a few are described in this article. Calculators are available for every purpose, and you can access them all online at any time for free. Therefore, no matter who you are, how much you know about mathematics, or what kind of trading you do – there is a suitable calculator for you.
