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How to use a Trading calculator – Guide for beginners

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Most of the new traders are confused about the calculations in trading when they are new in the forex world. But that’s totally normal and happens with almost every beginner trader. But these calculations are an essential ingredient for profitable trading and we cannot proceed with trading without learning about them. But many brokers have made the learning process easier as they are providing a variety of trading calculators, such as forex spread calculators, pip calculators, margin calculators, etc.,  as a free feature on their platform. Still, you would need some basic level knowledge to use them properly. And here you will get to understand each and every function of the online trading calculators.

Key functions of Trading calculators 

  • Exchange rate calculations 

Calculation of exchange rates is one of the basic functions performed by trading calculators. It is one of the easiest functions too. All you have to do is choose the currency you want to convert and enter the amount. Suppose you want to know how many Euros you would have to deposit for trading with 100 USD, then you simply select USD to Euro and enter the amount as 100. The trading calculator would tell you the answer in no time.

  • Pip value calculations

Pip stands for Percentage In Point. It is the unit of measurement for the change in value of currencies or in other words exchange rate fluctuations. Pip value is also used to measure profits/losses in a trade. Knowing the pip value of trade positions you enter is essential for managing the risk per trade. For calculating pip value in a trading calculator you have to enter the position size in lots and your trading account’s base currency. 

  • Position size calculations

Deciding the position size for each trade can be a bit confusing and overwhelming for an average beginner. That is why trading calculators have this function that automatically calculates the appropriate Position size for your trades based on your account balance and risk tolerance. These are the values you need to fill for calculating position size properly on a trading calculator:

 Specify your trading account base currency

  • Specify if it’s a long position or short position (Buy or Sell)
  • Specify the price at which you will be entering the trade
  • Specify Stop loss level
  • Enter Account balance at the moment
  • Specify the percentage of capital you want to risk for this particular trade

 And the trading calculator will tell you the position size once you correctly enter all of the above values.

  • Calculation of trading results

Trading is all about planning in advance to get the desired results. But not all trades will end up becoming profitable. So, the result of a particular trade can either be profit or loss. And this result should be calculated in advance to minimize the loss by managing the risk. This can be calculated by entering the following values.

 Position size in lots

  • Position taken
  • Entry price
  • Exit price

By analyzing the results you can decide upon the best entry price for trade and this will also help you to limit your drawdown when trades go against you.

  • Margin calculations

You may want to make use of the leverage offered by your broker. And you will have to meet the margin requirements specified by your broker to avail the leverage. But losing trades can result in a margin call situation which means there is a margin shortfall making it unable to maintain your trade positions. So, calculating the required margin before entering a trade would help you to avoid this situation. And this calculation can be easily done with a trading calculator.

  • Target price level calculations 

Setting an optimal risk/reward ratio and sticking to the same is crucial for risk management in forex trading. So, a trader will have to determine the target price levels based on their set risk/reward ratio. And for this, trading calculators provide a target price level calculation function which helps determine the best target price for entering a trade and closing a position, while staying true to the risk/reward ratio.

  • Rollover fee calculations 

The interest rate differences between two currencies in a pair will be applied to a trade when a trade position is kept open overnight. This is referred to as the rollover fee which would be different for long and short positions. This is more significant in the case of carrying trading. And trading calculators can be used for calculating the rollover fee for a trade that needs to be opened for a specific duration. 

  • Trading cost calculations 

The last but most important function of a trading calculator is the calculation of the total cost incurred for entering a trade. And this cost would be the spreads and commission charged by your broker for each trade. You must be aware of this cost for each trade and a trading calculator can be used to determine this accurately.

Additional functions seen in some trading calculators 

Nowadays, some of trading calculators offer more than these basic functions. Some of the additional functions that can be seen in trading calculators are the following.

  • Fibonacci level calculations – The Fibonacci retracement tool is a popular and advanced technical indicator used by forex traders. But it is also quite complex in nature and involves tough calculations. That is why some trading calculators have added these calculations to their functions to help traders with the same.
  • Pivot point calculations- Pivot point calculations can be quite time-consuming for an average beginner. But it is an integral part of technical analysis especially if you rely on support/resistance levels for trading. And some trading calculators have added this calculation as their function just in case you struggle to do it manually.

Some tips for beginners 

  • Practice with a trading calculator even when you are demo trading.
  • Keep a trading journal, and note down your calculations.
  • Double-check the values while calculating.
  • Watch out for slippage which causes deviation in trading results.

The trading calculators are still evolving and we may see some more updates and functions in the near future. Till then, practice well with the current online calculators and trade responsibly.

Noor is a Columnist at Disrupt Magazine. He specializes in writing on trendy topics of crypto, business, finance as well as tech. He has been featured in Techbullion.com, Vizaca.com.

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