Pip is a concept that needs to be perceived by every forex trader to ensure precision while implementing their trading plan. Such precision is very much required to get the desired trading results and make profits consistently. Having the right set of trading tools at your disposal is necessary to execute your strategy in the best possible manner and the perfect place to find all these tools together is a feature-rich forex trading platform. The trading platform is not just a piece of software but a gateway to access the forex market.
This beginner’s guide to a forex trading platform will teach you about the role of trading platforms in your trading journey and how to choose the best platform as a first-time trader. Before that, you need to learn about the connection between pips and profits as this is the first lesson that you need to comprehend for navigating the volatile currency market.
Decoding Pips In Forex Trading
Due to the difference in the value of currencies, keeping track of the price movements is a difficult task and the fluctuations tend to be very minor most of the time, which makes it even more complex to comprehend and calculate. To overcome these obstacles, a universal measuring unit was formed and this is known as pip or price interest point. Pip is also referred to as percentage in point as one pip is 1/100 of 1% which means 0.0001 in decimals. But for currency pairs including Japanese Yen, one pip is 0.01 because of the difference in exchange rate.
The number of pips by which a currency pair price moves is crucial to calculating your profits or losses. Because you set your profit target based on the pip count or the number of pips that have to be captured before closing the trade. You can use a pip calculator for this purpose as it gives accurate value in the specified currency once you enter the currency pair being traded, lot size and the pip count. For example, if you want to buy 2 standard lots of EUR/USD for placing the order and want to know the value of 20 pips in USD.
In this case, you can simply enter the values into the online pip calculator and it will tell you the value of 20 pips for the pair converted into USD based on the current exchange rate. Imagine the exchange rate is 1.09 at the moment, meaning the value of 20 pips is $400 for now. This means that you have a chance to make a profit of $400 by winning the trade and you can set the take profit level at 20 pips away from the entry price.
The Functions of a Forex Trading Platform
A forex trading platform is a complete package as it is loaded with all the tools, features and resources that one needs to find and seize the ideal opportunities in the global currency market. Let’s have a look at the functions and tools you get on standard trading software by opening a trading account with a broker that has integrated this software as their trading platform.
- Giving Access To Historical and Real-time Market Data
The primary function of a forex trading platform is to provide price data related to all the trading instruments that it offers and you can find the required information by selecting the currency pair that you want to trade with. The platform should provide both historical and real-time market data. Historical market data is very useful for learning about the market in general and it is essential for backtesting your strategy. Real-time market data is essential for analysis during the live trading process.
- Fast Execution of orders
The speed at which your orders get executed is not just dependent on the trading conditions offered by your broker. The technology of the trading platform is equally important for a seamless trading experience. The trading platform should provide fast execution of orders without any kind of delay or interruption in the trading process. You should also get options to place different types of orders to make things easier. Market orders, pending orders and limit orders should be available.
- Tools For Technical Analysis
The trading platform must offer all the tools that you will need for technical analysis of the market. This includes customisable candlestick charts along with different timeframes that you can choose from based on your trading style and strategy. Apart from this, the platform should also offer technical indicators and analytical objects that can be added to the chart to get additional information.
- Risk Management Tools
When it comes to risk management tools, the stop-loss order is the first thing that comes to the mind of the majority of traders. However, simple tools like profit calculators are also essential for managing risk as they can be used to fix the favourable entry and exit price points for a trade based on the gross profit that you want to earn at the end of a trade. You can even use it to estimate the loss which is displayed with a negative sign.
- Educational Resources
The trading platform will also provide free educational resources to help beginners in the initial phase of their trading career. You might see video tutorials or guidelines to use the platform and practise for free by opening a demo account which is a realistic simulation to execute trades with virtual funds. This means you get the opportunity to polish your skills without being exposed to the market risk.
How To Pick The Perfect Trading Platform?
There are a lot of things that you need to consider when picking a trading platform that is perfect for your trading style and preferences. Firstly, it has to be a reputed platform with responsive customer support. You need to pay a lot of attention to the security features before depositing funds into a live trading account on the platform. When you choose a regulated broker or platform, you can feel at ease as they are being monitored by an authority and will be complying with the industry standards.
The platform has to be beginner-friendly and intuitive for a smooth trading experience. All the instruments and assets that you want to trade must be available on the chosen platform. The software should be compatible with your computer system and having a mobile app version makes it easier to trade on the go. If you are looking for extra features like copy trading tools or automated trading, you need to find a platform that supports these trading styles. You should also consider the cost and try their demo account to test the platform functionality.
Final Summary
In a nutshell, you need to tick off two things from the checklist before you kick-start your trading journey in the forex market. The first one is learning the forex basics like pip calculations. Secondly, you have to use sophisticated software to carry out the trading process with ease. Regardless of the platform you pick, having a sound strategy is essential to make profits.
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