A Forex Calculator for use by forex traders is different in a lot ways from the ordinary currency converters used by many people, and the common types you see around on the internet. Traders are more interested in knowing the implication of currency rate fluctuations to the money they have invested. They need to know how much money they are making or losing every time the exchange rates tick up or down. In the first place, foreign currency rates fluctuate rapidly with wide swings within a single day. The calculators used by forex traders do more than just convert currency rates. They calculate the trader’s profits and losses in real time.
Forex traders trade the currencies by volume and a single price tick (called a pip) can significantly affect the value of their investments. In very volatile markets, rates can move so fast against your holdings resulting in substantial impairment of your capital. You need to be aware of this all the time so you can make the necessary adjustments to your positions to recoup or minimize your losses when prices are not in your favor. You also need them even if the prices are going in your favor since you’d know if your profit objectives are met, and therefore you will be able to take out your position at a profit; but you need a calculator that can compute profits or losses in real time, meaning every time a price ticks in either direction, to be able to do this.
A forex calculator does exactly that. It is linked to the interbank forex trading terminals and therefore reflects currency rate fluctuations in real time. A trader will not have sufficient time to make manual calculations to determine the implications of rate changes to his bottom line (his invested capital). In a fast moving market like the forex market, calculations have to be done instantaneously or as soon as a tick is recorded on the computer screen. The calculation itself is a long and tedious process involving several variables. It is simply impossible to do manual calculations of profits or losses manually while keeping abreast of the market movements. But, it is vital for a forex trader to know his trading balance all the time and it is only with a real time forex calculator that this can be done.
One other reason why a trader needs a real time calculator is because he is trading on margins. Forex trading is done in tranches or lots that are so big that ordinarily, regular investors will not really be able to afford to invest in. Margin trading merely requires traders to deposit only a small amount (called margin deposits) to be able to trade in volume quantities (by lots) for each currency pair. The margin deposits serve as their collateral against which profits and losses will be calculated. To ensure obligations for each trade will be honored (losses are paid and profits are cashed in), and to maintain the forex market’s efficiency all the time, all open positions are automatically closed out when the trading balance is impaired and is at 25% of the required margin deposit per lot traded. This is what every trader wants to avoid, and this is basically why a forex calculator is so important to the trader.