What is trading software and which one to use?

What is trading software and which one to use?

How trading works
Photo by @LittleIvan

 

You can’t make music without an instrument. The same applies to trading. Without reliable trading software on-line trading is difficult.

Trading software is your instrument – the tool through which you access the markets and execute your trades. And nowadays, it does a whole lot more as well. It can trade for you, provide helpful analysis and tools and it can also help you practice your craft. 

In this lesson, we’ll introduce you to several types of trading software, all designed to help you trade more effectively. We’ll look at your MT4 platform through to programmes such as Autochartist and Trading Central. 

What is trading software?

Without trading software, you couldn’t trade online because you need to have access to a market interface. Platforms such as MT4 provide this gateway to financial markets. Today, trading software goes further than simply enabling you to trade, it also analyses financial products, such as forex, shares, options and futures which helps you to trade better. With most platforms, you also get a ‘charting’ package as an additional piece of trading software. With MT4 the charting package comes free of charge. Some brokers may charge if they provide proprietary platforms.

The software that traders need is usually downloadable and operated from a desktop or mobile device. It can also be web-based. In this case you access the software through the broker’s website. It’s also possible to purchase third-party trading software that supplements the free software provided by a broker. Whether you are trading stocks, forex or other securities, there is a range of software for you to choose from.

Some trading software programmes can help you improve as traders. 

  • The Autochartist programme helps identify price movement patterns on various time-frames which might be helpful to traders who rely on technical analysis. 
  • Trading Central’s suite of software products includes a Newsdesk and analytics assistance to help investors understand how outside events might affect their trades and investments.

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Types of trading software

There are several different types of trading software all with slightly differing functionalities. Here are the main types of trading software you’ll encounter:

Execution

Trading software platforms are designed to place trades, including market orders, limit orders, and other advanced order types. They also enable you to look up real-time quotes. Some software will also track your personal trading statistics, such as your win rate and average profit and loss.

Charting software

Some trading software includes interactive charting (graph plotting) capabilities, such as trendlines and technical indicators like moving averages, pivot points and momentum oscillators.

Analysis

Trading software can do both fundamental and technical analysis for you. The software can offer you trade ideas and signals based on market data.

Automatic trading

Advanced trading software allows you to employ trading systems that can be executed automatically. These software solutions can also provide backtesting which allows traders to see how their automated trading systems would have performed in the past.

Copy trading

Copy trading is a new phenomenon that allows inexperienced traders to copy more experienced traders. If the inexperienced trader wants to do more than watch, he can actually carry out the same trades as the expert. The expert trader gets paid for allowing the beginner to participate in the same trade and is rewarded for the number of ‘followers’ he has. Everyone wins.

Demo account

The ability to place riskless (no-real-money) trades is very useful when you’re a beginner. Demo accounts allow traders to test their trading strategies before committing any funds to the market. Most traders recommend this.

 

Demo account
Screenshot of plus500

 

How does trading software work?

You need trading software to access markets online and you can use additional bolt-on software programmes to help improve your trading outcomes. The software can assist with technical analysis, alert you to market movements, notify you of upcoming economic events, and help you calculate and balance your risk versus potential reward.

Aside from your trading platform, charting software is probably the most useful trading tool you can have. You can tailor the trading charts to suit your particular trading style and to help with your own analysis. A charting package allows you to customise various time frames and add technical indicators to alert you to market changes.

Charting software provides visual evidence of what price is doing. Even traders who rely more on fundamental analysis than technical analysis still find it enormously helpful to see the prices they are interested in tracked on their charts. 

Your ability to pinpoint live, stock trading opportunities or live forex trading opportunities via your charting software while operating real-time stock and forex charts is enhanced if you can actually place your orders through your charting package. Trading on MetaTrader4 will enable you to do this. So, it’s important to learn how to trade properly on MetaTrader MT4. Setting up your MT4 charting package and learning how it works is therefore important.

 

MT4 trading platform
Screanshot of MT4

What features should trading software offer?

Order execution, analysis and calculation are three of the principal features that highly rated trading software should provide.

Order execution – 

Although your platform is the most sophisticated software programme you have as a trader, its interface should be simple. Why? Because you need to be able to execute your trading decisions quickly, seamlessly, transparently and without interference. Your platform should have inbuilt features and benefits to encourage you to develop your skills as a trader.

Once you’re experienced with MT4, you’ll be able to programme the platform to follow your trading instructions. MetaQuotes Language 4 is an inbuilt coding language referred to as MQL 4. It is based on the concepts of the popular C++ programming language.

The flexibility of MQL4 helps traders to develop complex programmes involving large numbers of calculations. It takes time, but once you become proficient with the coding language, you’ll be able to create simple algorithms yourself which can trade automatically on your behalf.

As a beginner you will probably operate the platform in its most basic form. Nevertheless, it should still allow you to time your entries by way of entry orders, and place stops and ‘take-profi’t limits on any positions you have.

Analysis – 

Using your charting package for technical analysis trading is crucial. You can select from a library of technical trading indicators and add these to various time frames to generate buying and selling signals that tell you when to enter and exit your trades.

Calculation – 

It’s helpful to be able to calculate your position size, pip size, currency, margin and leverage. Luckily there are several trading software calculators available to help you with this. They matter because they make it easy for you to understand the potential risks and rewards of a given trade. An example of a position size calculator will follow on in this lesson.

Position sizing software calculator

Position sizing is all about setting the correct amount of units of a currency pair to buy or sell. All forex traders need to be able to do this in order to properly manage their risk.

Before the creation of position size calculators, traders and investors would use manual methods and it was easy to make mistakes. Nowadays, you only have to input a few parameters to get your position size. You need to know:

  • Currency pair you are trading
  • Account equity or balance
  • Percentage of your account to risk
  • Stop loss in pips
  • Conversion currency-pair exchange rate

With the position size calculation, you input the relevant values and get your result. The result will help you to decide where to place your stop and take profit orders.

Advanced charting software

Most brokers provide free charting software packages with their platforms. Some provide you with charting packages for which you have to pay a small monthly fee. With MT4, the charting software is inbuilt. You can access some of the most advanced trading charting software available and tailor it to your exact requirements. It saves you searching for free stock or forex charts online.

Integrated news

Most traders use a combination of fundamental and technical analysis to make their decisions. Your broker will provide you with their version of an economic calendar, and it’s relatively easy for you to customise this for your needs. The calendar has integrated news features, and you can select high, medium or low impact news items and set alerts on the calendar.

Whatever you’re trading, the economic calendar is essential. Forex traders rely on it more than most because it covers all the day’s events and forex responds quickly to micro and macro news.

Integrated research trading tools

Integrated research trading tools should be a part of your trading account package. Your personal trading analysis, technical or fundamental, can always be improved by using market analyst software.

Lot’s of brokers will supply you with the MT4 platform, while others will also offer tools like Autochartist software and Trading Central. You can integrate some of these programmes with MT4, although mostly they’re designed to stand alone as bolt-ons. Autochartist is a pattern recognition programme, and Trader Central has several features including technical analysis software which suggests trading ideas.

Risk management indicators

Within the MetaTrading community, you can also download additional free software programmes. Risk management indicators for MetaTrader MT4 are a good example. They will help you to balance your equity, drawdown, exposure and leverage to reduce your trading risk. They have also proved very popular, helping many traders to improve their trading outcomes. Remember,  the risk management process is one of the essential parts of successful trading.

What is the best trading software available?

MetaTrader MT4 is one of the most popular trading software programmes and platforms available. Why? Because it works. It is kind to beginners but caters for all levels of ability and has inbuilt features to help you develop as a trader. As you become more confident, you can experiment with all its features and enjoy the benefits.

Other highly rated trading software includes Autochartist and Trading Central (mentioned earlier). 

Trading software summary

Your MT4 trading platform is your gateway to trading but it is just one of the many components you need to become a successful trader. You need to start slow, use a dummy account to begin with and then, as you become more confident, you can experiment with the various software tools that will best support your type of trading.

You will need charts, and if you’re a serious student of forex trading you’ll need an economic calendar. If you want to understand your risk and exposure quickly, then simple pip and position size calculators are invaluable. Next, we ask “what is a trade?”

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