For trading in the markets, you will need a few crucial tools to make your trades smooth and on-time.
Good hardware like a fast computer or good smartphone, reliable internet, and responsive brokers are the most fundamental tools you need to start trading. Timing is an important part of trading, you need a good device and internet that is fast enough to take your request as soon as you place it.
There are also other tools that help traders with research, limit loss, set profit levels and monitoring technical indicators of the market.
In Kenya, most retail traders use their smart phones to trade online in the markets. So, traders must be careful in choosing an app, that supports all the features needed to trade on their smartphone.
If you are looking to trade with your mobile device, you need to ensure that your smartphone is up-to-date with latest OS build & your internet is fast and reliable. Also, it is important to check that the trading app supports your version of OS.
Here is a list of features you must look for in a trading app using while trading online.
1. Adjustable Trading Margin & Leverage
Margin trading involves using money borrowed from your broker to invest in the markets. In margin trading the broker will hold your trading account balance as a sort of collateral and will provide you a loan against it to increase your investment size.
Investors use margins to increase their exposure to investments & try to maximize their gains through this increased exposure. It is common feature in retail trading of stocks, derivatives, CFDs and forex.
Most trading apps including those offering stock trading or derivatives trading offer margin trading – commonly the margin requirements is 50% for Intraday traders, this means you will only need to have 50% of that amount to open an order, and the rest can be borrowed from your broker with your trading account. The margin requirements in Forex & CFD Trading apps is even lower as 0.20% in some cases.
According to Forex Brokers, a South African brokers website – “Using higher margin exposes you to higher risks of losing your capital quickly. Leveraged trading has caused many investors to lose money. Due to which many regulators like ESMA, FCA & CySEC have put caps on leverage offered by brokers. But this restriction is still not widespread and many brokers and regulators in Africa have not yet imposed such restrictions. Hence it is really important for traders to self-impose these restrictions and not use leverage altogether or use it wisely – with limited leverage of not higher than 1:2.”
Even though leverage is risky. But if used wisely it is an important feature in retail trading. Your Mobile trading app must offer a feature to adjust the margin based on your choice.
2. Standing Instructions and Different Order Types
There are a number of standing instruction you can give to your broker on the operation of your account. These instructions are usually put in place to prevent extraordinary losses during a trading cycle and basically protect the interest of the trader. These instructions can also help you take profit on an trading order.
Here are a few examples of standing instructions or advance orders you can have on your trading account.
Conditional Orders – With this order type certain transactions can be triggered under specific conditions that are set by you. Conditional orders allow you to create the circumstances under which you will buy or sell your units, and these conditions are based on price movements in the market.
Like how a stop loss is to minimize loss. E.g.: You can set to your position to close if your account balance exceeds certain loss amount that is set by you.
Conditional orders can be used to trigger orders automatically & this can prevent unrequired losses or taking of profits at pre-defined price.
Short Selling – Short Selling is the investment idea that speculates on the downward movement of the price of particular currency pair. So when you open a short position you are basically borrowing units of an asset and selling it at the market price, but before returning the assets you are predicting the price will further fall. The difference between the higher opening price and the lower closing price will be the profits you made from speculation. Short selling is a highly risk form of trading and should be undertaken by experience traders.
3. Financial Newswire
‘Knowledge is power’, and even though reading through financial news is very helpful when it comes to trading, using a news wire can provide you insights and real-time data that most news platforms can’t.
A news wire collects news reports and sells them to news agencies and other online and offline news mediums, they also provide data to database systems. It is good to access a news wire as it can give you a broader view of the factors affecting the movement of a currency, things like government policy, interest rates, and the political situation within the country.
Some of the best news wires in the world are: The Wall Street Journal, Reuters, Bloomberg, Financial Times, MarketWatch.
Your trading apps must also offer you access to the latest newswire on their interface so that you can stay updated and place order accordingly.
Financial charts are used to observe trends within the market over a period of time. Charting tools are a used to extrapolate various kinds of trends based on market data in an effort to predict market movements in similar conditions. There are a number of charts used to present data, here a just a few popular ones for financial markets.
Bar Charts – Bar charts represent the price movement of an instrument over a period of time with a bar, the taller or shorter a bar in comparison to its neighboring bar represents the price movement of the instrument. Bar charts are used to create opening, high, low and closing charts (OHLC) and high, low and closing (HLC) charts that are used by traders for data analysis.
Candlestick Charts – Candlestick charts were developed 100 years before the bar chart by a Japanese man named Homma. The candlestick charts aim to capture regularly occurring patterns in the market by visually representing different price movements with different colors.
A candlestick has a “wick” on either end and a wide area in the middle known as the “real body”. The real body represents the final outcome of the price movements within a day or a given period of time. A filled real body shows that the closing price was lower than the opening price and an empty real body shows that the closing price was higher than the opening price. The wick on top shows the highest price achieved in a trading cycle and the wick below shows the lowest price achieved in a trading cycle.
Market patterns are divided into two main categories bullish trading and bearish trading. Bullish patterns in the market suggest that the price will rise, while bearish patterns suggest that prices will fall.
While a number of websites like FT Markets, Bloomberg, Yahoo Finance, FTSE Russel, Finviz, Trading View that offer free & paid charting tools for the different financial markets and you can access the most for free.
But it is best for your phone trading app to offer the charting software as it is a core must have feature of any trading app without this you can place an analytical order or do your trading analysis.
5. Important Risk management tools like Stop Loss
Risk management tools are important feature that every trading app or platform must have. It helps you minimize losses in case you a.
A stop loss is an important risk management feature that can help reduce losses. It is a standing instruction or advance order to sell or open your position on the specific movement of the price of your investment. For example, you can set the stop loss for an investment at 5% below the opening price, so if the price falls below 5% of the opening price this position will be closed and the asset sold.
Besides above, there are other risk management tools and strategies like negative balance protection, using low custom leverage and proper risk to reward ratio like 1:2.