Forex trading is one of the most popular kinds of trades today and is even the largest one in the market. And with such a huge market comes a variety of traders such as Swing traders, Day traders, Position traders and Scalpers.
Each of these kinds of traders holds its own set of differences as well as similarities. So before trading, you first need to know what kind of trader you are. Are you after short trades, long trades, small trades or big trades?
Many traders use the trading strategy known as “scalping” for frequent yet brief and small trades. Scalpers profit from even the smallest change in the market with various active trades. So their profit is not just from one single trade but various ones.
To know more about what scalping is, how it works and why traders do it, check out everything there is to know about it down below!
What Is Scalping In Forex?
Scalping is a trading technique traders use to profit from fast and small trades. A scalper will usually hold a trader for 2 to 5 minutes max and have over a hundred active trades. And because scalpers don’t face overnight risks, weekend risks and so on, fundamental analysis isn’t needed.
Basically, a scalper’s main goal is to continuously collect small amounts of pips from various trades during the busiest hours of the day to take advantage of the small market changes. A typical scalper opens and closes tons of positions every single day.
But not everyone can be a great scalper since you need determination and a controlled impulse to not gamble and exit a trade after a bump in the market.
How Does Scalping In Forex Work?
Leverage is a scalper’s best friend and since the Forex market is rich in leverage, your $5 can become a whopping $50 in a single trade. While other traders fear leverage, as a scalper you should embrace it since this is what will give you a chance to profit big while trading small.
There are two ways to scalp in Forex and it can either be automated or manually done. Manually trading is simply a trader speculating to either buy or sell based on their intuition. While automated trading is when a trader uses a trading system to help speculate the change in the market.
In essence, you’ll create a number of positions and wait for even the smallest shift in the market price. And even if each of your positions is small, remember the various other trades you have open. Thus, even a slight price increase can tremendously benefit you.
Why Do Traders ‘Scalp’ In Forex?
Scalp trading is a quick way to make a profit in the Forex market. This is favoured by many since this allows a trader to start small and get a chance to make big at the end of the day. Plus traders can really take advantage of the amount of leverage the Forex market has.
What Are The Pros And Cons Of Forex Scalping?
Of course, any kind of trader with any sort of strategy has their own set of pros and cons. This is an important thing to consider before becoming a scalper so you’ll know what to expect when actually trading. To know the advantages and disadvantages of Forex scalping, here’s a list:
Pros Of Scalping
- Speculations can easily be automated using a trading system.
- Traders face very little risk when scalp trading.
- You can benefit from the market’s ups and downs.
- No need for traders to follow basic fundamentals.
- Can be lucrative with the right exit strategy.
- Has great leverage for small or starting traders.
Cons Of Scalping
- To profit, you need to open hundreds of positions a day.
- Usually has high transaction fees.
- You need great leverage to make a hefty profit.
- Isn’t time-efficient and requires great concentration.
Take Away
Now you know what scalping is, how it works and why traders do it, you can now make an informative decision to either become one or not. Scalping can either be a dream or a nightmare, so depending on your trading techniques, see if it aligns with scalping.
Scalping in Forex is very popular since the Forex market is known to run 24/7 and changes in the market can be quite frequent. That’s something you’ll definitely need as a scalper, leverage! So use this new-found information for good by knowing if scalping is for you or not.