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PR03 - Basics of Scalping the Forex Markets

"Forex scalping is way to trade the markets by taking advantage of the volatility in the markets. With forex scalping profits and losses are realized quickly. Traders of course need to pay attention their charts. Do not expect to become successful with forex scalping immediately. You will probably need a lot of experience and chart time if you want to scalp the forex markets manually. To be successful with forex scalping, you will need to be sharp and be positioned on the right side of the market. While the potential to make quick profits is high, the potential to lose money is also high. Forex scalpers also need to focus on things that other trading styles don’t have to bother about. If you are wondering how forex scalping works, then this article is for you. Learn about the basics of forex scalping and the things that you need to bear in mind if you want to use this style of forex trading."

Forex scalping is a fast paced way of trading. In this trading style, the trader tends to capitalize on the market volatility in the very short term. The basic aim of forex scalping is to realize profits and losses quickly.

Trading forex scalping and to be profitable with it requires a lot of practice and experience of trading the markets. You will also be spending a lot of screen time with forex scalping. Forex scalping can be somewhat related to short term high frequency trading used by some of the major banks and hedge funds.

With forex scalping of course, you would be trading manually or through the use of customized indicators. The main goal with forex scalping is to make small profits consistently.

The risk factor is also well controlled if you know what you are doing.

Forex scalping is often done on the short term charts such as the 1- minute or the 5-minute chart. Traders are held only for a few minutes and closed out. The average profits can be anywhere from 1 pip to 100 pips depending on the market volatility.

But make no mistake that forex scalping also has risks that come with it. There are also a few things that traders need to bear in mind with forex scalping. Let’s list them out first.

Spreads: Because forex scalping is for the very short term and requires holding positions for just a few minutes, spreads play an important role. While you could opt for a fixed spread broker, you should check with your broker first. Not many brokers allow you to scalp the forex markets. Therefore any profits made by scalping will not be released to you.

On the other hands, forex brokers that offer variable spreads do allow you to scalp the forex markets. But in this case, the spreads can widen depending on the intensity of the market volatility. Wider spreads can erode your chances of making a profit.

Swaps: Swaps are nothing but overnight financing rates applied to positions that are kept open. With scalping, traders do not need to bother with the swaps as the positions are closed out before the day’s close.

The overnight swaps are usually charged for traders who keep their positions open overnight. Such trading styles are prevalent on swing trading and so on.

Fees: While you can avoid the overnight swap rates, you will of course be paying fees such as spreads of commissions on your trading. Because you will most likely be making quite a few traders per day, the chances are high that you would end up paying more fees and commissions. This will of course entirely depend on your trading volumes and contract sizes.

How does scalping work?

The main backbone of forex scalping is of course volatility. The market volatility tends to rise in the run up to a key economic news release and can last for up to an hour or even more depending on the intensity of the news release.

Volatility also picks up during the start or the closing period of a trading session. During these times price tends to make sharp moves in the markets. As a forex scalper, the aim is to capitalize on these sharp movements.

If your trade is in the right side of the market, then you would be making quite a bit of profits. These profits can be maximized depending on your trading lot size. Higher the lot size, the more value per pip you can make.

Therefore, you can make a $100 profit on a 1 pip move in the market but you can also make $100 profit with a 10-pip move in the market. The difference between the two is of course the lot size that you will be trading.

Forex scalping requires traders to be glued on to their charts.

With forex scalping the main goal is to find an edge in the markets. Traders need to be quick in order to get an early entry into the market before the big move happens. Therefore, using customized technical indicators can be a great way to cut out the time it takes to decide on whether to take on a particular trade or not.

Traders also build automated trading strategies based on the scalping strategies. This allows them more time to assess the broader market rather than stay glued onto a position.

One should limit themselves to the number of instruments they want to scalp at one point in time. Scalping too many currency pairs simultaneously can lead you to making errors that could be avoided.

Read 914 times Last modified on Tuesday, 09 July 2019 10:33