Scalping is a trading strategy that relies on more frequent and short-term trades than any other strategy. Scalping, by the way, is the single most vivid piece of terminology in the forex world. Scalpers, as the traders who practice this strategy are called, do not seek to make lots of money on any given trade. Rather, they seek to make as little as several pips per trade. Their aim is to make these small profits so often that, by the end of the day, they end up with a significant amount of profit. The time frame for a scalp trade can be as little as a single minute.
Scalpers are the bane of brokers. They often make trades on a position before the broker even has time to fill the first order. Thus, the brokers actually lose money from the transaction. As technology has evolved, of course, brokers have gotten faster at filling the orders they receive, so scalping is no longer as significant a problem as it was years ago. That being said, many online broker sites do not allow scalping, and limit the number of trades you can make in a day to roughly a dozen.
So, if you are a trader looking to try scalping as a strategy – sometimes also called picking – your first step would be to find a broker who doesn't object to scalping. These have become easier to find in recent years as the online presence of the forex market has grown.
The next thing to look for in a forex broker is the fees associated with each trade. Many sites charge something close to an eight point spread. Obviously, if your goal is to make a profit of just several pips per trade, then a spread two or three times that is quite the barrier to profitability.
The fact that some scalpers can still be profitable using traders with such high spreads is a testament to the potential power of scalping as a trading strategy.
In many ways, the heart of scalping is the extra attention the trader pays to the movements of the market. By watching the market continuously, the scalper can, theoretically, tell when the market is probably in the middle of a up or downswing. He or she will then buy or short a currency pair when appropriate, and sell it as soon as it reaps a few pips worth of profit.
Scalpers are the bane of brokers. They often make trades on a position before the broker even has time to fill the first order. Thus, the brokers actually lose money from the transaction. As technology has evolved, of course, brokers have gotten faster at filling the orders they receive, so scalping is no longer as significant a problem as it was years ago. That being said, many online broker sites do not allow scalping, and limit the number of trades you can make in a day to roughly a dozen.
So, if you are a trader looking to try scalping as a strategy – sometimes also called picking – your first step would be to find a broker who doesn't object to scalping. These have become easier to find in recent years as the online presence of the forex market has grown.
The next thing to look for in a forex broker is the fees associated with each trade. Many sites charge something close to an eight point spread. Obviously, if your goal is to make a profit of just several pips per trade, then a spread two or three times that is quite the barrier to profitability.
The fact that some scalpers can still be profitable using traders with such high spreads is a testament to the potential power of scalping as a trading strategy.
In many ways, the heart of scalping is the extra attention the trader pays to the movements of the market. By watching the market continuously, the scalper can, theoretically, tell when the market is probably in the middle of a up or downswing. He or she will then buy or short a currency pair when appropriate, and sell it as soon as it reaps a few pips worth of profit.
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