Looking to Trade Short-Term with High Leverage? You Might Want to Consider Scalping.
When you first enter the Forex world there are going to be a number of terms you’ve never encountered before. There will also be a number of terms you’ve definitely heard before, but which in the Forex world have a completely different meaning. Hedging is one such term, and “scalping” is another. It is a term you will find bandied around on numerous occasions, and much like hedging there are Forex brokers in favour of scalping and those that strictly forbid such a practice. So let’s give you a few details about what it is and how it works, and look at the pros and the cons. Then we’ll leave it up to you to decide whether to start looking at Forex brokers for scalping.
What is scalping in trading terms?
In trading terms, not just in Forex markets, it refers to the “skimming” of small profits on a regular basis. This is achieved by opening and closing positions several times a day. Scalping is actually very similar to day trading. However, a day trader will take a position once, twice or maybe a few times a day, whereas a scalper will try and skim really small profits many times in one day. Day traders tend to trade off the 5- and 30-minute charts, whereas a scalper will trade off the tick and 1-minute charts. Scalpers also like to try and take advantage of high-velocity moves that often accompany the release of economic data and other important news events. These can include the release of GDP figures and employment statistics.
Why has scalping become popular?
A scalper is the types of trader who likes to try and scalp between 5 and 10 pips on every trade, repeating the process time and time again, several times during the day. By taking advantage of high leverage, and getting just a few pips of profit every time, the profits can quickly add up to a sizeable sum. It does, however, take a certain kind of personality, and it doesn’t suit everyone. Scalpers need to be content sitting at their computer for the entire trading day and keeping a close eye on the markets. Losing concentration, or popping to make something to eat will mean missing out on a deal, or possibly even more. This type of trading also requires quick reactions, without feeling the need to closely analyse every move made. There is little time to think about the trades being made, and you will have to be prepared to pull the trigger and accept the consequences.
The advantages and disadvantages of scalping
If you’re the kind of trader who is always chasing the action then scalping is for you, as it is very fast-paced. If you enjoy focusing on 1- or 2-minute charts then again this is a good strategy to take. If taking very quick losses won’t put you off, and you are able to react quickly, then scalping will be the perfect solution. If, however, you are the kind of trader who prefers to carefully analyse and think through every trading decision you make, then scalping is really not for you.
What you need to be successful at scalping
There are a number of factors you will need to consider if you want to try your hand at scalping. Working with a reliable market maker and a platform that will allow for fast buying and selling of currency pairs are definitely the most important. A trading platform that provides a Buy and Sell button for each different currency pair will be perfect, as all you will need to do is hit the button when you want to open or close a position. Having to negotiate your way through several steps will only slow the process down, which is only going to hamper your scalping.
How to pick a Forex broker for scalping
While various governments and the Forex industry try their best to regulate over-the-counter Forex trading, it is still a largely unregulated form of investment. It is therefore important that you take responsibility, do the research, and fully understand what you are getting involved in. You should pay attention to the broker agreement and understand what your responsibilities are, and what will happen if you don’t follow the rules. One vital part of the agreement will be where it advises you of how much margin is required, and what will happen if a position goes against you. The worse scenario could be an automatic liquidation of your account if you are too highly leveraged. If you are unsure about any aspect of the agreement, in particular the small print, then contact the broker’s representative and get them to explain.
Aside from the broker, it is also important to choose the right sort of trading platform, and to become familiar with how it works. There are a number of different Forex brokers for scalping, but they will offer a variety of platforms. It is a good idea to open a demo account in the first instance and get in some practice, so that you can become completely comfortable with using it. If your intention is to scalp the markets, you want there to be no room for error. Imagine what would happen if you hit the sell button by mistake! You could get lucky if the market suddenly decided to go south; but on the other hand, if it doesn’t go south and you’ve entered a position completely opposite to what you had intended, it has the potential to be very costly. Carelessness and mistakes will prove very expensive, so it’s wise to get in as much practice as possible.
If you like the sound of scalping then why not give it a go? It will definitely add some colour to your trading experience, and you may find that it is right for you. We’d love to hear about your experiences, so get in touch and let us know how it all went for you.