The forex traders employ the unique trading style of forex scalping wherein they engage in the buying and selling of currency pairs by holding the pair for a short time to make quick profits. The mode of trading by forex scalping attempts to rake in small profits to the tune of 5-20 pips in every trade. By employing forex scalping, the forex trader can increase his profits. Read on to find out more about forex scalping right here.
What is Forex Scalping?
In the world of forex trading and investment, forex scalping denotes the extraction of small profits at regular intervals by shifting in and out of trading positions several times daily during forex trading. Forex scalping involves trading in currency pairs based on real-time market analysis. The trader buys the currency pair, holds it for a small period, and then sells it again to make quick profits. Traders use a variety of technical analysis charting tools to place multiple trades throughout the day based on the analysis. The charting tools provide a multitude of indicators to enable quick decision-making regarding the buying and selling of currencies during forex trading.
How Does Forex Scalping Work?
Forex scalping is somewhat similar to day trading, in which the trader opens the trading position and closes it soon during every trading session. The previously opened trading position is never carried over to the next trading session. The scalper refers to one-minute charts and tick charts for conducting quick and profitable forex trading. Most scalpers make attempts to capture the moves of high velocity that occur in the forex market due to the release of economic news and data.
The scalpers prefer to scalp between five and twenty pips of every trade and conduct trading throughout the day. The pip (percentage in point) refers to the smallest movement in exchange price that a currency pair can take during the trading session. Forex scalping and high leverage with a few pips can yield quick profits that add up to substantial gains at the end of the day. For every standard lot, the average value of the pip is approximately $10. And so, for every five pips, the forex trader rakes in $50. If he trades ten times a day, then he can make a whopping $500.
What is a Scalping Personality?
Forex scalping is not every trader’s cup of tea. The trader needs to possess the temperament and patience to take part in forex scalping. The scalper has to sit patiently in front of the computer system throughout the day, which can feel challenging at times. He has to remain glued to the computer system and focus with intense concentration on the market trends and fluctuations to make good profits. And so scalping mandates a scalping personality of patience, perseverance, and tenacity for making consistent profits. Especially if the trader is trading in five pips, then he cannot take his eyes off the screen at all.
What is the Difference Between Market-making and Scalping?
The study of market-making vs. scalping focuses on the similarities and differences between market-making and scalping. Forex scalping shares a similarity with market-making. In market-making, the trader buys a trading position and then offsets that position to capture the spreads, and this process is somewhat similar to market-making.
The difference is important for forex traders to understand. While a market-maker regards the spread as his earning, the forex scalper makes the payment for the spread. A scalper buys the currency pair on the ask price and sells it on the bid price, and then waits for the market to shift sufficiently to cover the payment made on the spread. On the contrary, the market-maker buys on the bid price and sells on the ask price, thus making pips instantly.
How to Set Up the Forex Scalping?
Follow the steps below to initiate forex scalping in the forex market.
1. Choose a reputable and trustworthy from the best forex broker. Do thorough research, and conduct demo trading with a list of brokers before settling for the forex broker.
2. Explore a variety of broker’s platforms before making a choice. As different brokers offer different platforms for forex scalping, consider operating practice accounts with multiple platforms before selecting one.
3. Analyze the liquidity of the forex market, and conduct forex scalping in the most liquid forex markets.
4. Make sure that the execution of trading takes place at the intended levels.
5. Practice redundancy for insurance against trading losses.
6. Select a time-frame for charting and start trading.