What is Forex Scalping

It’s always interesting to observe the different ways in which forex investors and short-term traders play the market. Some like to buy and hold, assuming a position trading strategy that takes place on a monthly calender. Others are more focused on instant earnings, trading on a daily or often hourly basis that exposes them to limited risk, yet at the same time produces slightly lower overall returns.

Then there are the swing traders, who play for the middle field, preferring not to hold currencies for a long time, nor to exit their position on a daily basis. These traders assume the midpoint between a short-term day trader and a position trader. While many people think of these three strategies as the only ways to trade, there remains one more somewhat controversial ways to trade major currencies.

It’s known as ‘forex scalping,’ and it’s an interesting strategy that depends on very small amounts of time and incredibly high volume trades. Unlike day traders, who will generally aim to enter and exit the markets every day, forex scalpers look at their market movements as being on a smaller scale; a single trade for a forex scalper may last as little as thirty seconds, depending on market movements.

You see, forex scalping works on a similar basis to day trading, only with the quantity of the capital dramatically increased and the time period shortened. By using a highly leveraged account from an online or offline forex broker, a scalper can invest huge amounts of money into a single currency at any point in time, and then withdraw it after only a few seconds have past, securing a tiny margin.

These margins are generally incredibly tiny – often small to the point where no day trader would even think of completing the trade due to brokerage fees. But due to the massive amounts that are invested by forex scalpers – often due to massive volume accounts with a brokerage – it’s possible to profit on even the smallest gain in value, allowing for large earnings even on momentary trades.

Let’s look at the positives of forex scalping as an investment strategy – some that, despite the risk of investing in forex, can be quite worthwhile. Because forex scalpers spend only moments on the real market each day – the vast majority of their time is spent preparing trades – they’re only exposed to a fraction of the risk of major movements that long-term and position traders are exposed to.

This allows them to make incredibly high volume currency purchases – often in the hundreds of thousands of dollars – without assuming too much risk. As their money is only invested for such tiny amounts of time, it’s unlikely that a major change in value will occur. The margins, due to a small market exposure, tend to be small, yet so is the risk of seeing a significant drop in value.

It’s also a form of trading that allows the scalper to make hundreds of micro-investments on a daily basis. While day trader may close five, ten, or even twenty trades per day, it’s not unheard of for an experienced forex scalper to complete hundreds of currency trades daily. This makes scalping quite a good option for active investors – the type that like to spread their investment capital fairly wide.

To assist with this, many forex scalpers use automated systems to make purchases and sell a certain currency once its value increases or decreases. This allows the scalper to control their overall spend and sale process, while automating rote-type tasks that would take up valuable time. Analytics are a task entrusted to the trader, while the ‘physical’ trading is often handled entirely by a PC program.

Finally, forex scalping is a form of trading that allows rewards for the consistent, yet can frequently punish those that don’t take severe precautions to keep their trade steady. Investing uneven amounts of money into several trades can eliminate the balance that large-volume trading offers, destroying a forex scalper that would, in other circumstances and with balanced trades, potentially be successful.

There are other risks to consider, too. The idea that high-volume trades are protected purely due to their smaller investment time periods isn’t entirely sound. Many high-volume investments are just as capable of losing value in the short-term as they are the long, as demonstrated by the infrequent yet real sudden drops in value that are often observed on foreign exchange markets.

Finally, there’s a real risk of losing out – not from the market itself, but from the brokerage used to fund and manage your forex scalping. Due to the nature of the technique, in which trades are made at a rapid pace and in major numbers, many brokerages don’t allow forex scalping. Scalpers might ‘bends the rules’ and breach the system, but they rarely last long on many major broker platforms.

While forex scalping is potentially lucrative and somewhat insulated from risk, it’s neither a sure-fire source or wealth nor is it a risk-free enterprise. With the right strategy and discipline level, it’s one of several ways to succeed as a forex trader. However, it’s important to remember that it’s just one of many – in no way is it the only way to succeed with forex without taking major risks.

Related Information