Forex scalping can be complicated, but is also quite lucrative.

Forex Scalping: What, How and Why?

Day traders use forex scalping to make quick profits by buying or selling currency pairs for a brief period. Scalpers take advantage of small price movements throughout the day to make a large number of trades. By increasing the size of the position, you can magnify the profit on scalping trades, which aim to capture small gains, such as 5 to 20 pips per trade.

A forex scalper typically opens and closes multiple positions within a single day, and holds trades for seconds to minutes at a time.

In forex, scalpers typically use leverage to increase their position sizes, so even small price changes can result in respectable profits. A EUR/USD position traded at $10,000 (mini lot) would yield a profit of $5, while at $100,000 (standard lot) it would yield a $50 gain.

It is possible to use manual or automated Forex scalping strategies. When using a manual system, a trader sits at a computer screen, watches for signals, and decides whether to buy or sell based on them. A trading system that uses automation tells the software when to buy and sell by parameters that are inputted. 

When important data is released, such as the U.S. employment report or interest rate announcement, scalping is popular. When high-impact news releases occur, prices move significantly in a short period, which is ideal for scalpers who want to trade frequently.

A reduction in position sizes may be necessary due to the increased volatility. After a major news announcement, a trader might be able to gain 20 pips or more, for instance, instead of trying to make 10 pips on a trade. 

Risks associated with forex scalping

Forex scalping carries risks like any other trading style. If a trader does not know what they are doing or uses a flawed system, losses can mount quickly as well if profits accumulate fast. Taking many trades, even at a small risk, can mean a significant loss if many of them end up losing.

There is also a risk associated with leverage and scalability. Consider a trader with $10,000 in their account and $100,000 in position size. This is equivalent to a leverage of 10:1. Suppose the trader is willing to risk five pip per trade, and tries to exit when the profit is 10 pip.

Despite its viability, a five-pip loss sometimes will not allow the trader to get out. A trader may lose four times as much as expected if the market gaps through their stop loss point.

A few slippage scenarios can quickly deplete an account during major news announcements, which are known as slippage.

Factors to consider

To scalp forex, traders need a trading account with small spreads, low commissions, and the capability to place orders at any price. Telegram forex accounts typically offer all of these features.

Traders can use accounts to act as market makers, buying at bids and selling at offers. It is customary for retail forex traders to buy at the offer and sell at the bid when they trade forex. Scalping is also discouraged or not allowed in typical Forex accounts.

In the case of high spreads, commissions, or a restricted price range, forex scalpers have a slim chance of success.

Strategies for Forex Scalping: 

  • Trading trend strategies involve entering in the direction of the trend and trying to profit from it.
  • In counter-trend trading, scalpers take positions in the opposite direction of the trend. A trader who anticipates a trend reversal or pullback would make such a trade.
  • By using range strategies, a trader identifies support and resistance areas and buys and sells near those areas. Price oscillations profit the trader.
  • Statistics traders are interested in patterns and anomalies that tend to occur under certain conditions. When certain chart patterns appear at certain times, for example, you may want to buy/sell and hold the position for five minutes. Time, price, day of the week, or chart patterns are often used in statistical forex scalping strategies.

Forex scalping is a strategy best used by those who have been active in the forex market for some time and understand the intricacies of buying and selling foreign currencies. If you are new to the market and want to get started with a trading account, or if you feel that you are ready to take the next step with forex scalping, start your journey with today.