What Is Forex Scalping?

Forex scalping is a day trading style used by forex traders that involves buying or selling currency pairs with only a brief holding time in an attempt to make a series of quick profits. A forex scalper looks to make a large number of trades, taking advantage of the small price movements, which are common throughout the day. While scalping attempts to capture small gains, such as five to 20 pips per trade, the profit on these trad🍎es can be magnified by increasing the position size.

Forex scalpers will typically hold trades for as little as seconds to minutes at a time, and open and close multiple positions wit𒁏hin a single day.

Understanding Forex Scalping

Forex scalpers typically utilize leverage, which allows for larger position sizes, so that a small change in price equals a respectable profit. For example, a five-pip profit in the EUR/USD on a $10,000 position (mini lot) is $5, while on a $100,000 position (澳洲幸运5开奖号码历史查询:standard lot) that five-pip movement equates to $50.

Forex scalping strategies can be manual or automated. A manual system involves a trader sitting at the computer screen, looking for signals, and interpreting whether to buy or sell. In an 澳洲幸运5开奖号码历史查询:automated trading system, programs are used to tell the 🌼trading software when to buy and sell based o💜n inputted parameters. 

Scalping is popular in the moments after important data releases, such as the U.S. employment report and 澳洲幸运5开奖号码历史查询:interest rate announcements. These types of high-impact news releases cause significant price moves in a short amount of time, which is ideal for the scalper who wants to get into and out of trades 🐼quickly.

Due to the increased volatility, 澳洲幸运5开奖号码历史查询:position sizes may be scaled down to reduce risk. While a trader may attempt to usually make 10 p♚ips on a trade, in the aftermath of a major news announcemꦿent they may be able to capture 20 pips or more, for example. 

Forex Scalping Risks

Like all styles of trading, forex scalping isn't without risk. While profits can accumulate quickly if lots of profitable trades are taken, losses can also mount quickly if the trader doesn't know what they are doing or is using a flawed system. Even if risking a small amount per trade, taking many trades could mean a significant drawdown if many of those trades end up being losers.

Leverage and scaled-up position sizes can also pose a risk. Assume a trader has $10,000 in their account but is using a $100,000 position size. This equates to 10:1 leverage. Assume the trader is wওilling to risk five pips on each trade, and tries to get out when they have a 10-pip profit.

This is a viable system, but sometimes the trader won't be able to get out for a five-pip loss. The market may gap through their 澳洲幸运5开奖号码历史查询:stop loss point, resulting in the trader getting out with a 20-pip loss and losing four tim⛄es as much as expected.

This scenario, known as slippage, is comm🐓on around major news announcements, and a few of these slippage scenarios can deplete an account quickly.

Special Considerations

Forex scalpers require a trading account with small spreads, low commissions, and the ability to post orders at any price. All these features are typically only offered in 澳洲幸运5开奖号码历史查询:ECN forex accounts.

ECN forex accounts allow the trader to act like a 澳洲幸运5开奖号码历史查询:market maker and choose to buy at the bid price and sell at the offer price. Typical forex trading accounts require retail clients to buy at the offer and sell at the bid. Typical forex accounts also discourage or do not allow scalping.

If the sp🐠read or commissions are too high, or the price at which a tr🍌ader can trade is too restricted, the chances of the forex scalper succeeding are greatly diminished.

Forex Scalping Strategies

There are countless trading strategies, althou𓂃gh they will typically fall into just a few 🥃broad categories:

• 澳洲幸运5开奖号码历史查询:Trend trading strategies involve entering in the direction of the trend and attempting to capture a profit if the trend continues.
• 澳洲幸运5开奖号码历史查询:Countertrend trading is more difficult for a scalper and involves taking a position in the opposite direction of the trend. Such trades would be taken when the trader expects the trend to reverse or pullback.
• Range strategies identify 澳洲幸运5开奖号码历史查询:support and resistance areas and then the trader attempts to buy near support and sell near resistance. The trader is profiting from oscillating price action.
• Statistical traders look for patterns or anomalies that tend to occur given specific conditions. This might include buying/selling and holding the position for five minutes if a certain chart pattern appears at a certain time of day, for example. Statistical forex scalping strategies are often based on time, price, day of the week, or chart patterns.

An Example of Scalping the EUR/USD

Assume a forex scalper trades the EUR/USD using a trend trading strategy. They identify the recent trend, wait for a pullbackಌ, and then buy when the price starts moving back in the trending direction.

Depending on volatility, the trader typically risks four pips and takes profit at eight pips. The reward is twice the risk, which is a favorable 澳洲幸运5开奖号码历史查询:risk/reward. If volatility is higher than usual, the trader wi🀅ll risk more pips and try to make a larger profit, but the position size will be smaller than with the four-pip stop loss.

Assume the trader has a $10,000 account and is willing to risk 0.5% of their account per trade. That means they can lose $50 per trade. They are risking four pips. Each standard lot ($100,000) equates to $10 in profit or loss per pip. Since the trader is risking four pips, they can trade 1.25 standard lots ($50 / (4 pips x $10)). If they lose four pips on 1.25 standard lots, they will lose $50, which is their maximum risk per trade. Their profit is double, so if they make eight pips, they will earn $100.

The account has $10,000 in it, yet the trader is using a $100,000 position size. This i🅠s 10:1 levera🎶ge.

The followin♌g chart shows four trades, based on the recent trend direction. The first trade is a winner for eight pips, or $100. The second trade is 💮a loss for four pips, or $50. The next two trades are winners for eight pips, or $100 each.

The overall profit for the day is three winners ($300) minus one loser ($50), or $250. On a $10,000 account, that is a 2.5% return for the day. This shows the 澳洲幸运5开奖号码历史查询:compounding power of scalping.

On the flip side, finding winning trades isn't easy and, even with risking 0.5% of the account per trade, if the trader doesn't have a sound method, losses can mount quickly.