If you have heard of forex scalping, you may well be thinking about giving it a try. While it is not a guaranteed method to make money, it is a popular technique used by many top traders in the industry.
Here we will explain exactly what forex scalping is, and provide an honest look at how you can get started, and what to watch out for that can help you in choosing the best scalping platform.
Let’s take a look:
Table of contents
Forex Scalping: Definition
Scalping is a trading technique based on real-time technical analysis. Forex scalping involves making a large number of trades based on this data as fast as possible for a small profit on each position. These positions are typically held for a very short time and rely on the fastest possible execution from the broker side.
Different Scalping types
When scalping, you will find that two different methods are typically used. These are the manual, and automated methods as described below:
- Manual: For this method, scalpers will need to constantly monitor the market, assets, and their positions to open and close them at the correct times manually.
- Automated: This can be used where the trader engages some type of automated strategy or software with set parameters of when and how to open and close positions. This is almost always the most effective method of scalping.
How to scalp forex without getting burned
There are a few key points to take note of when scalping. These will not ensure that you make money as scalping and any form of trading always comes at the risk of loss, but they can help set you on a good path to avoid making errors.
Scalpers will typically stay in positions for only very short periods of time. These can range from a few minutes, down to only a few seconds, particularly with automated strategies.
On the asset, you will need to find a forex pair that is relatively volatile. That is so the spread can move enough within the time you are holding the asset to allow you to profit. At the same time though, you will need the actual spread itself to be low enough so as not to eat into your profit too much.
In any case, if you are thinking of scalping, one of the best places to start will be here with our article one top 10 lowest spread forex brokers that can give you the best opportunity.
Forex Scalping: when to open and close trades
Timing is one of the most critical aspects of scalping effectively. Of course, you must know and learn about the key moments when you should open and close a trade. To do this you must gain a deep understanding of how currencies react to certain events, and time your movements to such things. This is one of the reasons why traders with more experience find it easier to start scalping.
Another point is clear, you must know when to close your trade. This applies to both profit and loss. You must have discipline to exit a position once you have hit a certain profit amount. The same goes for closing loss-making positions at a certain level and moving on.
Risk management tools with Forex Scalping
As we have gathered, your disciplined approach to forex scalping is key. Within this, you may make use of stop-loss, and take profit orders to pre-determine your exit points from a trade. With that said, due to the time-sensitive nature of scalping, most will not want to waste any time in execution though they may set these limits after the trade has been opened if time allows.
For these reasons, most will set manual exit points instead of having these automated, especially if they are engaging in scalping manually.
Forex Scalping: How to choose a broker
Choosing the best forex broker to start scalping with is very important. You will want to look out for many of the same features as usual when choosing a great trading broker like the fact they should be regulated well in your trading region. Then you will need to make sure that they do indeed support scalping. This is the case with most major brokers.
Once you have covered these factors, you will need to further investigate that they are suitable in a number of ways. The broker should firstly offer a very low spread on forex trading since this will directly impact any profits. Zero Spread accounts are ideal.
You will also want to be sure the broker offers high liquidity in trading since you will only be in the positions for very short time periods. Flexible indicators to help you with market analysis, as well as direct market access like you will find with an ECN broker would also be perfect.
On execution speed, this should be lightning fast since you don’t want to waste a single second locking in profits and trades. Finally, a trading platform that is easy to use would be a great bonus for much the same reason.
With all these factors in mind, we have put together a list of the best scalping forex brokers to help you in making the right choice.
Forex Scalping: How much to invest
This depends solely on your own preference and tolerance to risk as it does with any type of trading. Technically, the only number you will need to follow is that of the minimum deposit your broker has in place.
With that said, since the per trade profits of scalping can be low and rely on high volume, there are typically two ways to maximize profit potential.
You can open bigger trade sizes. This of course requires you to have more capital at your disposal, or you can utilize more leverage. This can amplify your profits, but also can amplify your losses too. In that case, then, it depends on your own risk profile and a disciplined decision around how much you will invest.
Forex Scalping: A strategy for every trader
Scalping can be an ideal and popular style among many traders since it creates a high amount of potential within even a single day of trading.
With that said, you need to approach with a very strategic mindset, and have a very good understanding of the market, as well as being highly disciplined in your approach. Once you have these core elements in place, you can start to make scalping a reality for yourself.
One of the most important things to understand and accept as a scalper is that you will make losing trades. Your success will often be determined by your ability to handle these well, exit them with a limited loss, and move on with your consistent approach. As with anything, time, knowledge, and dedication are the keys to your success in scalping.
Is forex scalping profitable?
Forex scalping may be very profitable but it very much depends on your discipline and patience. This is why you need to keep an eye on the markets and you should not hesitate when your trades need to be opened or closed. It also continues to retain risks as with any type of trading or strategy.
Why is scalping not allowed by all forex brokers?
Not every broker allows scalping. This can be due to technical issues with brokers unable to execute orders on time though it is typically market making brokers who dislike scalping most. This is because they act as a counterparty through their own internal market so they often term scalping as “manipulation” since they can lose a lot of money to a skilled scalper.
About the Author
Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world.
A trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.
He is a keen golfer with a very high handicap so when not helping you find the best broker for your needs, you may find him on the course or just as likely following any number of sports from the comfort of his sofa.