You may have heard about the various trading styles that were introduced to you in this blog – day trading, swing trading, and news trading. Have you ever heard of scalping? This trading style often gets a bad reputation in the online forex trading world.
However, understanding how it works is worthwhile, and you may find that scalping might suit you best. Let’s dive right in.
What is scalping in forex trading?
The word ‘scalping’ doesn’t sound nice to the ears, but it has nothing to do with scamming or other illegal activities. It’s simply a style for those who can manage risks, and remarkably some people scalp for sport.
Scalping is the trading style that attempts to gain from small pip movements that occur throughout the day. In terms of position length, a scalper typically holds a position for no longer than a few minutes. A scalper hopes to gain at least 5 to 20 pips of movement in a single session.
How to manage risks while scalping?
Small 5 pip-movements will not make an appreciable profit. Therefore scalpers depend on leverage in order to buy a standard lot. With a standard lot for EUR/USD, 1 pip movement can potentially gain or lose $1. Trade volumes are also increased to multiply their earnings.
Scalpers also depend on taking part in a larger number of trades to spread the risk, without being overwhelmed by taking too many trades at once. They monitor the charts closely, and spend a significant portion of their session in front of their computer.
This is because a sudden reversal against them can hurt earnings and scalpers must act quickly to exit. Many scalpers don’t even use stop losses, but rather automatic trading systems that can relieve them from over-calculating.
News trading can involve scalping, and vice versa
News traders depend on the ramifications of news reports and are more oriented for fundamental analysis. However, depending on the news, they can hold positions for longer than scalpers or day traders.
Scalping traders can take advantage of trading news in order to enter the market at its most volatile. However, scalpers mostly rely on technical analysis, and it’s by far more useful since the short-term news trading relies on reactionary volatility in the market.
Is scalping for you?
If you tolerate risks and do not like waiting to close, that is, you often close too early on longer positions, then there is no harm in learning to scalp. Scalpers are typically aggressive traders who are more pattern-oriented compared to other types of traders who must learn the background economic theories behind every currency pair.
Isn’t scalping not allowed in online forex trading?
With the FBS trading platform, you can scalp especially on the ECN account. The ECN account is designed for professional traders who want to invest even more capital at a safer account. ECN allows scalping because of its very low spread and minimal trading fee. Users have more power over the timing of trades.
If you are not ready for the ECN account, you can always try scalping on the demo account until you are confident. The entry barrier to the ECN account may look high at first, but proportionally, the security advantage and gains are immeasurable.
