Trading de Forex ou de opções binárias: 06/05/23

What is forex scalping 3

Learn the 1 Minute Forex Scalping Strategy.

Even if you are a complete beginner in trading, you will have most likely come across the term "scalping" at some point.

In this article, you will learn the answer to ‘what is scalping in Forex’, how it works and how to choose your own Forex scalping trading system. Furthermore, we will also take a look at Forex scalping strategies, focusing in particular on the popular 1 minute scalping strategy.

Table of Contents.

What Is Scalping in Forex? Is Forex Scalping Suitable for Me? Tips for How to Scalp Forex The Best Time for Forex Scalping The 1 Minute Scalping Strategy for Forex Pros and Cons of the Forex 1 Min Scalping Strategy How to Choose a Forex Scalping Broker Key Components of the Best Forex Scalping Strategies Final Thoughts.

What Is Scalping in Forex?

Scalping is a method of trading Forex based on real-time technical analysis. When it comes to Forex, a scalping trading system requires making a large number of trades that each target small profits. Rather than holding a position for several hours, days or weeks, the goal of scalping Forex is to make a profit in minutes, or even seconds, just a few pips at a time.

The FX market is the largest, most liquid and one of the most volatile financial markets in the world. Forex scalpers try to squeeze every possible opportunity out of these fluctuations in foreign exchange quotes, by opening and closing trades with just a few pips of profit.

So, scalping in the Forex market is essentially taking advantage of minor changes in price over a short period of time.

Forex scalping is quite a popular style for many traders, as, thanks to the volatility of the FX market, there are usually ample trading opportunities throughout the course of the day.

During the scalping process, a trader usually does not expect to gain more than 10 pips or to lose more than 7 pips per trade, including the spread. Therefore, in order for those 10 pip gains to add up to a substantial profit, scalping is usually performed with high volumes.

To learn more about the pros and cons of Forex scalping for beginners, as well as the best and worst times to scalp, watch our free webinar video:

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Is Forex Scalping Suitable for Me?

Deciding whether scalping Forex is a suitable trading style for you will largely depend on how much time you are willing to dedicate to trading.

Forex scalping requires constant analysis and the placement of multiple orders a day, which can end up being as demanding as a full-time job. Furthermore, there are only a few hours a day when you can scalp currency pairs. After time availability, the next most important thing is being able to think on your feet.

For a Forex scalping strategy to be profitable, you must quickly predict where the market will go, and then open and close positions within a matter of seconds.

Furthermore, traders interested in implementing Forex scalping strategies must be able to accept losses. This is particularly important when trading with leverage, which, as well as potentially amplifying profits, can have the same effect on losses. Whilst your main task is to generate more profitable positions than losing ones, you must also know how to exit trades when they are not working out.

You should keep in mind that Forex scalping is not a trading style that is suitable for everybody. Some traders will thrive with it, but others perform much better over longer time periods, such as swing traders.

If you think scalping Forex is right for you, keep reading to learn about forex scalping strategies and techniques.

Tips for How to Scalp Forex.

Now that you have an understanding of the fundamental aspects of scalping, let's take a closer look at how to scalp Forex.

The Best Time Frame for Scalping Forex.

In general, most traders scalp currency pairs using a time frame between 1 and 15 minutes. Whilst there is not really a "best" time frame for scalping, the 15-minute timeframe does tend to be the least popular with most Forex scalping strategies. Both 1-minute and 5-minute timeframes are the most common.

Your acceptable profit or loss per trade will depend on the time frame that you are using. With 1 minute scalping, you would probably be looking for a profit of around 5 pips per trade, whereas a 5-minute scalp could probably provide you with a realistic target of 10 pips per trade.

The Best Forex Pairs for Scalping.

When it comes to selecting the currency pairs for the best Forex scalping strategy, it is vital to pick up a pair that is volatile, so that you are more likely to see a high number of moves.

That being said, volatility should not be the only thing you are looking at when choosing a currency pair. You should also look for a pair that is cheap to trade, in other words, the one that will provide you with the lowest possible spread. For a successful scalper, the spread will take between 10% to 30% of their income. Therefore, it goes without saying that you want this value to be as low as possible.

Forex Scalping Trading System.

You will need to develop a Forex scalping trading system based on Forex scalping indicators. After this, once you see an entry signal, you have to go for the trade, and if you see an exit signal, or you have come to an acceptable level of profit, you can close your trade.

Stop-loss (SL) and take-profit (TP) management is also important in scalping. Whilst it is usually always recommended to use an SL and TP when trading, scalping may be an exception to this rule.

The reason is simple - you cannot waste time executing your trades because every second matters. You may, of course, set SL and TP levels after you have opened a trade, yet many traders will scalp manually, meaning they will close trades when they hit the maximum acceptable loss or the desired profit, rather than setting automated SL or TP levels.

The Spread.

Now let's focus on the spread. Let's assume a broker has no commission attached to your trading account, but the spread on EUR/USD is 2 pips on average.

When trading 1 lot of EUR/USD, the value of a pip is USD 10. This means your direct expense would be about USD 20 by the time you opened a position.

If you are looking for a 5-pip gain per trade (USD 50), this means that you would actually have to go up 7 pips from your initial starting price (7 pips - 2 pip spread = 5 pips). That is nearly 50% more pips. This is why you should aim to only scalp the Forex pairs with the lowest possible spreads.

Execution Speeds.

Another important aspect of being a successful Forex scalper is to choose the best execution system. 'Execution' refers to when the trades that you place are actually fulfilled by your broker.

In other words, the speed at which, once you say you want to enter a trade, the trade is actually opened on the live market. In volatile markets, prices can change very quickly, which means your trade might open at a different price to what you had originally planned. When you are relying on the tiny profits of Forex scalping, this can make a big difference.

This is why it can be hard to be successful with a Forex scalping strategy. If there is a dealing desk involved, you may find a perfect entry to the market, but you could get your order refused by the broker. The situation may get even worse when you try to close your trade and the broker does not allow it, which can sometimes be deadly for your trading account. This is why it is vital to choose a broker that offers STP or ECN execution, and is able to accommodate scalping Forex.

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The Best Time for Forex Scalping.

A scalping trading system requires an asset with sufficient price movement and volatility. In the Forex market, the highest levels of volume and liquidity tend to occur in the London (08:00 - 17:00 GMT/BST) and New York (13:00 - 22:00 GMT/BST) trading sessions, which make them particularly attractive for most Forex scalpers. But it also depends on the type of Forex scalping strategy that you are using.

Trading false breakouts can sometimes work well in an Asian trading session, as the price typically moves up and down in a relatively narrow range.

Traders should be mentally fit and focused when scalping Forex. Any indication of tiredness, illness or distraction presents a reason to stop trading and take a break.

As we have already mentioned, it is also critical to have low costs when scalping Forex and, usually, the lowest spreads are offered at times where there are higher volumes of trading.

Depicted: Admirals MetaTrader 5 - GBPUSD M5 Chart. Date Range: 24 May 2022 – 27 May 2022. Date Captured: 27 May 2022. Past performance is not a reliable indicator of future results.

The 1 Minute Scalping Strategy for Forex.

The Forex 1 minute scalping strategy is a good starting point for Forex beginners, as it is quite a simple strategy to follow. This scalping Forex strategy involves identifying an opportunity, opening a position, aiming to gain a few pips and then closing the position.

Due to the low target per trade, one of the main aspects of forex scalping is quantity, and it is not unusual for traders to place more than 100 trades a day.

The requirements for this strategy are as follows:

Instruments : any currency pair Time frame : 1-minute Indicators : Stochastic Oscillator (5, 3, 3) and two Exponential Moving Averages (EMA) 50-period & 100-period Preferred sessions : London and New York – high volatility.

Whilst you can use this Forex scalping strategy with any currency pair, it might be easier to use it with major currency pairs, as they tend to have the lowest available spreads. Additionally, this approach might be most effective during high volatility trading sessions, which are usually New York closing and London opening times.

Let’s look at an example of how the 1 minute scalping strategy works in action. Below, you can see a chart of the GBP/USD currency pair complete with the Forex scalping indicators highlighted above. The 50-period EMA is red, whilst the 100-period EMA is green.

Depicted: Admirals MetaTrader 5 - GBPUSD M1 Chart. Date Depicted: 27 May 2022. Date Captured: 27 May 2022. Past performance is not a reliable indicator of future results.

Buy (Long) Entry Point.

Now you have applied the Forex scalping indicators to your chart, you need to wait for an entry signal.

The signal for a long order is as follows:

Any time the red 50-EMA indicator surpasses the blue 100-EMA indicator, be ready to open a long order. Make sure the price is close to the EMA indicators, and when the Stochastic rises above the 20 level, open a long position.

To minimise your risk, you can also place a stop-loss at 2-3 pips below the last low point of a particular swing. As the Forex 1 min scalping strategy is a short-term one, it is generally expected that you will gain between 8-12 pips on a trade, which is where you should place the take profit.

Long Entry Example.

In the chart below, the red vertical lines mark where the long entry conditions have been satisfied.

Depicted: Admirals MetaTrader 5 - GBPUSD M1 Chart. Date Depicted: 27 May 2022. Date Captured: 27 May 2022. Past performance is not a reliable indicator of future results.

Sell (Short) Entry Point.

The signal for a short order is as follows:

To determine when to make a short order, use the opposite of the buy strategy conditions The red 50-EMA indicator should be below green 100-EMA, and the price should be close to these lines. The Stochastic Oscillator must be crossing below the 80 level.

Again, stop-losses are positioned near 2-3 pips above the last high point of the swing, and take-profits should remain within 8-12 pips from the entry price.

Short Entry Example.

In the chart below, the red vertical lines mark where the short entry conditions have been satisfied.

Depicted: Admirals MetaTrader 5 - GBPUSD M1 Chart. Date Depicted: 27 May 2022. Date Captured: 27 May 2022. Past performance is not a reliable indicator of future results.

Pros and Cons of the Forex 1 Min Scalping Strategy.

To determine whether the Forex 1 min scalping strategy may prove useful for your style of trading, let’s take a look at the advantages and disadvantages of the scalping strategy.

Advantages:

Brief exposure to the market reduces the possibility of running into unforeseen, adverse events. Relatively small movements are easier to achieve. A larger supply and demand imbalance is required to ensure bigger price changes. The main logic behind scalping is that smaller moves occur far more frequently than larger ones. Even when the markets are comparatively quiet, a good Forex scalping strategy can still provide opportunities.

Disadvantages:

A large deposit is needed. A 1-minute scalper requires quick reflexes, good instincts and mathematical skills. It can be difficult to follow a Forex scalping strategy and maintain a good risk to reward ratio. For instance, with a ratio of 2:1, your take-profit at 10 pips requires a stop-loss at 5 pips, making it too close not to get stopped out in many cases. The 1 minute scalping strategy is time-consuming and may lead to stress.

It all depends on the individual in question. You have to see for yourself whether this is a strategy that would suit your individual preferences.

How to Choose a Forex Scalping Broker.

You may be surprised to learn that some brokers do not actually allow scalping and prevent you from closing trades that last for less than three minutes or so. Therefore, when it comes to selecting the Forex scalping broker for your scalping strategy, the obvious first step will be to eliminate any brokers which do not permit Forex scalping trading systems.

As mentioned earlier in this article, you should also generally avoid all of the brokers that cannot provide you with either an STP or an ECN execution system, as scalping Forex with a dealing desk may hinder your ability.

Now, when you have a smaller list of available brokers, you should start looking at the instruments for your trading and their pricing amongst the brokers. Many brokers do have some commissions. This is not necessarily a bad thing - you just need to include the commission into your calculations when you try to determine the cheapest broker. Nevertheless, pricing should not be the only point that matters when you are selecting a broker that will enable you to scalp Forex.

Finding a good, reliable broker is a crucial step, not just for scalpers, but for all types of traders. Several aspects should be taken into consideration before selecting your broker - here are the key criteria:

Competitive spreads and costs High-speed execution Order execution quality Authorised and regulated by respected financial authorities such as the FCA (Financial Conduct Authority) Secured funds with a reliable bank(s)

As well as all of the above, Admirals also offers the following:

Spreads starting from 0 pips on Forex major pairs Market execution with no re-quotes Low slippage and rejection rates Deep liquidity from top-tier liquidity providers High execution speeds from 4 milliseconds Advanced tools and platform options Education and webinars Analysis of the financial markets.

Scalpers who are new to trading often do not realise that execution is a key factor, besides the presence of competitive spreads. The best way to find out whether a broker is a good match for you is by simply testing your Forex scalping strategy using a demo trading account.

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Key Components of the Best Forex Scalping Strategies.

Any Forex scalping system focuses on exact movements which occur in the currency market, and relies on having the right forex scalping strategy, tools and discipline to take advantage of them.

Here are some of our top tips to keep in mind for successful Forex scalping.

1. Risk Management.

As profits from Forex scalping strategies tend to be small, almost all scalping methods use larger than normal leverage. While leverage can amplify profits, it can also amplify losses, leading to higher risk. Therefore, risk management is key. For scalpers who use a stop-loss as part of their trading strategy, a higher leverage ratio may be acceptable.

Using high leverage is particularly risky during news or economic releases, wherein wide spreads can occur, and the stop-loss might not be triggered. To prevent this, it is advisable to use an appropriate leverage ratio when scalping during periods of high unpredictability.

A profitable Forex scalping strategy requires an understanding of market conditions and trading risks. Traders always have to keep in mind that they should never trade more than they can afford to lose.

Trading beyond your safety limits may lead to financially damaging outcomes. Be careful not to take an enormous risk, and be sure to exercise risk management in your trading, whether scalping Forex or otherwise.

2. Trading Discipline.

Forex scalping systems demand a certain level of mental endurance. To make profits in scalping, a trader must be able to control their emotions, remain calm and keep their composure. Emotional responses can cause traders to make bad decisions.

3. Understand Market Conditions for Scalping.

Gaining profit in a Forex scalping strategy mostly relies on market conditions. Accordingly, Forex scalping often denotes difficult trading market conditions - and scalping systems need to be able to adapt to the changing nature of the market.

4. Define Your Goals.

For the best systems, traders should first define their goals. Of course, the purpose of entering the market for traders is to gain profit, but when trading with Forex scalping strategies, you have to remember that the profits will be low.

No matter what style a trader chooses for their trading, they need to make sure it suits them and that they feel comfortable with it. A well planned, disciplined and flexible strategy is the main feature of any successful Forex scalping trading system.

Final Thoughts.

Scalping can be an extremely effective trading style and the same can be said of the Forex 1-minute scalping strategy. However, it is important to understand that scalping is hard work. Scalpers are rewarded for quantitative work. The more they perform, the larger potential profits they achieve. In the end, your trading strategy has to match not only your personality, but also your trading style and abilities.

If you are interested in learning other Forex scalping strategies, you may want to read our articles on Bollinger Bands or the Stochastic Oscillator.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

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What is forex scalping 2

The Ins and Outs of Forex Scalping.

Troy Segal is an editor and writer. She has 20+ years of experience covering personal finance, wealth management, and business news.

Updated September 29, 2022.

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Reviewed by Charles Potters.

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What Is Forex Scalping?

In the investment world, scalping is a term used to denote the "skimming" of small profits on a regular basis, by going in and out of positions several times per day.

Scalping in the forex market involves trading currencies based on a set of real-time analysis. The purpose of scalping is to make a profit by buying or selling currencies and holding the position for a very short time and closing it for a small profit. Many trades are placed throughout the trading day using a system that is usually based on a set of signals derived from technical analysis charting tools. The charting is made up of a multitude of signals, that create a buy or sell decision when they point in the same direction.

A forex scalper looks for a large number of trades for a small profit each time.

Key Takeaways.

Scalpers enter and exit the market quickly, making several small trades in the hopes of achieving profits from relatively small price changes over and over again. Scalpers must be highly disciplined, competitive by nature, and decisive decision makers to succeed with these types of trading strategy. Various technical trading systems exist to aid in scalping, many of which are offered directly by online brokers or exchange platforms.

How Forex Scalping Works.

Scalping is not unlike day trading in which a trader will open a position and then close it again during the current trading session, never carrying a position into another trading period or holding a position overnight. However, while a day trader may look to take a position once or twice, or even a few times a day, scalping is much more frenetic and will trade multiple times during a session.

Whereas a day trader may trade off five- and 30-minute charts, scalpers often trade off of tick charts and one-minute charts. In particular, some scalpers like to try to catch the high-velocity moves that happen around the time of the release of economic data and news. Such news includes the announcement of the employment statistics or GDP figures—whatever is high on the trader's economic agenda.

Scalpers like to try and scalp between five and 10 pips from each trade they make and to repeat this process over and over throughout the day. Pip is short for "percentage in point" and is the smallest exchange price movement a currency pair can take. Using high leverage and making trades with just a few pips profit at a time can add up. Scalpers get the best results if their trades are profitable and can be repeated many times over the course of the day.

Remember, with one standard lot, the average value of a pip is about $10. So, for every five pips of profit made, the trader can make $50 at a time. Ten times a day, this would equal $500.

Scalping Personality.

Scalping, though, is not for everybody. You have to have the temperament for this risky process. Scalpers need to love sitting in front of their computers for the entire session, and they need to enjoy the intense concentration that it takes. You cannot take your eye off the ball when you are trying to scalp a small move, such as five pips at a time.

Even if you think you have the temperament to sit in front of the computer all day—or all night if you are an insomniac—you must be the kind of person who can react very quickly without analyzing your every move. There is no time to think. Being able to "pull the trigger" is a necessary key quality for a scalper. This is especially true in order to cut a position if it should move against you by even two or three pips.

Market-Making vs. Scalping.

Scalping is somewhat similar to market-making. When a market maker buys a position they are immediately seeking to offset that position and capture the spread. This form of market-making is not referring to those bank traders who take proprietary positions for the bank.

The difference between a market maker and a scalper, though, is very important to understand. A market maker earns the spread, while a scalper pays the spread. So when a scalper buys on the ask and sells on the bid, they have to wait for the market to move enough to cover the spread they have just paid. In the converse, the market maker sells on the ask and buys on the bid, thus immediately gaining a pip or two as profit for making the market.

Although they are both seeking to be in and out of positions very quickly and very often, the risk of a market maker compared with a scalper, is much lower. Market makers love scalpers because they trade often and they pay the spread, which means that the more the scalper trades, the more the market maker will earn the one or two pips from the spread.

How to Set up for Scalping.

Setting up to be a scalper requires that you have very good, reliable access to the market makers with a platform that allows for very fast buying or selling. Usually, the platform will have a buy button and a sell button for each of the currency pairs so that all the trader has to do is hit the appropriate button to either enter or exit a position. In liquid markets, the execution can take place in a fraction of a second.

Picking a Broker.

Remember that the forex market is an international market and is largely unregulated, although efforts are being made by governments and the industry to introduce legislation that would regulate over-the-counter (OTC) forex trading to a certain degree.

As a trader, it is up to you to research and understand the broker agreement and just what your responsibilities would be and just what responsibilities the broker has. You must pay attention to how much margin is required and what the broker will do if positions go against you, which might even mean an automatic liquidation of your account if you are too highly leveraged. Ask questions to the broker's representative and make sure you hold onto the agreement documents. Read the small print.

The Broker's Platform.

As a scalper, you must become very familiar with the trading platform that your broker is offering. Different brokers may offer different platforms, therefore you should always open a practice account and practice with the platform until you are completely comfortable using it. Since you intend to scalp the markets, there is absolutely no room for error in using your platform.

If you press the "Sell" button by mistake, when you meant to hit the buy button, you could get lucky if the market immediately goes south so that you profit from your mistake, but if you are not so lucky you will have just entered a position opposite to what you intended. Mistakes like these can be very costly. Platform mistakes and carelessness can and will cause losses. Practice using the platform before you commit real money to the trade.

Liquidity.

As a scalper, you only want to trade the most liquid markets. These markets are usually in the major currency pairs, such as EUR/USD or USD/JPY. Also, depending on the currency pair, certain sessions may be much more liquid than others. Even though the forex markets are trading for 24 hours a day, the volume is not the same at all times of the day.

Usually, when London opens at around 3 AM EST, volume picks up as London is the major trading center for forex trading. At 8 AM EST, New York opens and adds to the volume being traded. Thus, when two of the major forex centers are trading, this is usually the best time for liquidity. The Sydney and Tokyo markets are the other major volume drivers.

Guaranteed Executions.

Scalpers need to be sure that their trades will be executed at the levels they intend. Therefore, be sure to understand the trading terms of your broker. Some brokers might limit their execution guarantees to times when the markets are not moving fast. Others may not provide any form of execution guarantee at all.

Placing an order at a certain level and having it executed a few pips away from where you intended, is called "slippage." As a scalper you cannot afford slippage in addition to the spread, so you must make sure your order can and will be executed at the order level you request.

Redundancy.

Redundancy is the practice of insuring yourself against catastrophe. By redundancy in trading jargon, I mean having the ability to enter and exit trades in more than one way. Be sure your internet connection is as fast as possible. Know what you will do if the internet goes down. Do you have a phone number direct to a dealing desk and how fast can you get through and identify yourself? All these factors become really important when you are in a position and need to get out quickly or make a change.

Choosing a Charting Time Frame.

In order to execute trades over and over again, you will need to have a system that you can follow almost automatically. Since scalping doesn't give you time for an in-depth analysis, you must have a system that you can use repeatedly with a fair level of confidence. As a scalper, you will need very short-term charts, such as tick charts, or one- or two-minute charts, and perhaps a five-minute chart.

Preparing to Scalp.

1. Get a Sense of Direction.

It is always helpful to trade with the trend, at least if you are a beginner scalper. To discover the trend, set up a weekly and a daily time chart and insert trend lines, Fibonacci levels, and moving averages. These are your "lines in the sand," so to speak, and will represent support and resistance areas. If your charts show the trend to be in an upward bias (the prices are sloping from the bottom left of your chart to the top right), then you will want to buy at all the support levels should they be reached.

On the other hand, if the prices are sloping from the top left down to the bottom right of your chart, then look to sell each time the price gets to a resistance level. Depending on the frequency of your trades, different types of charts and moving averages can be utilized to help you determine direction.

EUR/USD Daily Chart. Image by Sabrina Jiang © Investopedia 2021.

The daily chart shows the price has reached the 127.6 Fibonacci extensions, at about 1.3975. Clearly, there is a possibility of a pullback to the trend line somewhere in the vicinity of 1.3850. As a scalper, you can take the short side of this trade as soon as your shorter-term charts confirm an entry signal.

EUR/USD Weekly Chart. Image by Sabrina Jiang © Investopedia 2021.

In the example above, the weekly chart shows a strong upward bias of the EUR/USD. The price could be heading back to a target of 1.4280, the previous high on November 4, 2010.

2. Prepare Your Trading Charts.

A forex scalping system can be either manual, where the trader looks for signals and interprets whether to buy or sell; or automated, where the trader "teaches" the software what signals to look for and how to interpret them. The timely nature of technical analysis makes real-time charts the tool of choice for forex scalpers.

Set up a 10-minute and a one-minute chart. Use the 10-minute chart to get a sense of where the market is trading currently, and use the one-minute chart to actually enter and exit your trades. Be sure to set up your platform so that you can toggle between the time frames.

Trading System.

In the system shown here, and there are many other systems you can use to trade profitably, we've included a three-period RSI with the plot guides set to 90% and 10%. Only trades on the short side once the RSI crosses over the 90% plot guide, and the long side once the RSI reaches below the 10% plot guide, are entered. To nuance the signal, it's best to wait for the 2nd crossing into either of the two zones (only take the trade if the RSI goes into the zone—either the 10% for longs or 90% for shorts—on the second consecutive attempt.

Image by Sabrina Jiang © Investopedia 2021.

Now, before you follow the above system, test it using a practice account and keep a record of all the winning trades you make and of all your losing trades. Most often it is the way that you manage your trades that will make you a profitable trader, rather than mechanically relying on the system itself.

In other words, stop your losses quickly and take your profits when you have your seven to 10 pips. This is a scalping method and is not intended to hold positions through pullbacks. If you find that you can manage the system, and you have the ability to pull the trigger quickly, you may be able to repeat the process many times over in one trading session and earn a decent return.

Remember that too much analysis will cause paralysis. Therefore, practice the methodology until it is automatic for you, and even boring because it becomes so repetitive. You are in the business of scalping to make a profit, not to boost your adrenalin or feel like you are playing in a casino. Professional traders are not gamblers; they are speculators who know how to calculate the risk, wait for the odds to be in their favor, and manage their emotions.

When to Scalp and When Not to Scalp.

Remember, scalping is high-speed trading and therefore requires lots of liquidity to ensure quick execution of trades. Only trade the major currencies where the liquidity is highest, and only when the volume is very high, such as when both London and New York are trading. The unique aspect of trading forex is that individual investors can compete with large hedge funds and banks—they just need to set up the right account.

Do not scalp if you do not feel focused for whatever reason. Late nights, flu symptoms, and so on, will often take you off your game. Stop trading if you have a string of losses and give yourself time to regroup. Do not try to get revenge on the market. Scalping can be fun and challenging, but it can also be stressful and tiring. You must be sure that you have the personality to indulge in high-speed trading. You will learn a lot from scalping, and then by slowing down, you may find that you can even become a day trader or a swing trader because of the confidence and practice you may get from scalping. Remember though, scalping is not for everyone.

Always keep a log of your trades. Use screen capture to record your trades and then print them out for your journal. It will teach you a great deal about trading and even more about yourself as a trader.

The Bottom Line.

The forex market is large and liquid; it is thought that technical analysis is a viable strategy for trading in this market. It can also be assumed that scalping might be a viable strategy for the retail forex trader. It is important to note, however, that the forex scalper usually requires a larger deposit, to be able to handle the amount of leverage they must take on to make the short and small trades worthwhile.

Scalping is very fast-paced. If you like the action and like to focus on one- or two-minute charts, then scalping may be for you. If you have the temperament to react quickly and have no compunction in taking very quick losses, not more than two or three pips, then scalping may be for you.

But if you like to analyze and think through each decision you make, perhaps you are not suited to scalp trading.

What is forex scalping 1

A guide to scalping forex.

Forex scalping is a short-term trading strategy that attempts to make a profit out of small price movements within the forex market. Scalpers will buy and sell a foreign currency pair, only holding the position for a period of a few seconds or minutes. They then repeat this process throughout the day to gain frequent returns, by taking advantage of price fluctuations.

In the forex market, another name for the smallest price movement a currency can make is a pip (percentage in point), which traders use to measure profits and losses. Forex scalpers usually aim to scalp between 5-10 pips from each position, aiming to make a more significant profit by the end of the day. Forex scalping is a form of arbitrage trading .

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What does scalping mean in forex?

Scalping in forex is a short-term strategy that aims to make profit out of tiny price movements. The best forex scalping strategies involve leveraged trading. Using leverage in forex is a technique that enables traders to borrow capital from a broker in order to gain more exposure to the forex market, only using a small percentage of the full asset value as a deposit. This strategy magnifies profits but it can also magnify losses if the market does not move in a favourable direction to the bet. Therefore, forex scalpers are required to keep a constant eye on the market for any changes.

Forex price action scalping.

Price action trading is a technique that works without an indicator. Instead, forex scalpers analyse elements of technical analysis, focusing on price only. This is observed through candlestick charts, using support and resistance levels and trendlines to decipher the same information that they would extract from a technical indicator. By conducting an in-depth analysis of price, traders can then make an informed decision based on trend continuations and will only scalp a trade if the target has the appropriate risk-reward ratio .

Forex price action scalping ignores all elements of fundamental analysis in favour of a technical approach, and these types of traders do not take into account other external factors that could affect the price of a currency pair. For example, some key economic indicators that impact the price of foreign currencies include inflation, economic growth, supply and demand, trade status, interest rates and account balance.

Forex scalping signals.

In volatile markets, trading signals are generated by software or technical indicators in order to identify entry and exit points for a trade. In particular, forex scalping signals are important, due to the speed of the trade. In the forex market, both long-term and short-term signal providers target a number of pips to help scalpers spot potential opportunities when the market is particularly volatile, or equally, when it is quiet and there is less liquidity. Forex scalping signals are based on economic events, such as the ones we have discussed above, or forex scalping indicators.

Most traders use a forex scalping system that allows them full exposure to graphs, pips and forex technical indicators with access to major city trading times across the globe. Technical analysts in particular study price charts to look for opportunities at the busiest times of the day, and are required to stay fully concentrated.

Scalp on 330+ forex pairs with us.

Indicators for forex scalping.

So, what is the best indicator for forex scalping? Below are some examples of popular indicators that we offer on our online trading platform. Forex scalping indicators such as Bollinger Bands, stochastic oscillators and Keltner channels work to demonstrate patterns and trends on price charts as they monitor the online forex market.

Bollinger Band scalping.

A Bollinger Band chart is effective at showing the volatility of the forex market, which is useful for scalpers as their trades tend to be so rapid, usually within a maximum of 5 minutes for each position. Bollinger Band scalping is particularly effective forex scalping indicator for currency pairs with low spreads in the forex market, as these are the least volatile and if executed correctly, can gain the forex scalper multiple profits at once. These include a mix of major and minor currency pairs such as the EUR/USD, GBP/USD and EUR/JPY.

Moving averages for scalping forex.

There are multiple moving average lines on a typical forex graph. Some of the most commonly used forex indicators for scalping are the simple moving average (SMA) and the exponential moving average (EMA). These can be used to represent short-term variance in price trends of a currency. A moving average graph is one of the most frequently used forex scalping indicators by professionals through its ability to spot changes more rapidly than others.

Forex RSI scalping.

The relative strength index (RSI) is a momentum oscillator that predicts the future direction of the forex market over a period of time. Short-term traders, such as day traders and scalpers, can shorten the default settings of the RSI to monitor just minutes at a time, in order the best entry and exit points. Measuring momentum is useful within the forex market for traders to find a suitable strategy for the current environment.

Forex scalping tips.

When scalping, traders should focus on one currency pair or position at a time to give them a better chance of success. When trading multiple positions at the same time, it can be difficult to properly monitor the technical charts and focus is more often lost. It is advisable to only trade currency pairs where both liquidity and volume are highest. Scalping is very fast-paced and therefore major currency pairs need liquidity to enable the trader to dip in and out of the market at high speed. Scalpers often have a specific temperament or personality that reflects the risky method of trading. Scalping requires concentration, analytical skills and a decent amount of patience, allowing scalpers to make hasty decisions with the hope of making a profit.

Best pair for scalping forex.

Traders should consider scalping major currency pairs such as the EUR/USD, GBP/USD and AUD/USD, as well as minor currency pairs including the AUD/GBP. This is because they will be dipping in and out of the market very frequently and these currencies have the highest trade volumes and the tightest spreads to minimise losses. The tighter the spread, the fewer the number of pips the rate has to move before your trade is in profit. However, some more experienced traders may prefer to scalp minor or exotic pairs, which generally have higher volatility than the major currency pairs but carry greater risks.

Best time for scalping in forex.

There is a general consensus between traders for the best times to scalp forex, although this does depend on the currency. For example, trading a currency pair based on the GBP tends to be most successful throughout the first hour of the London trading session, mid-morning. However, the best time to trade any major currency pairs is generally throughout the first few hours of the New York trading session, as the USD has the highest trading volume. It goes without saying that traders do not monitor charts outside of forex trading hours. Some scalpers also prefer to trade in the early hours of the morning when the market is most volatile, though this technique is advised for professional investors only, rather than amateurs, as the risks could create greater consequences.

Is forex scalping profitable?

The forex market can be volatile and instead of showing small price fluctuations, it can occasionally collapse or change direction entirely. This requires the scalper to think with immediate effect on how to ensure that the position does not incur too many losses, and that the subsequent trades make up for any losses with greater profits. Other risks of scalping include entering and exiting the trade too late. Volatile price movements between currency pairs are frequent and if the market starts going against your open position, it can be difficult to close the trade quickly enough before losing capital. The use of a high amount of leverage is also very risky. Forex margins can help to boost profits if scalpers are successful, however, they can also magnify losses if the trades are poorly executed.

The advantage of a scalper’s concentration and personality means that they should be able to spot these changes straight away and close their position in order to avoid losses. The longer the position is held for, the more risk of prices moving outside the scalper’s betting range. Therefore, the majority of scalpers usually stick with the tighter currency spreads and not make too many bold choices in order to minimise risk. A scalping strategy is not advised for beginner traders, due to the level of experience, concentration and knowledge required of the forex market. There is a much higher likelihood of failing positions than of winning positions in these circumstances. Often, more experienced or institutional traders use strategies such as a scalping, arbitrage or high-frequency trading (HFT) to carry out quick transactions.

Putting into place stop-loss orders when currency trading in such volatile conditions can help a trader more effectively managed their risk and losses. When it comes to scalping, this allows traders to set a specific price at which their positions will close out automatically if the market goes in the opposite direction. Given that a scalp trade only lasts a few minutes at most, this prevents the trader from holding onto a sinking position.

What is forex scalping

Forex Scalping.

Cory Mitchell, CMT is the founder of TradeThatSwing.com. He has been a professional day and swing trader since 2005. Cory is an expert on stock, forex and futures price action trading strategies.

Updated July 14, 2022.

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Reviewed by Samantha Silberstein.

Samantha Silberstein is a Certified Financial Planner, FINRA Series 7 and 63 licensed holder, State of California life, accident, and health insurance licensed agent, and CFA. She spends her days working with hundreds of employees from non-profit and higher education organizations on their personal financial plans.

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 5 to 20 pips per trade, the profit on these trades 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 within a single day.

Key Takeaways.

Forex scalping involves trading currencies with only a brief holding time, and executing multiple trades each day. Forex scalpers keep risk small in an attempt to capture small price movements for a profit. The small price movements can become significant amounts of money with leverage and large position sizes. Forex scalpers typically use ECN forex accounts, as a normal account may put them at a disadvantage. Leverage, spreads, fees, and slippage are all risks that the scalper needs to control, manage, and account for as much as possible.

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 (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 automated trading system, programs are used to tell the trading software when to buy and sell based on inputted parameters.

Scalping is popular in the moments after important data releases, such as the U.S. employment report and 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, position sizes may be scaled down to reduce risk. While a trader may attempt to usually make 10 pips on a trade, in the aftermath of a major news announcement 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 willing 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 stop loss point, resulting in the trader getting out with a 20 pip loss and losing four times as much as expected.

This scenario, known as slippage, is common 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 ECN forex accounts.

ECN forex accounts allow the trader to act like a 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 spread or commissions are too high, or the price at which a trader can trade is too restricted, the chances of the forex scalper succeeding are greatly diminished.

Forex Scalping Strategies.

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

Trend trading strategies involve entering in the direction of the trend and attempting to capture a profit if the trend continues. 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 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 pullback, 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 risk/reward. If volatility is higher than usual, the trader will 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 is 10:1 leverage.

The following chart shows three 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.

Image by Sabrina Jiang © Investopedia 2021.

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 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.

The above trades are for demonstration purposes only and are not meant to be advice or a recommendation.

What is a forex spread 9

What is a forex spread.

The liquidity of Z.com Forex is provided by GMO CLICK Securities, which is also the subsidiary of the Japanese listed group - GMO Financial Holdings. The Group receives live forex prices from over ten world-class financial institutions including but not limited to HSBC, Morgan Stanley, and BNP Paribas, which enables the Group to provide fair and real-time forex trading services to more than 900,000 clients worldwide.

Given the group's dominant position in the market, Z.com Forex is able to provide clients with extremely tight forex spreads and competitive rollover rates.

The prices and spreads of all the available currency pairs of Z.com Forex's trading platform are listed in the table below. HKD/JPY and USD/HKD prices are used for currency conversion and are published for reference only.

Currency Pair SELL BUY Spread Change Rollover Sell Rollover Buy.

*HKD/JPY and USD/HKD prices are used for currency conversion and are published for reference only. Prices shown on our website are indicative and for reference only. Rollover rate shown is for the minimum trade size of 1 lot. Get Forex Demo trading account for free, and experience our tight forex spread.

About Forex Spread.

The difference between the two quoted prices (bid and ask prices) is known as the "spread", and this indicates the amount you need to overcome in the currency pair price difference to start being profitable.

Below is an example of the sell price, buy price and the spread between the two prices for EUR/USD.

Z.com Forex does not charge commission on your forex trades. A lower spread equals a lower trading cost.

*Spreads may widen beyond our advertised spreads depending on market volatility.

About Rollover.

Rollover rate refers to the interest rate differential between two currencies of a currency pair that is bought or sold. If the interest rate on the currency you bought is higher than the interest rate of the currency you sold, you will earn the interest differential (i.e., rollover). Conversely, if the interest rate on the currency you bought is lower than the interest rate on the currency you sold, then you will pay the rollover amount.

Rollover occurs when positions are held overnight through Trading Close. Open positions are automatically rolled over every trading day at 6:00 a.m. Hong Kong Time (i.e., 5:00 a.m. during New York Summer Time period) to prevent physical settlement. The realised rollover amount will be settled (i.e., subtracted or added to the account balance and available for withdrawal (positive rollovers only) on the next business day after Trading Close (i.e., T+1).

For open positions held overnight through Wednesday's Trading Close, "3-Day" rollover will be realised in order to account for settlement of trades through the weekend period. For any position held overnight through Friday’s Trading Close and closed on the following Monday, "1-Day" rollover will be realised.

*Bank holidays may also affect the number of days worth for each rollover.

*The rollover rate as shown above is merely indicative.

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What is a forex spread 7

How Do Forex Spreads Work?

Forex trading is constantly growing in popularity. New Forex brokerages are opening at an extremely high rate. Many people who are used to working 9-5 jobs are now leaving their jobs and starting to trade Forex. There are many explanations for the growth of the Forex market, some of the obvious ones being its size, its simplicity, and its potential for profit.

When one thinks about Forex as opposed to other global markets such as the stock exchange, some very basic differences should come to mind. These include higher liquidity, more volatility, greater leverage, as well as lower trading commissions and costs. We have already discussed the liquidity, volatility, and leverage offered in the world of Forex, so now we will learn a little bit more about the trading costs and commissions as compared to other global markets.

The Stock Market.

Let us take the stock market for example. When one trades stocks, which by the way, is a very common occurrence for Forex traders (a lot of people fail at stock trading and then turn to Forex, and rightfully so), the standard way trades are conducted is with the trader being charged commission on both sides of the trade. What does that mean? When you trade stocks, you are generally doing it in cooperation with a broker, and that broker charges you a fixed dollar amount per trade, a dollar amount per share, or a scaled commission based on the size of your trade. This commission is applied when you buy a stock, AS WELL as when you sell it.

Forex Trading.

Now let's talk about Forex trading and how Forex works. The vast majority of Forex brokers will advertise in very big letters somewhere on their site that they do NOT charge commission. With the exception of a few brokers, the Forex market lets traders open and close positions with no commission at all.

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How Do Forex Brokers Make Money?

So, it costs you nothing to trade. This of course begs the obvious question: “How do Forex brokers make money?” Here is where it gets tricky. It is true that there are brokerages who charge no commissions in Forex trading, but the brokers are also not trading for you out of the goodness of their hearts. You can be sure that they come out on top, and in a big way . They charge you what's referred to as “Forex spreads”. The brokerages with lower spreads, often do charge commissions in addition to the spread. It is extremely important to understand all the costs related to your trades before you make major decisions.

Before we understand what Forex spreads are and how they are calculated, it is important to understand one main principle about how the Forex market works. It is all based on supply and demand, just like any other market. If there is a higher demand for dollars, the value of the dollar will go up vs other currencies. This is precisely how Forex spreads are defined and calculated.

Forex Spreads.

A Forex spread is the difference in price between what a Forex broker will buy the currency from you for (the “ask price” and the price at which they will sell it (the “bid price”). So, for example, if you are opening a position in which the base currency is U.S. dollars, and since there is no shortage in demand for dollars, the Forex spread on this transaction will almost always be smaller than a spread on a less common currency. Why?

This is again because of supply and demand. The broker will have no problem whatsoever selling off the dollars they just bought, so they do not need to charge you, the trader, a higher spread. Whereas, if the position's base currency was the Vietnamese Dong (yes, that is the name of the currency in Vietnam), the spreads will typically be higher. It means the broker is taking a bigger risk and as a result can charge more for that risk. Because of this, it is recommended for the individual trader to avoid buying or selling currencies with lower demand. It will cost much more because of the higher spread.

As a rule of thumb, the bigger the currency, the lower the spread. This is why the lowest spread you will get will be in a currency pair such as the EUR/USD, while trading an exotic cross such as the Mexican Peso against the Hungarian Forint will have a huge spread.

If a broker were to buy and sell currencies with no change in the exchange rate, the trader would lose money because the sell (ask) price is always higher than the buy (bid) price, enabling the broker to always make some money on the transaction. On a small scale you see this if you exchange money at a bank when you travel. They will always offer more when they buy your dollars then when they sell them back to you.

Another characteristic Forex brokers consider when calculating spread costs and associated calculations is the type of account in which you are trading. Mini accounts are typically associated with higher spreads. This is of course because the broker needs to compensate the relatively low amount of capital being traded with a higher spread, so as to make their profit.

A mini account might be trading in the tens of thousands of currency units, whereas most Forex trades are closer to a million units. This means that if the spread is .0004 or 4 pips it can cost the average Forex trader 400 GBP or USD or whatever currency they are trading in.

Now, that we established that as attractive as Forex trading is, it is not completely cost free, let's understand the difference between Forex spreads and stock market commissions. The primary difference is that in Forex, you are generally only charged a spread on one side of the transaction, the “buy” side. When you buy currency that is when brokers generally make their profit by charging you a spread.

It is extremely crucial that traders understand how significant the spread is when choosing a broker. The difference one Forex pip can make in a broker's spread might be the difference between a successful Forex trader and a complete Forex failure. A pip is defined as the fourth digit after the decimal.

How Do Forex Spreads Work?

Just to summarize, let's take a look at a concrete example of a spread and understand how it works exactly, meaning, how is the spread in Forex trading measured? Let's say as a sample calculation, we had a EUR/USD bid price of 1.13404 (that is the price at which the broker is willing to BUY the EUR) and an ask of 1.13398 (the price at which the broker is willing to SELL the EUR). In this case, the spread is equal to 0.6 pips, and that money goes straight into the broker's pockets.

There are charts readily available on the internet that enable you to see Forex spread comparison. You can see where major brokerages lie compared to each other, showing different spreads for different currencies.

The spread is just a number but to see how much it would actually cost a trader you need to figure out the mathematics involved. That means to see what it costs, you have to multiply the spread in pips by the pip cost per 10K lot of currency, giving you the spread cost per 10K. Obviously, your cost goes up by the number of currency lots you are trading.

Even fixed spreads change periodically so it is very important to stay on top of what your brokerage is charging. Many market makers charge a smaller spread during more common trading hours to encourage people to do more trading when there is more demand.

There is so much more to be said about Forex trading spreads, such as whether a broker offers fixed or variable spreads and which is better for the trader. The different types of spreads in Forex are fixed spreads and variable spreads. Fixed spreads, as the name suggests, remain the same and never change, while variable spreads fluctuate as market conditions change minute by minute. Fixed spreads are almost always higher than variable spreads, because they include some form of insurance. The advantages of fixed spreads are that they are predictable and may be lower than a floating spread sometimes. The disadvantage of fixed spreads is that they are usually higher than floating spreads and so cost the trader more. The advantage of floating spreads is that they are usually lower than fixed spreads so cost the trader less. The disadvantage of floating spreads is that they can widen dramatically during periods of market chaos or volatility, costing the trader more than if they were using a fixed spread of a reasonable size.

Be aware that often, brokers who offer fixed spreads restrict trades during news announcements when the Forex market is particularly volatile. Thus, the insurance really doesn’t help you. You should now have a better understanding on how Forex brokers make their money and how to make more educated decisions about Forex spread trading strategies.

Understanding a High Spread and a Low Spread.

A “high” spread is one where the difference between the bid and ask prices at the moment you make a trade is relatively high. This is bad, because you start the trade in a somewhat bigger loss. Remember, you always start a trade at a small loss unless you are lucky enough to have entered a trade with an ECN broker during a very rare moment when the spread is “inverted”. An inverted spread happens when the bid price is momentarily less than the ask price, and it only happens at an ECN broker.

A “low” spread is one where the difference between the bid and ask prices at the moment you make a trade is relatively low.

For example, let’s say that you see that your broker is quoting EUR/USD at a bid price of 1.1001 and at an ask price of 1.1000. The bid price is the price at which you can enter a long trade or exit a short trade. The ask price is the price at which you can enter a short trade or exit a long trade. So, if you enter a long trade at that moment, your trade will begin immediately at a floating loss of 1 pip, because you entered that trade at 1.1001 and would theoretically exit it at 1.1000: a difference of minus 1 pip. Note that if the spread widened, with the ask price going down by say another 2 pips to 1.0998, you would be in a floating loss of 3 pips; if the spread narrowed instead, with the asking price going up by half a pip from 1.1000 to 1.10005, you would be in a floating loss of half a pip.

Entering trades when the spread – the bid/ask differential – is relatively low means you begin a trade with a slightly better overall position . This is why it pays to at least quickly mentally calculate the “cost” of the spread before entering a trade.

What Affects the Spread in Forex Trading?

It is easy to understand that in a natural Forex market offered by a broker with variable spreads, the spread as the difference between the bid and ask prices will fluctuate from moment to moment. What is less easy to understand is why these fluctuations happen. The simple rule is that the more active buyers and sellers there are in a market, the smaller the spreads will be. During moments of great fear or uncertainty, market participants will withdraw, leading to a drop in liquidity and sharp and volatile widening of the spread.

How to Manage and Minimize the Spread?

Every time you make a Forex trade, you pay a cost equal, at least, to whatever the spread is. This means the spread on your trade is the cost of doing business. In business, it is always a good idea to keep your costs down if you can, so how can you keep trading but pay less in spreads? There are several answers. Firstly, it is almost always a good idea to use variable spreads. Secondly, you should try to use a Forex / CFD broker which charges relatively low spreads , and usually the more money you deposit, the better a deal on spreads you will buy yourself, which means that depositing more than one thousand dollars if you can afford it should help you to “afford” better spreads. Thirdly, if you have a sizable deposit, using an ECN broker can help reduce the spreads you will pay . Finally, taking trades during times of peak liquidity in the instrument you are trading, should ensure that your floating or “variable” spread will be minimized, as spreads tend to be lowest during times of peak liquidity. This time of peak liquidity is usually found in most Forex currency pairs during the overlap of London and New York business hours, which corresponds to between approximately 1pm to 5pm London time. As London and New York are the two major global hubs for Forex trading, it makes sense that the time of great liquidity will be when both centers are online. For some currency pairs, most notable Asian Forex crosses such as the AUD/JPY, the Tokyo session can also be very liquid – as a rule, if the home country of a currency is open for business, there should be liquidity in that currency.

Be sure to avoid trading during periods leading up to or immediately following major relevant news or economic data releases, as spreads tend to widen dramatically at these times.

How Forex Brokers Profit from Spreads.

Don’t think, though, that Forex brokers make their money by charging spreads and commissions. The clear majority of retail Forex brokers make their money by taking the other side of their client’s trades, most of whom lose their money, which goes straight into the brokers’ pockets. It is important not to be naive about this, but you don’t have to believe that your broker is out to get you or cheat you either. How does this work? Well, imagine a Forex broker that does nothing else but give you prices at which to trade after taking your deposit. If you, and the clear majority of their other clients, trade badly and lose all your money without ever withdrawing any profit, then they will make much bigger profits by keeping your deposits than they ever will from any spreads and commissions that you are charged. Of course, higher spreads and commissions help a broker to make more money more quickly, but if they are not putting any real transactions on in any real market – and this is the case with a huge majority of all retail Forex brokers, even the ones that claim to operate with a “no dealing desk” model – then it is not very important. The spread is far more important to you, as a trader, than it is to the broker. It is your “cost of doing business”, and the more frequently you make a trade, the more important the size of your spread becomes to your overall profitability.

Video Script: Spreads in Forex Trading. How Do They Work?

Welcome back to DailyForex. In today's video we're going to be taking a look at what Forex spreads are and how they work.

The vast majority of Forex brokers will advertise in very big letters somewhere on their site that they do not charge commision, with the exception of a few brokers. The Forex market lets traders open and close positions with no commision at all.

So how do these Forex brokers make money?

Well, it costs you nothing to trade. This begs the question- How do Forex brokers make money? Here is where it gets tricky.

It is true that there are brokerages that charge no commision to Forex trading. But the brokers are also not trading for you out of the goodness of their hearts. You can be sure they come out on top and in a big way. They charge you Forex spreads. The brokerages with lower spreads do charge commisions in addition to the spreads. It's important to understand all costs related to your trades before making major decisions.

Before we understand what Forex spreads are and how they are calculated it is important to understand one major principle- about how the Forex market works. It is all based on supply and demand, just like in any other market. If there is a higher demand for dollars the value of the dollar will go up vs other currencies. This is precisely how Forex spreads are calculated.

A Forex spread is the difference in price of what the Forex broker will buy the currency from you for, and the price in which they will sell it. So, for example if you are opening a position in which the base currency is dollars, and it seems there is no shortage in demand for dollars, a forex spread on this transaction will almost always be smaller than a spread on a less common currency.

This is again because of supply and demand. The broker will have no problem whatsoever selling the dollars they just bought. So they do not need to charge the trader a higher spread. Where if the position's base currency was let's say Vietnamese Dong, the spreads will typically be higher – which means the broker is taking a bigger risk and as a result they charge more for that risk.

Because of this it is recommended for the individual trader to avoid buying or selling currencies with lower demand. It will cost much more because of the higher spread.

If a broker were to buy and sell currencies with no change in the exchange rate, the trader will lose money because the ask price is always higher than the bid price> Enabling the broker to always make money on the transaction. On a small scale, you see this if you exchange money at a bank when you travel. They will always offer more when they buy your dollars then when they sell them back to you.

Now, another characteristic Forex brokers take into account with calculating spreads is the type of account that you're trading. Many accounts will associate with higher spreads. This is because the broker needs to compensate the relatively low amount of capital being traded with a higher spread to make their profit.

A mini account might be trading in a tens of thousands of currency units, where most Forex trades are trading closer to a million units. That means if a spread is .004 or 4 pips it can cost average Forex traders 400 pounds or dollars, or whatever currency they are trading in. It is crucial that traders understand how significant the spread is when choosing a broker. The difference one single pip can make in a broker spread might be the difference btwn a successful Forex trader and a complete Forex failure.

A pip is defined as the 4th digit after the decimal.

So let's summarize with a concrete example of a spread and how it works:

Lets say we have USD/CAD bid price of 120.00 – that is price which the broker is willing to buy the dollars. An ask price of 120.05, the price in which the broker is willing to sell the dollars. In this case the spread is equal to 0.05 or $0.0005 or 5 pips. And that money goes straight into the broker's pockets.

There are charts readily available on the internet that let you see Forex spread comission. You can see where major brokerages lie compared to each other showing differenct spreads for different currencies.

Even fixed spreads change periodically. So its important to stay on top of what the FX brokers are charging. Many market makers charge a smaller spread during more common trading hours, to encourage people to do more trading when there is more demand.

There is much more to be said about Forex trading spreads Such as whether a broker offers fixed or variable spreads and which is better for the trader.

Fixed spreads are always higher than variable spreads because they include some form of insurance.

Be aware often brokers that offer fixed spreads restrict trades during news announcments when the Forex markets are particulary volatile. Thus the insurance really doesn't help you. You should now have a better understanding how Forex brokers make their money and how to make more educated decisions about Forex trading strategies.

Don't think that Forex brokers make their money by charging spreads and commisions. The majority of retail Forex brokers make their money by taking the other side of their clients' trades, most of whom lose their money, which goes straight into the broker's pockets. Its important not to be naive about this but you dont have to believe that your broker is out to get you , or cheat you either.

Hope that gave you a good insight into Forex brokers and their spreads. Thank you from DailyForex. Don't forget for all the latest market analysis and educational videos, download the DailyForex app here.

Adam Lemon began his role at DailyForex in 2013 when he was brought in as an in-house Chief Analyst. Adam trades Forex, stocks and other instruments in his own account. Adam believes that it is very possible for retail traders/investors to secure a positive return over time provided they limit their risks, follow trends, and persevere through short-term losing streaks – provided only reputable brokerages are used. He has previously worked within financial markets over a 12-year period, including 6 years with Merrill Lynch.

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What is a forex spread 6

What is a Spread and Why Does it Matter?

In the forex market, a spread is the difference in pips between the BID price and the ASK price quote (buy/sell) in a currency pair such as the EUR/USD. A spread is also the easiest way for many brokers to get compensated for each transaction the customer makes through their trading platforms. This is the simplest way to understand what a spread is: EUR/USD is priced at 1.1500 the broker will offer it for 1.1501 to buy or sell at 1.1499.

The trading price for any currency pair is expressed by the combination of the symbols that make up the currency pair as well as the bid and ask price. It’s expressed as follows:

Base Currency/Currency trading | Bid Price/Ask Price.

If at any point the quote for the euro against the US dollar is 1.1500 – 1.1502 it reads as follows:

Keep Reading.

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The BID is the highest the trader is willing to buy, also known as purchase price or demand. It is the price at which the trader will enter the market when selling the currency pair. The Ask is the minimum price you are willing to sell, also known as selling price or supply. It is the price which the trader will enter the market when buying the currency pair.

The difference between BID and ASK is best known as the spread. The spread is expressed as pips or points. In this example, the spread in the EUR/USD is 2 pips or points.

Cost for each transaction.

The spread is the cost of each transaction performed by the trader in the market (not including any other fees such as swap or commission). This cost can vary from broker to broker. There are brokers that use the market maker and ECN system which allows them to charge a very tight spread but charge commission for every transaction executed. The spread is the basic compensation for each broker and other third parties if applicable. These third parties are introducing brokers and/or money managers, who can also get compensated for their services through the spread.

How does the spread work?

Let’s follow this example: Trader X wants to open a buy position in EUR/USD at a price of 1.2001. Immediately, the broker executes the order and most likely executed the order at 1.1999, instantly making 1 pip on the execution. Now trader X wants to close the buying position and sell at 1.2010, but then the broker will most likely execute the order at 1.2011 to make another pip on the execution.

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In the example above, the trader encounters a fee for every execution in order to trade the forex market, in order to obtain profits from every transaction. The expectation from each trade should be over the spread amount to capitalize on every trade. In each currency pair the cost of spread is different and also the trader should account for those variables in order to make more money than the actual spread cost.

Know your spread.

It’s very important to know the spread in the forex market. The spread is the cost of each transaction that the broker charges and determines if that cost is appropriate for your trading style.

Secondly, all investors and traders should be educated about the lack of information regarding the possibility of manipulating the spreads on their trading platforms without the consent of their clients. On certain occasions there are unscrupulous brokers which exercise this practice to obtain more profits. Therefore it’s essential that the trader selects a quality broker with a good reputation and that is not guilty of any spread manipulation. It is also advisable to trade with a broker regulated by a regulatory body since their regulator requires companies to meet strict requirements regarding the financial products and services such as the safety of clients’ funds in segregated accounts.

Even if you work with brokers that do not engage in any tampering, let’s go back to the importance of the spread as it represents the cost to the trader. A trader that trades with low spreads will have less operating cost and long-term savings. Therefore, a high spread trader will have to generate higher profits to offset the cost. For many traders, the spread is very important within their losses and gains. For example, if a trader makes many short-term (scalper) trades a high spread can result in absorbing most of their profits. For a long-term trader (swing) in which each trade generates a certain amount of pips in profit, the spread is a matter of little relevance since it has little impact on the results of the trading.

How to select the best broker?

At the time of selecting the best forex broker, you must take into account several criteria including the spread. The spread is a cost factor for the trader and the more you trade the more you are hit with the cost. This applies specially to those scalper traders mentioned before. A low or institutional spread broker is the answer for any scalper in order to get the best fee out there.

Also, as mentioned in the previous section, another recommendation is to select a broker that has a good reputation without allegations or complaints of fraudulent dealings. If the broker is regulated, even better, since it brings a certain level of security to the client’s money through safety of funds in segregated bank accounts.

-If you trade frequently on the forex market you should select a broker that charges the lowest spread.

-Avoid brokers with a bad reputation especially in the manipulation of prices.

-A regulated broker offers a higher level of security to the trader regarding the company’s practices.

The trading price for any currency pair is expressed by the combination of the symbols that make up the currency pair as well as the bid and ask price. It’s expressed as follows:

Base Currency/Currency trading | Bid Price/Ask Price.

If at any point the quote for the euro against the US dollar is 1.1500 – 1.1502 it reads as follows:

Keep Reading.

Investors Undecided over Gold as Economic Downturn Inches Closer Understanding Liquidity and Market Liquidity.

The difference between BID and ASK is best known as the spread. The spread is expressed as pips or points. In this example, the spread in the EUR/USD is 2 pips or points.

Cost for each transaction.

How does the spread work?

ADVERTISEMENT.

Know your spread.

It’s very important to know the spread in the forex market. The spread is the cost of each transaction that the broker charges and determines if that cost is appropriate for your trading style.

How to select the best broker?

-If you trade frequently on the forex market you should select a broker that charges the lowest spread.

-Avoid brokers with a bad reputation especially in the manipulation of prices.

-A regulated broker offers a higher level of security to the trader regarding the company’s practices.