What is forex scalping 5

What is Forex Scalping?

As of April 2022, there was an average of $7.5 trillion of currency traded on the forex market daily, so there’s little question why the forex market attracts traders looking for quick profits. If you’re interested in short-term trading, forex scalping can be a viable strategy. But what exactly is forex scalping, and is it the right strategy for your needs? Let’s take a closer look at some of the pros and cons of this common trading strategy.

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How Does Forex Scalping Work? Pros and Cons of Forex Scalping How to Scalp Forex Get Started in Forex Scalping.

How Does Forex Scalping Work?

Forex scalping involves quickly and repeatedly buying and selling currency pairs in order to turn a small profit. Forex scalpers usually don’t hold their positions for more than a couple of minutes, and many forex scalpers take their profits as soon as their trades become profitable. The aim of forex scalping is to see these tiny gains add up throughout the day to make it a worthwhile activity.

Unlike currency traders using longer-term strategies, most forex scalpers don’t rely heavily on fundamental analysis or GDP reports when they choose which currency pairs to buy or sell. Instead, they often use technical analysis to determine which currency pairs are likely to see an exchange rate change on a minute-to-minute basis. Many retail forex scalpers also rely on automated software known as “expert advisors” or EAs running on popular trading platforms like MetaTrader 4 or 5 to identify and/or execute their trades.

Keep in mind that in order to turn a large enough profit to make their time investment worthwhile, most forex scalpers need to use leverage. Leverage lets you amplify your gains and losses by controlling a larger position than you can otherwise afford. You do this with money deposited into your margin account to be held as collateral by your broker against potential losses.

Leverage can be a crucial tool to compound profits, but it can compound losses as well. When scalping forex, you should be very careful not to put more money at risk than you can afford to lose if you decide to use substantial leverage.

Pros and Cons of Forex Scalping.

The forex scalping strategy has both benefits and drawbacks. Let’s take a look at some of the factors you’ll want to consider before you begin.

How to Scalp Forex.

Do you think that forex scalping might be the right strategy for you? Let’s take a closer look at how you can get started.

Choose a Trading Strategy.

The basis of successful forex scalping is having a solid trading plan and the discipline to stick to it. Sit down with a few of our best articles on forex trading and create a plan. Your plan should include information on:

The currency pair or pairs you want to trade Whether your broker’s dealing spreads will support you turning a profit The technical indicators you’ll watch to know when it’s time to buy or sell The amount of leverage you’ll need How you’ll avoid major losses using leverage.

Once you understand how you’re going to trade, it’s time to open a margin account with an online forex broker.

Choose a Broker.

You’ll need a suitable forex broker to begin forex scalping. Not every online broker offers access to the forex market or allows you to use scalping strategies. Before you commit to a broker, take a look at these key characteristics:

Trading costs: Margins for forex scalpers can be razor-thin, so ideally choose a broker with tight dealing spreads and no per-trade commissions. Otherwise, your broker’s earnings will begin to seriously cut into your profits, and you might even end up losing money despite making mostly accurate trading decisions. Available leverage: High leverage is often crucial for forex scalpers, especially if you begin with a lower dollar balance in your account. Inquire about the maximum leverage ratio your broker will allow you to use before you open an account. Scalping status: Some forex brokers have banned scalping behavior among their clients. Before you deposit money into a trading account, check to see if your chosen broker has put a limit on the number of trades you can execute in an hour, day or month to discourage or prevent scalping.

Not sure where to begin? Check out Benzinga's list of the best forex brokers.