Today the term “scalping” became very popular among Singapore Forex traders. Especially among the newbie traders who like to do scalping when starting trading Forex. Different trading strategies of scalping are widely used by traders at the Forex and stock (futures) markets.
The main feature of scalping trading is that a trading position is closed in a few seconds or in several minutes by reaching a profit of at least 1 pip. In most cases a scalper trader is not waiting for a big profit and often closes positions of less than 10 pips gain. Thus, trading with a minimum lot, and making a large number of transactions during a trading day a scalper makes a good profit, even if it’s only few pips from each transaction.
What are the necessary conditions for a scalping trading? First of all a trader needs a highly volatile currency pair, low spreads, low commissions, or its absence and the ability to track the current quotations. With this in mind, a favorite pair of scalpers in Forex is EUR/USD.
The essence of scalping is in making a large number of trades, where profit or loss for each of them is minimal. Clearly, all scalping strategies are aimed at getting the total profit, despite some losses. But the methods for covering the losses vary in different trading systems. According to some strategies it is recommended to increase the amount of positions at a loss, while others recommend to stay flat, where the volume of the trading positions remain unchanged until the deposit increases (by 20-50% and more). As you can see the second type of strategy is less risky but at the same time less profitable.
Taking into the consideration that today a Forex trader can easily use high leverage, it increases the total gain of any scalping strategy and potential risks. Beginner scalpers are not recommended to use the leverage that is higher than 1:100, after getting a little practice you can increase leverage up to 1:500.
There are 3 main types of scalping:
1. Classic scalping. A Forex trader determines the imbalance between the amounts of supply and demand of the currency pair, which will lead to a certain movement of prices, even if this movement will be small.
2. Pulse scalping. According to this strategy, a trader always studies foreign markets, news and tools that can cause a movement of traded instruments. This approach is widely used in stock markets (futures) as well as in the Forex market.
3. Hybrid or mixed scalping. This type of scalping combines the features of the previous two approaches.
To sum it up, it is important to note that scalping is a very lucrative, but risky form of Forex trading. And the success of a scalping trader depends on his skills, experience and practice. Good luck!