Connect with us

Forex 101

What is Forex Scalping?

mm

Published

 on

What is Forex Scalping?

As you gain more experience and exposure within the world of forex trading, you will undoubtedly encounter an increasing number of trading techniques. One such technique is that of forex scalping. This is a popular strategy engaged by many full-time traders, and is not all that dissimilar to day trading in how positions are managed. So, what exactly is forex scalping?

Forex Scalping – The Basics

Forex scalping is a trading method that focuses on the smallest movements of a currency pairs or market, and the exploitation of this small movement by forex traders. Typically, a forex trader will not care about the direction of movement within a market, but will trade in a high volume of positions over a very short time period.

What this is doing is taking advantage of very small movements that are commonplace in the market throughout the day. These movements could be as little as just a few pips that, to another trader would be somewhat meaningless. To a trader who is engaged in forex scalping though, these small movements of between 5-10 pips can be traded many times within the same trading day. This volume of trading, can help make sure the cumulative profit from forex scalping is increased.

Example:

Trading the EUR/USD forex market, a movement of 4 pips on a standard lot of $100,000 is $40. Trading $100,000 to gain $40 may not seem like a great deal, but scalpers take advantage of the market volume to try and execute this type of small trade multiple times in a session.

This is a very simple example but does serve as a common indicator as to the kind of trades that are made by forex scalpers.

Getting Started in Forex Scalping – Who is Suitable?

As mentioned, forex scalping can become a viable trading strategy due to the frequency of trades made when employing this technique. This means that you will need a few key qualities to bet going as a scalper. Primary among these is focus.

Forex scalping takes into account the smallest forex market movements, and typically over the shortest available timeframes. These time frames are usually within the 1-minute charting windows. These tiny movements within such fast-paced time frames may not even register with standard traders who typically operate over at least 1-hour timeframes. The breakneck speed of trading in and out of these small windows throughout a session also require you to have great patience in forex scalping.

Patience in forex scalping is key since there may only be a few small windows of opportunity to engage in scalping throughout a trading day. Despite this, you still need to watch the markets throughout each minute of an entire session if you really want to have the best chances of scalping successfully.

If you are new, you may also have to choose from manual forex scalping or using an automated trading system that does the scalping for you within the parameters that you set. Naturally, manual scalping may be a lot more time consuming, though the use of automated systems usually comes at a price, and such systems may not always be supported by your forex broker.

Managing Risk in Scalping

Managing risk during any type of forex trading is one of the most important aspects. This is something that becomes increasingly difficult as you move into the technique of forex scalping.

Because scalping traders are dealing with such small market movements of as little as a few pips, they typically employ leveraged trading to magnify the gains and make scalping a sustainable trading style. A simple example is as follows:

If your account balance is $10,000 and you are getting into forex scalping, then a market movement of 5 pips is equivalent to just $5. However, if you utilize just a 10:1 leverage, this same movement could result in a $50 profit.

You should be extra careful if trading on leverage in forex though, and particularly if you are scalping which relies on getting in and out of the position as quickly as possible. A number of problems can occur here. The market may move again before you have time to execute the trade and exit the position, or your order may be subject to slippage which can occur in the forex market particularly during periods of high volume or volatility.

Forex scalping is usually most utilized on the release of data or economic news that makes the market move in one direction or the other. Having some experience and knowledge in forex trading in also essential in knowing how this type of news will impact the market.

Is Forex Scalping Always Allowed?

The short answer here is, no. Forex scalping is not always permitted. It is generally considered to be completely legal regardless of the region or market in which you are trading, though each individual broker have their own powers of discretion when it comes to allowing forex scalping or not.

With that said, most major forex brokers tend to allow both forex scalping and hedging in today’s market. One small factor that may change things is if you are opting to automate the scalping process. This typically requires the use of a forex trading bot or third-party software.

While engaging in automated forex scalping, or other forms of automated forex trading mar certainly save you time, it is important to check whether these systems are both compatible and permitted by your broker.

Final Thoughts

Rounding up, it is clear that forex scalping is a popular trading method for many in the sector. Taking into account the attributes needed including the focus and level of attention to detail in markets traded, scalping is a technique that may best suit more experienced traders.

Factoring into that, the probable need to trade on leverage, and the requirement to follow every market movement, as well as the potential high trade volumes involved, it becomes quite obvious that in order to engage in forex scalping to any degree of success, you should first devote some time to further learning, and growing as a forex trader.

Forex BrokersReview

What is Forex Scalping?
- #1 Broker in USA
- Canadians Welcome
- Over 80 Currencies
- Regulated by NFA, CFTC, FCA, FSA, IIROC & CIMA
- Member of the National Futures Association (NFA# 0339826)

Click Here to Visit Forex.com

What is Forex Scalping?
- #1 Broker in UK
- Singapore Welcome
- Australia Welcome
- 12,000 + Global Markets
- Established in 1983
- Authorized & Regulated by the FCA

Click Here to Visit City Index
Spread the love

Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world. A keen trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.

Forex

GBP Forex Market Not Disturbed by Leaders Condition

mm

Published

on

GBP Forex Market Not Disturbed by Leaders Condition
  • British PM Boris Johnson Admitted to Intensive Care
  • GBP Gaining Slightly Against Dollar
  • US Markets Continue to Look Upwards

Sterling has gained momentum early against the US Dollar. Forex trading in the market does not appear to have been hampered at all by the fact that British Prime Minister Boris Johnson has spent the night in an intensive care unit. He is in ICU at St. Thomas’ hospital in London after his persistent coronavirus symptoms apparently worsened. These gains are in stark contrast to the pressure the market has been under in recent weeks. It points to renewed optimism in the US market as traders move away slightly from the Greenback.

Britain Remain Upbeat on Prime Ministers Condition

Many may have expected the surprising news on Johnson’s admission to intensive care to have shocked the markets on Tuesday. The reaction though, has been much more optimistic than predicted. This confidence from the market has seen forex brokers open to a busier than expected Tuesday as the US trading session gets underway. It has also been matched by a similar positive tone from Downing Street. The Prime Ministers spokesperson said he was “stable”, and in “good spirits”. This after having been admitted to hospital on Sunday before being transferred to the intensive care unit yesterday.

The leader was diagnosed with coronavirus more than 10 days ago before being admitted to hospital over the weekend for testing with what he referred to as “persistent symptoms”. For the moment, Dominic Raab, the First Secretary of State for the UK, is deputizing for the hospitalized Johnson.

Pound Gains on Movement Away From USD

The GBP/USD forex market was up more than 0.5% in early trading despite the news surrounding the Prime Minister. This movement comes more from the fact that traders have begun pulling back from the US Dollar and the safe haven that it has been in recent weeks. This movement is still tentative, but regardless of the political news and how it may impact the Pound, the pair is currently continuing to ride the wave of positive market sentiment.

There are certainly more twists and turns to come in the days and weeks ahead. For the moment though, with no significant changes in leadership or direction looking likely in the UK, the Pound has managed to stay relatively steady, and benefit from the USD pullback of the last 24 hours.

Positive Signs as Stocks Jump on Opening Bell

Yesterday’s rally on Wall Street has continued into the morning trading session in New York. All major markets increased sharply early on in the morning. The NASDAQ, and S&P 500 both gaining more than 1% immediately. The Dow Jones also rocketed more than 800 points.

Movement has settled somewhat at the time of writing, but the positivity looks set to continue, with traders rebalancing their portfolios amid a hopeful drop in cases of coronavirus. There is still a long road ahead though before market confidence is fully restored.

Forex BrokersReview

GBP Forex Market Not Disturbed by Leaders Condition
- #1 Broker in USA
- Canadians Welcome
- Over 80 Currencies
- Regulated by NFA, CFTC, FCA, FSA, IIROC & CIMA
- Member of the National Futures Association (NFA# 0339826)

Click Here to Visit Forex.com

GBP Forex Market Not Disturbed by Leaders Condition
- #1 Broker in UK
- Singapore Welcome
- Australia Welcome
- 12,000 + Global Markets
- Established in 1983
- Authorized & Regulated by the FCA

Click Here to Visit City Index
Spread the love
Continue Reading

Forex

What is Hedging in Forex?

mm

Published

on

What is Hedging in Forex?

Hedging as it applies to the forex market and trading, at its most basic form, is a strategy to protect you from losing big in a certain market position. There are many types of hedge that move from the very simple, to the more complex if you are an advanced trader, but the premise is the same. To protect your position in one currency pair by placing a trade within that same market in the opposite direction.

The Fundamentals of Hedging in Forex

The first point to note is that hedging is not always permitted by all brokers. Therefore, you should check their policy first. As mentioned, the majority of traders who engage in hedging are doing so to provide themselves with a form of protection in the event of adverse market changes. By nature, hedging is particularly common in times of market volatility when the movement is quite unpredictable.

Hedging in the forex market is also more common than in many others. This is often due to the fact that the forex market can be seen as slightly more volatile than many others that are traded. As a forex trader, there are several types of hedge that you can place to protect your position in the market.

Forex Hedging Strategies

While there are a range of hedging strategies available that vary in complexity, here we will outline some of the most common you can utilize depending on your broker policy and level of experience.

Simple Forex Hedging

This strategy is also known as direct hedging. It is one of the most widely used, and easy to understand hedging strategies. Direct hedging occurs when you open a position to buy (or go long) on one currency pair. You then open the same position to sell that currency pair (short).

There may be a number of reasons for doing this, but in any case, a few things happen. You now have two open positions in exactly the opposite direction. Although you do not make a profit on the actual hedge itself, it does allow you to keep your original position. This means you do not have to close your original position for a loss, and can instead start to make money through your short position. Maintaining the original position also means you could again profit if the market trend reverses.

Multiple Currency Hedging

Moving into one of the more complex hedging strategies. If you are trading in multiple currency pairs, then this strategy could be effective to a certain extent for you. Multiple currency hedging takes place when you but a long position, and a counteracting short position in one of those currencies.

For example, you may take a long position in the GBP/USD market, and a short position in the USD/JPY market. In this example, you are protected against your USD exposure to a high degree. This strategy though does not cover movements in the other currencies you are exposed to though. In these cases, if the JPY, or GBP were to fluctuate, you would still be exposed.

A variation of this strategy also sees traders take long and short positions in currency pairs that are positively correlated, meaning that if one currency pair goes down, the other will go up. Such an example of these positive correlated pairs may be the GBP/USD, and EUR/USD. So, if you hold a buying position in one, and selling position in the other, in theory, they should offset. Still though, this is not as exact a strategy as a simple direct hedge.

Forex Options Hedging

An option in forex is an agreement to exchange at a specific price in the future. It is a common instrument used by forex traders who wish to hedge their position. Again, this is referred to as something of an imperfect hedge since it can still result in some losses for you as a trader.

Using an example of how you may buy a forex option to hedge your risk, consider the following:

You have gone long on the EUR/USD at $1.08 expecting the pair to go higher. You are now concerned though that it may fall further on the release of economic data coming in the next few days. In order to mitigate this risk, you may but a put option with a strike price at something like $1.07 on the pair, and an expiration date of the option at some point beyond the data release.

If the pair then does go lower, the trader is paid out on their option based on the contract conditions set. If the news does not materialize, and the pair continues to go higher, then the trader can continue to hold their long position and will have only lost the premium set out in the option contract.

Who Hedges Forex and is it Worth It?

While only you as a trader can make the decision on whether hedging is worth it, the benefit of engaging one of the strategies mentioned here is that you do limit at least some of your exposure in the markets you are trading. Timed right, it can also put you in a more profitable position.

The question of who hedges in forex is more complex, but generally speaking, as long as the forex broker you are trading with allows hedging, then there is nothing to stop you from doing it. It is important that you understand why you are hedging and how you want the market to react but beyond that, almost all levels of trader can get involved with at least some of the strategies above.

Forex Hedging Fees and Costs

There are no direct fees related to forex hedging, but depending on your broker, you may have to pay a commission or spread on the market you are trading. This, as well as any other fees like a swap-fee if you are keeping the position open, are some other important things to factor into your calculations when determining if you should try hedging in forex.

Spread the love
Continue Reading

Forex

US Unemployment Rate Doubles Causing Forex Market Waves

mm

Published

on

US Unemployment Rate Doubles Causing Forex Market Waves
  • Rate has doubled from Previous Weeks Record
  • Record High is worse than Analysts Predicted
  • EUR/USD Slides Again as Oil the Only Positive

US unemployment rate figures just released make for very grim reading. A hammer blow to start Thursday, the figures show that more than 6.6 million Americans filed for unemployment benefit amid the ongoing COVID-19 crisis. These numbers more than doubled the already unprecedented record of 3.3 million jobless claims from the previous week. The market has been somewhat slow to react to this news, but remains poised for the jobs report to be released later today.

New and Unwanted Records Being Set

Last week’s unemployment numbers of 3.3 million were far beyond the previous record high set in 1982. The number was almost 10 times greater than that set almost 40 years previous. The new weekly number from today puts that even further into the shadows. These are unprecedented times of difficulty throughout the US and global economy which show little sign of let up at present. At the time of writing, the Dow Jones was trading 150 points lower on release of the news which sees more than 10 million people in the US now filing unemployment claims in the past two weeks.

Some solace can be found in the fact that the latest $2 trillion stimulus package has made it easier for workers who have been furloughed in the crisis to remain on unemployment benefit, and also expanded the scope of those who could apply for the benefit. The previous high of 695,000 claims in 1982, and the 665,000 during the previous financial crisis of 2009 now seem miniscule by comparison.

Numbers Outpace Expert Prediction as Euro Falls

Analysts had predicted that numbers would should a marked increase. The results though, have gone far beyond even what the most pessimistic of onlookers imagined. This movement looks set to continue with more labor data to come on Friday. This government data release is set to show more huge losses across the board.

The forex market impact is already being felt as the EUR/USD market fell back below the $1.09 mark. The currency pair had worked hard over the previous week to build back up significantly, but on release of more negative data from the US, it has given way to the continually increasing safe-haven role of the greenback.

Oil Rebound Provides Glimmer of Positivity

At the opening bell, the one positive to garner from the start of the day comes from the news that the price war between Russia and Saudi Arabia may be nearing an end. Prices rallied across the oil markets more than 10% on these hopes. Nothing has been ruled out and there hasn’t been any concrete word besides an offering on Wednesday from US President Trump that the two sides would “work it out” in the coming days. This news would appear to have some truth behind it and has bolstered the market from record low levels.

Forex BrokersReview

US Unemployment Rate Doubles Causing Forex Market Waves
- #1 Broker in USA
- Canadians Welcome
- Over 80 Currencies
- Regulated by NFA, CFTC, FCA, FSA, IIROC & CIMA
- Member of the National Futures Association (NFA# 0339826)

Click Here to Visit Forex.com

US Unemployment Rate Doubles Causing Forex Market Waves
- #1 Broker in UK
- Singapore Welcome
- Australia Welcome
- 12,000 + Global Markets
- Established in 1983
- Authorized & Regulated by the FCA

Click Here to Visit City Index

 

 

Spread the love
Continue Reading

Forex News

Forex Brokers

Forex BrokersReview

- #1 Broker in USA
- Canadians Welcome
- Over 80 Currencies
- Regulated by NFA, CFTC, FCA, FSA, IIROC & CIMA
- Member of the National Futures Association (NFA# 0339826)

Click Here to Visit Forex.com

- #1 Broker in UK
- Singapore Welcome
- Australia Welcome
- 12,000 + Global Markets
- Established in 1983
- Authorized & Regulated by the FCA

Click Here to Visit City Index