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.
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.
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.
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EUR/USD Forex Market Rebounds Ahead of US Inflation Figures
- American Inflation Figures Due Out Later Today
- UK GDP Numbers Hurt Pound
- US Markets Boosted by JPMorgan Earnings
The EUR/USD has recovered slightly on Monday passing through the key 1.13 mark again as the forex market awaits data from US CPI numbers as European industrial production figures cam e in strong. This was not matched in the UK where a GDP slip was matched by weak trading of Sterling. Futures markets in the US meanwhile have been boosted by much better than expected earnings report from JPMorgan Chase even though coronavirus case numbers continue to soar.
Euro Boosted by Positive Data as CPI Figures Awaited
The EUR/USD major market has struggled in trading in the last week. The Euro steadily lost any ground it had gained during the perceived coronavirus recovery and reopening as case numbers continued to bounce back strongly amid fears of a second wave of infections across the US.
This drove many in forex trading, back to the relative security of the US Dollar and as its status as a safe haven currency lived up to the name. Today though, a slight correction has occurred, with the Euro once again positively crossing over the 1.13 trading mark. With only American CPI data due later today, this movement appears to be more in response to positive data coming from the EU with German economic sentiment coming in close to the estimate at 59.3, and industrial production showing strong growth of 12.4% for May.
GBP Trading Slips on Poor GDP
The Pound has been continuing to show weakness against the US Dollar over the same recent period as the Euro, and for many of the same reasons. The UK unfortunately has a couple of additional headaches to add to the mix which have contributed to a more difficult recovery for the currency than their European counterparts. The broadest of these are the Brexit negotiations which continue to drag on, but the one which has cause the latest slip are GDP figures released today.
These numbers came in disappointingly low and well below what had been estimated. The British economy registered a growth of 1.8% in May. This is compared with a projection of more than 5% that had been expected by analysts. Forex brokers noted this poor result as being the likely driver of the GBP/USD further downward where it remains under pressure close to $1.25.
American Markets Set to Open Higher on JPMorgan Boost
The Dow Jones, which gave away gains of more than 500 points to finish yesterday’s trading session just about where it had started, is looking to get back on track today. The index is pointing toward opening gains of more than 150 points despite the fact that COVID19 cases continue to rise in record numbers.
This positivity has largely been garnered by stronger than expected revenue numbers for JPMorgan in Q2. The bank reported revenues of $33 billion, exceeding the $30.3 billion estimate, given the markets, and the banks share price a pre-market lift.
Forex Market Support for USD as Traders Remain Cautious
- Coronavirus Crisis Still in Focus for Many Currencies
- USD Remains Strong on Risk-Off Attitude
- Asian Markets Open Lower Amid Negative Sentiment
Risk Aversion has been the key word of the week so far as the coronavirus pandemic continues to dominate both headlines and market movements across the globe. The forex market remains very much impacted by the virus as rising case numbers tempt traders toward the safety of the US Dollar once again. Today’s opening in Asia looks to be following along a similar pattern as markets fall once again amid rising case numbers and an all-round uncertain outlook.
Virus Concerns Persist Across US and Globally
Coronavirus cases continued to rise on Thursday with more than 60,000 cases again reported in the US in figures that were similar to record daily numbers reported in the previous days. This has undoubtedly hampered the economic recovery which had been taking place in previous weeks and this was felt on a largely difficult day for American Markets.
Many currencies around the world suffered from the uptake in US cases. None more so than the Euro. The EUR/USD took a sharp dive on Thursday to finish the day trading below 1.13 and with little sign of a bounce back coming up. More positive economic data in the UK too was largely offset as the GBP/USD also fell. Both will be hoping for better news to come from the US today, though that looks unlikely.
Dollar and Yen Return to Safe-Haven Strength
The wild market movements of recent days, particularly Thursday, combined with a general concern over a possible second wave of the virus as case numbers accelerate, has driven traders back toward the dollar. Forex brokers have noted a strong move back to what is considered a global safe-haven in times of difficulty.
The Japanese Yen has been another beneficiary of the risk averse mood among forex traders. The USD/JPY market fell below the 107 level to mark a new ten-day low for the pair. Historically, like the Greenback, the JPY has also been viewed as a very safe choice when there is a risk-off mood as is currently the case. With the release of US inflation figures set for later today, there would appear to be no move away from either currency forthcoming before the end of the week.
Asian Market Opening Continues Downward Trend
Markets across Asia opened with further falls on Friday. These are likely a continuation of the difficult prior trading day on Wall Street, and an indicator of concern on the rampantly rising COVID-19 case numbers in the US. Markets in Australia, Japan, Korea, and China all fell to start the session.
Oil prices have also continued their slump in the Asian session, falling a further 0.5% at the time of writing as traders around the world express concern at how reopening of economies could be impacted. With a quiet economic calendar in many regions, expect case numbers to be a key driver again today.
US Virus Spike Impacts EUR/USD Forex Market
- US Virus Cases Rise by Record Number Tuesday
- Major Forex Markets Falling on Negative News
- American Markets Open Higher as China Stocks Surge
The US reported another surge in coronavirus cases for Tuesday. This comes after a difficult start to the week for the economy following the July 4th holiday celebrations. Forex trading in both the Euro and Pound was impacted with both pairs slipping lower and having their own worries. This comes as American markets slumped hundreds of points in the previous session, and European markets also traded lower on Wednesday.
Virus Cases Surge as US Struggles to Get Back on Track
Tuesday saw the biggest one-day spike on record for US coronavirus cases according to data released today. This number could be in part due to a reporting backlog following the American Independence Day holiday, though hot spots across multiple states continue to see a marked rise in case numbers. The average number of reported cases has jumped 25% in the past week.
Texas, California, Florida, and Arizona in particular continue to struggle with the increasing numbers. These states have accounted for almost half the total number. Despite the increasing numbers with a stark total of 3 million US cases approaching, plans are still being made for American schools to reopen in fall. This move appears to run contrary to the views of many experts, including White House health advisor Dr. Anthony Fauci who has commented that the country is not in total control of the virus.
Forex Market Majors Impacted by Case Rise
Forex trading would appear to have been impacted on Wednesday by news of rapidly rising case numbers in the US. This has worked to compound the woes of both the EUR/USD, and the GBP/USD with both falling further today as they also suffer from their own domestic issues. The EUR/USD was trading down close to 1.13, while the GBP/USD was below the 1.255 mark.
The reported increase in coronavirus cases across many parts of the US will give strength back to the greenback which had been weakening slightly as forex brokers noted an improving market sentiment. This will certainly be dampened as traders retreat to the US Dollar safe haven for the moment. On the Euro side, doubts over the €500 million EU fund stimulus persist and continue to hamper the currency. Austria, Netherlands, Sweden, and Denmark have still failed to agree on this deal with the ECB rates decision upcoming next week.
Markets Open Positively After Tuesday Slump
Wall Street began to bounce back on Wednesday with the Dow Jones up more than 200 points at the opening bell. Traders seemingly unconcerned with the virus numbers surge. The White House too has downplayed the economic impact of the spike. Economic advisor Larry Kudlow commenting that the data suggests a v-shaped recovery.
Markets in China too have continued to build on a very positive start to the week. The Shanghai composite continued to soar with a further gain of almost 2% to add to a 6% surge on Monday.