How Does Scalping Work in Forex?

The forex market is often preferred by investors due to its high-return nature. There are multiple strategies and tactics that you can use to bank pips and earn profits when trading foreign currency pairs on the market.

Compared to other financial markets, the forex market is also more volatile. You can actually bank smaller profits by targeting smaller movements and aiming lower. A strategy that incorporates this approach is called scalping, and we are going to learn more about it in this article.

What is Scalping?

Traders usually have targets in mind as part of their trading strategies. Day-traders tend to pursue profits of 25 pips or more. Other strategies involve aiming for more profits that that. In this respect, scalping is different.

In essence, scalping is the act of trading over a very short period of time, as short as a few seconds, and aiming for smaller profits. It is usually set to chase small movements happening on the market, scoring 5 to 10 pips with the trades you make.

When scalping, a trader can open several positions a day. The small profits collected from the trades add up to a substantial win at the end of the day. The 5 pips you make can easily be 50 pips in 10 successful positions.

Why Scalp?

There are several reasons why scalping is a good strategy to incorporate into your trading routines. For starters, the forex market is volatile indeed. It is not uncommon for forex pairs to move 10 to 15 pips even without a significant market event. In other words, 10 to 15 pips of movement can be found even when the market is going sideways.

Another reason to scalp is the relatively low risk that comes with this type of trading strategy. Since you are aiming for smaller profits, you are also risking less in the process. You just have to set your limits correctly before opening your positions.

Lastly, scalping is made easier thanks to spreads offered by the best forex scalping brokers becoming smaller and smaller. For pairs like EURUSD, the spread can be as little as 0.8 pip. You don’t have to wait long to start banking pips as the market move to your favour.

Getting Started with Scalping

Keep in mind that not all brokers allow scalping as a trading strategy. Due to the fact that scalping requires you to open and close positions within minutes or even seconds, some brokers may see it as being against their terms and conditions. Before you get started, make sure you choose one of the best forex scalping brokers on the market.

You also need to stick with tick charts or one-minute charts. Anything longer than that isn’t suitable for real-time scalping. Enjoying the process of watching market movements and staying calm throughout the process are also things you need to become a successful scalper.

Do it right, however, and you can generate a steady stream of profit. Assuming your positions are one standard lot in size, and you go for 5 pips as your target profit, each successful trade translates to $50 or more in profit. Is this something you would like to try?