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Wednesday, August 28, 2013

An introduction to Forex scalping

By Richard Newman

If you have become more experienced in the world of Forex, you have probably heard of scalping. Foreign exchange trading is often portrayed as a fast-paced, high risk and exciting activity and scalping is a technique that embodies this spirit. Having a good knowledge of the foundations of Forex scalping is vital before you start trading.

What is scalping?

Currency trade points and prices are partially determined by software indicators
Forex scalping is designed to yield small profits
Scalping is a Forex technique that involves fast transactions that result in small profits. “Fast” in this sense usually means two to five minutes. The whole point is to hold on to the currency just long enough to make a profit when certain market conditions are met. 

Most of these conditions are buying and selling points that are set on complex charts and systems and for this reason, scalping is usually conducted by advanced computer software that can recognise these trading points in real-time. 

There are, however, scalpers who operate manually and every trading move and decision is subject to the trader’s interpretation. In manual scalping conditions, it is usually the trader who programmes the software to recognise market points and make the trade. A high level of practice and knowledge goes into manual scalping and expertise can takes months, if not years, to build up.

What do I need to start scalping?

Obviously, you will need some money to start scalping. Specifically, you will need to invest ‘risk capital’ i.e. money that you can afford to lose. If you put money into Forex that you cannot afford to lose, you are breaking one of the most important rules of trading. Risk is inherent in trading. Once you have your risk capital, you need to decide what sort of system you will use. 

Remember that no matter what the advertising says, automated trading systems are not really ‘automatic’. In these systems, the actual trades are completed by the computer and the computer can ‘read’ stop-loss points, etc. but it cannot do any of the buying and selling analysis for you. 

Develop your own automated system using rules and techniques that you have learnt through practice or through advice from experts. Your usual Forex broker should be able to help with this.
How much money can I make by scalping?

Many people will claim that you can make as much money as you want by scalping. In theory, this is true but in practice, there are many conditions that restrict what kinds of profits you can make. Unfortunately, there are no ‘average’ figures for how much money scalpers make. Personal stories report making hundreds in one trade, others report a few pounds each time. 

It is important to remember that scalpers will require a large investment to use as Forex leverage because otherwise the small increases will not result in worthwhile profits. It is not unusual for scalpers to make hundreds in a day, and unfortunately, nor is it unusual for them to lose that much in a day.

Overall, Forex scalping is a fast and exciting technique which many claim as being one of the best ways to make money on the foreign exchange. It does, however, like all trading techniques, involve a degree of risk and it is up to each individual trader to make sure that he or she is knowledgeable and confident about making the trades.

About the author: Richard Newman is a copywriter and poet with a bachelor’s degree in English Language and Creative Writing. I have worked in various marketing & creative roles since 2001. My aim is to publish at least one novel before I die – so far I have had 2 poems published internationally in print as well as some online. In my professional capacity I currently work for an advertising agency in London.

* Image license: FX preis levels v4; CC BY-SA 3.0

1 comment:

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