Scalping is a trading method that many traders love. This trading style has short opening times, with associated profits usually up to 5-10 pips or even three pips. So, what is forex scalping? What is the difference between Scalping and Day Trading?
Table of Contents:
What is forex scalping?
Scalping is a form of forex trading carried out in a short period from the opening order to the closing of a mandate to find a small profit.
Compared to other forms of trading, scalping is an action that is repeated continuously throughout the day. Positions are usually only open for a few minutes. Therefore, even when the market is sideways, scalpers still make profits because only a small movement of a wave running three pips -10 pips is enough for them to make a profitable position.
Why is forex scalping popular?
Scalping traders usually try to make a profit of 5-10 pips per trade. By opening many positions, they can earn high profits. Then scalpers come in and close orders continuously during their trading session. In this strategy, traders use relatively high leverage and look for a few profitable pips at a time.
In general, a standard lot has an average value of about 10 USD per pip. Therefore, for every five profitable pips, the trader can earn 50 USD. If traders can generate profits several times a day, they can earn tens to hundreds of dollars in one trading session.
However, scalping is a trading method that requires traders to catch the news, read price charts, and execute quickly and decisively. So forex scalping is suitable for traders who like to trade, have the ability to concentrate and have a high degree of patience to make small profits.
Advantages of forex scalping trading
Thetrading system is not too complicated.
Scalping is a simple strategy that does not require too much knowledge of the financial markets in general and forex in particular. Therefore, those who are new to forex trading can also use it.
Low level of risk
Forex scalping is performed on short time intervals such as m15 or m30, sometimes m5 or m3, and never overnight orders. So it can limit dangerous situations due to the influence of external objective factors. Some news such as currency pairs influenced by interest rate news, the statement of a high-ranking official such as the US Federal Reserve Fed …
May increase the win rate
The scalping trading method usually makes an insufficient number of pips. If the trader takes advantage of the right timing, he can close the position in less than 5 minutes and earn the desired profit. That’s why even when the market is on the side, traders still make money.
Use high leverage
Traders can use high leverage in scalping to open prominent positions and earn attractive profits for trading. Traders should properly manage capital to prevent risks when using high leverage.
Risks of trading according to the forex scalping method.
No form of trading works for everyone. A scalper must have the ability to concentrate, especially he needs to have quick reflexes to make timely decisions.
Too many transaction fees
Due to the high volume of trades executed during the day (sometimes hundreds of positions), commissions or spreads are often very high. So, if a trader wants to avoid these commissions, he should choose an ECN broker, just a very competitive spread commission, suitable for forex scalping.
The price can reverse at any time.
Just because they are scalping orders, the time to get in and out of orders is sometimes concise. Inexperienced traders are easy to lose because the price goes against the direction of the position.
What is the difference between Scalping and Day Trading?
Scalping and day trading are both short-term trading styles. Many traders find these two methods similar. However, they have many differences. Here are some key differences:
| features | Scalping | Day Trading |
|---|---|---|
| Trading Volume | Large trading volume. | The trading volume is medium or sometimes even trading with a high volume. |
| Trading experience | Inexperienced traders may not fully understand the rules of the market. | Professional and experienced traders grasp market trends |
| Level of risk | Taking high risks | The lowest level of risk. |
| Transaction time | The transaction time is short, averaging 1 to 2 minutes, even 30 seconds. | The transaction time is longer, about 1 or 2 hours, or it can last up to half a day. |
| It’s time to get results | Traders immediately see the result as loss or profit | Day traders take longer and sometimes have to wait until the end of the day. |
Conclusion
Scalping has proven to be an extremely effective trading style. However, forex scalping is not for everyone. That is why many people avoid it and prefer long-term trading.
