The forex market is the largest and most liquid market in the world, with an average trading volume of $6.6 trillion a day. Having surpassed even the New York Stock Market, it’s not difficult to see why forex has become prominent among traders.
Trading currencies offers massive gains for individuals who are willing to take the risk. However, to be successful in this arena, you’ll need to find a strategy that suits your trading style.
While you can explore different trading strategies, this article focuses on forex scalping and how to leverage it for your trading strategy.
What Is Forex Scalping?
Forex scalping is a short-term strategy that involves buying or selling currency, holding its position for a short period, then closing it for a small profit. Instead of opening and closing a position at the start and end of a trading day, forex scalpers open and close multiple positions within a single day.
Their goal is to make enough of these small trades to reach the same amount they could have made from one trading day with a higher profit. Whereas day traders hold trades within 5 to 30 minutes, scalpers hold trades in as quick as a few seconds to 15 minutes at a time. Most scalpers generate between 5 and 10 pips per trade and repeat the same process throughout the day.
Placing multiple trades with just a few pips at a time can easily add up. For example, if the average value of a pip for one standard lot is $10, a scalper can generate $50 per five pips of profit made in a day. Increase that to 10 times a day, and the profits reach $500.
How to Get Started with Forex Scalping
There’s no set formula when trading using scalping strategies, but here are a few steps to get you started.
Develop a Trading Plan
Forex scalping involves massive risk, but creating a solid trading plan can help you recover potential losses. When creating your plan, be sure to include the following information:
- The forex indicators you want to use to determine the best time to buy or sell a currency
- The currency pairs you wish to trade with
- A contingency plan in case of major losses
- How much leverage you’ll need
Choose a Reputable Broker
When choosing a forex broker, be sure to review their terms and conditions so you know what to expect during the partnership. Consider the following tips when hiring a broker:
- Scalping strategies involve small margins, so choose a broker with tight dealing spreads and no per-trade commission. This ensures that your broker’s earnings don’t cut into your profits.
- Ask about the maximum leverage that the broker offers. It’s best to choose a brokerage that provides high leverage, especially if you’re starting with a lower trading balance in your account.
- Ensure that the online broker allows scalping strategies on their platform. Check whether they placed limits on the number of trades you can place in an hour, day, or month.
- Choose a broker that provides practice accounts where you can experiment with different scalping strategies without worrying about real-world losses.
Fund Your Account and Place a Trade
After choosing a broker and setting up a margin account, you need to deposit funds to start trading live. You can transfer money directly from your bank account to your trading account. It’s ideal to trade with a smaller margin balance until you feel comfortable enough with your trading style and the platform you’re using.
The Different Forex Scalping Strategies
There are various scalping strategies to choose from, but most fall under the following categories:
- Trend Trading: This involves analyzing an asset’s movement in a particular direction to capture profits.
- Counter Trend Trading: The scalpers attempt to generate profits by placing a trade against the current, broader trend. It is often used when a trader predicts a reversal or pullback of a trend.
- Range Strategies: This involves determining overbought and oversold currencies. Scalpers buy during oversold periods and sell during overbought.
- Statistical Trading: Scalpers identify patterns or anomalies that arise in specific conditions—for example, holding a position for five minutes if a specific chart pattern occurs at a certain time of the day. Statistical scalping is often based on price, time, day of the week, and chart patterns.
Choose the Fairest Brokerage in the Industry
Whatever trading strategy you use, you can benefit from choosing a broker who will work for you, not against you. At Fair Forex, we’ll provide you with a robust trading platform where you can perfect your scalping strategy.
Leverage our free trading tools and peer group sessions today. Reach out to us at 1-844-600-FAIR.