We often see the financial markets as being beyond reach; after all, they are for big investors only, right? Well, not really. These past few years, the financial markets have been very accessible, even when you are a retail trader or investor with a small amount of money to invest. Online brokers and trading platforms certainly make venturing into the financial markets easier.
With more retail traders entering the market, we are also seeing more and more strategies and approaches being developed for smaller investments. Social trading lets you join forces and exchange insights while trading together. Various technical indicator combinations and signals are now designed to work with both pips and pipettes.
One of the strategies that gain a lot of traction among retail traders is scalping. What is scalping and is it a viable forex trading strategy? We are going to find out more in this article.
Getting to Know Scalping
Scalping is a strategy that involves making a lot of trades in a short period of time for the purpose of banking a small profit from each. Rather than aiming for 20 pips or more in profits, scalpers go for 10 pips or less as their target profit on a single trade.
Scalping is an interesting strategy in one respect; you can open and close a position within a minute or two to score a small profit. Do it 10 or 20 times a day, however, and you are still looking at a huge potential profit at the end of the day.
Scalping doesn’t involve carrying the positions overnight or waiting for the market to make big moves, which is why the strategy is preferred by retail traders looking for simpler ways to trade forex. However, there are a few things you need to be able to scalp.
Preparing for Action
For starters, you need a broker that allows scalping. It is no longer common for brokers to ban scalping on their platform, but some are still doing that. The majority of top names, on the other hand, states clearly in their terms and conditions that scalping is allowed.
The platforms themselves are friendlier to scalpers, especially after the introduction of pipettes a few years ago. Rather than 1 pip worth of movements, the charts and the trading console can now show smaller moves happening on the market.
Aside from a broker that allows scalping, you also want a broker with small spreads to maximise your return. The smaller the spreads, the sooner you can bank your pips, and the more profitable being a scalper will be in the long run.
Fortunately, you now have resource centres like InvestinGoal to help you. You can easily find the best ECN broker for scalping on InvestinGoal. Visit the list and you immediately find top names like IC Markets, Pepperstone, and Grand Capital, along with information about their licenses, leverage and minimum deposit amounts, and other valuable details.
Choosing the right broker is only the beginning. The next thing you want to do before you can scalp effectively is select the markets to enter. It is not a secret that some forex pairs are more volatile than the others; those are the pairs you want to trade.
EUR/USD, for example, is a favourite among scalpers due to its high volatility. When you consider today’s political climate, you know that there are a lot of fundamentals and news that can affect this pair and cause big swings.
Other markets, including commodities, are worth looking into as well. What you want is a market with high liquidity and volatility.
Executing Your Orders
Next, you want to be extra certain that all of your orders will be executed quickly and properly. Remember that you are aiming for profits that are no more than a few pips; having your order executed a few seconds late could result in those profits being completely wiped out.
In the forex market, there is something known as slippage. This is a situation where you don’t actually get the price you see when executing an order due to a slight delay in execution (and big market price changes). Having the order executed after the market moved several pips in the direction you want is definitely unacceptable.
Brokers deal with slippage differently. Some offer guarantees that no slippage will affect your orders. Others leave it entirely to the system and your interactions with it, which means slippage remains a risk that cannot be mitigated.
Timing Your Orders
Fighting slippage is mostly about making sure that you can connect to the trading servers reliably. Once you have slippage under control, it is time to look at the best times to trade. This, unfortunately, is something that depends highly on your trading style, your habits, and many other factors.
So, is scalping a viable forex trading strategy? The simple answer is yes. There a lot of traders who are now expanding their wealth by scalping. With the tips we discussed in this article, you can too!