What Is Forex Scalping?

Forex market is known for its great levels of liquidity

. Large amount of money exchange hands each day on an unprecedented scale. Traders find a lot of opportunity gaining a few pips translating into solid profits over time. This strategy known as forex scalping came out in the wake of quick trading and lightning fast executions.

Forex scalping is a trading strategy that has become widely popular in the forex market. It is a strategy of making high leverage short term trades to consistently gain small profits. In other words, a trader uses a strategy to gain three to five pips on each trade that lasts less than a few seconds or a minute. So scalping is called seconds trading. A pip is the smallest denomination that the value of a currency can move. It is equal to $0.0001.

The popularity of scalping is perceived to be its trading style. It exposes a trader to a limited risk due to a very small loss and at the same time returns only a limited profit because of small profit target. This type of trading appeals to day traders who look for the maximum gains with minimum risks. Furthermore, they rarely leave a trade open for more than a few seconds no matter which way the currency moves in order to limit any losses and lock in any gains.

Though this type of trading is lucrative, there are many unforeseen hurdles that prevent common traders from using the strategy. First, most forex brokers are against scalping because it causes them to lose money. Second, the forex market is highly unpredictable. Given the amount of leverage, one bad trade can wipe out the profit. Third, the strategy is not easy to implement as the short term trades do not allow the broker to trade against clients.

But a trader can master the technique to become powerful and dominant over time. Further, spending much time and effort for optimization of the system and having a good relationship with a scalp supporting broker will ensure this as the best currency trading strategy for short term traders.

by: Chris Cornell

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