Forex scalping is a trading technique used to benefit from very small changes in the currency prices. These are usually carried out in less than a minute by getting in and out of the trade very quickly. The strategy is not to make 50 or more pips per trade, but rather to capture quick, multiple 5-10 pips, which over time add up. This can be a low risk technique if performed correctly. The fact that you are spreading your risk over several different trades decreases your overall risk. However, you must establish a strict exit strategy because one large loss could cancel any gains you may have built up.
Discipline to get out of bad trades and risk management is extremely important and if implemented properly, these strategies can be done at low risk. Brokers are aware of this practice and do not look favorably upon it. The reason being is that brokers make money dealing your money. If you get in and out of a trade in seconds, they do not have time to deal your money. How do brokers differentiate scalping from short term trading? Generally if you get in and out of a trade in less than a minute, you may have a problem with your broker. They could warn you and shut down your account if you continue. If you trade in minutes, or longer, more than likely you will be okay. There are Non Dealing Desk (ECN) brokers that will allow you to get in and out of a position in less than a minute, but the minimum to open an account may be higher. It is very possible to make decent money.
However, to be successful, there must be a blend between the scalping and your own personal trading strategy. Furthermore, if you are a short term (intra-day) trader, you need to find a strategy where you stay in positions long enough not to break the broker's rules. There are some general guidelines that you should consider. First, the only way to make a small account grow is through the use of leverage. Secondly, the only way to trade with high leverage is by trading with a tight stop loss. Next, you need to consider that even though the Forex market is active 24 hours a day, 7 days a week, not every hour is ideal for scalping. You will need to do your research on what times of day are ideal for your particular currency pairs. Also, it is good to decide on the exposed risk in advance.
Calculate the worst possible situation and see if your account can handle and have something left over to move on. How many losses in a row can your account handle? Another thing to keep in mind is to consider the average daily range of the price for a chosen currency. The wider it is the more realistic of an opportunity there is to profit from price moves. Once in a trade, forex scalpers need to constantly monitor and manage their risks. Forex scalping is not an easy task. Trading in this manner requires a lot of concentration, constant price monitoring and quick decision making. In addition, with the tight time frames involved in forex scalping, you need to have a very good understanding of foreign currencies, technical analysis and confidence. Although it may be intimidating at first, with a little bit of research and time you can become knowledgeable and utilize these techniques to your advantage.
Kim Lehman holds a Masters Degree in Business and manages a website dedicated to assisting others with financial matters at http://www.yourfinanceinfo.com The website is constantly evolving, adding new information as it becomes available.