The most employed strategy in forex trading is scalping. If you are new to forex trading, then this is one of the strategies that you can try out. Forex traders that employ this strategy are called scalpers and forex brokers that offer the lowest spreads are the best-suited brokers for scalping. This post aims to highlight as to why low spread forex brokers are good for scalping. Now, let us start by understanding what scalping is.
What Is Scalping
Scalping is a forex trading strategy. It helps to generate more profits. When using this strategy, you buy a currency pair, hold it for a very short period of time, and then sell it for a very small profit. You open and close a trade in less than five minutes. Further, you execute hundreds of such trades in a day. Some trades will be profitable, while some others will not be profitable.
But what is good about scalping is that the loss or gain associated with each of the trades is very low (say, $0.01 or less). By the time the trading session closes, scalpers would have made a reasonable amount of money because of positive contributions provided by the profitable trades. Typically, scalpers earn about $20 to $300 during the course of a trading day. However, it is not guaranteed. Some days, you may not make any profit at all.
Advantages of Using the Scalping Strategy
It is simple and safe. Losses are small. You can easily absorb the losses. As you execute many trades, your exposure to market volatility will be less. Sudden changes in prices and market trends may not trouble you much. You can employ techniques like take-profit and stop loss to reduce the impact of unexpected price changes. As a scalper, you should be more worried about the spread than the market trend.
Small traders and people with limited resources often become scalpers. Experienced traders and large companies may not employ this technique as their goal is to make huge gains through forex trading. You should be patient, put in hard work, and invest a little bit of time if you want to become a successful scalper.
If you are new to forex trading, it is important that you start your career by learning and mastering this strategy. You will not suffer huge financial losses at the beginning of your career itself. This will encourage you to remain in the market for a longer period of time and become a master trader.
Scalping Forex Brokers and Profits
Before choosing a scalping forex broker, you should consider a few factors. One of the important factors to be considered is the spread that the broker is offering. It is through spreads that brokers make money. If the spread is wide, the ask price will be higher and the bid price will be lower. This means that you end up paying more when you buy and get less when you sell. The chances of you making profits in such a scenario are less.
You can make a lot of money by working with a scalping forex broker. However, you should focus on implementing the strategy in the right manner. The quality of your order execution determines whether you will make profits or not.
For instance, the spread shown on the screen may be tight but your orders may get filled a couple of pips to your disadvantage. Sometimes, your orders may get rejected. This means that the broker is not actually delivering the lowest spreads as displayed on the screen. Brokers employ techniques such as delayed execution, trade rejection, slippage, and stop hunting to nullify the effect of tight spread that they offer. So, you have to choose your broker wisely.
Some forex brokers might offer fixed spreads and guarantee that they will not be changed even if market liquidity changes. Typically, the spreads offered by these brokers are higher compared to those that offer variable spreads. This means that the forex brokers that offer the lowest spreads are the best-suited ones for scalping.
It is not possible to ascertain everything about a broker by reading reviews alone. You will get to know some aspects about the brokers only when you trade using real money on their platform. Therefore, it is important that you explore a little more on your own by working with a couple of scalping forex brokers.