Scalping is a term that new forex traders may have encountered either on an FX broker’s website, social media post, or trading forum. At times, trading forex & CFDs can be overwhelming as there are many acronyms and industry terminology that both brokers and more experienced traders use in discussion. Such terms can often pose a roadblock for new forex traders who simply wish to better understand the market.
Today, we’ll define exactly what scalping is when trading forex so those who are new to the market have a better idea as to what this term is about.
What is Scalping in the Forex Market?
Scalping is a term used to describe a trading strategy that is very short term in nature. Those who have traded other financial markets like stocks or futures might assume this term refers to day trading. In fact, scalping usually refers to trades on an even shorter time basis than just a day. While there is no set time limit or duration when defining scalping, it generally refers to those who open or close trades within a matter of seconds.
Trading strategies that would fall under the definition of scalping can either be performed manually (without computer assistance) or by forex trading algorithms. Because trading algorithms, often referred to as EAs, have grown in popularity over the years, we are seeing more references to these systems when discussing the concept of scalping. The reason is that automated trading systems are capable of executing hundreds if not thousands of orders around the clock, a feat that would eventually tired out a human being.
Is Scalping in the Forex Market Legal or Illegal?
There is nothing illegal or even wrong with having an ultra short term trading strategy that may be referred to as scalping. Some forex brokers, however, do not like these type of trading systems and will often close down the account or take measures to prevent such traders from executing their strategy. For example, a common tactic to reduce scalping strategies is to widen the spreads for the client, thereby making the system unprofitable.
The reason some FX brokers do not like short term / scalping strategies is that their risk management team cannot effectively handle the order volume. In many cases this is due to the fact that the broker is not operating on an STP basis or their liquidity provider has issues with the strategy. This doesn’t necessarily mean the broker is bad, it’s just not a type of business they wish to have.
Is Scalping in the Forex Market Profitable?
Scalping strategies can be profitable but do entail a higher level of risk than other forex trading strategies. The main reason scalping strategies are riskier than others is that traders employing this strategy take advantage of high amounts of leverage. It only takes a single news event in the market to significantly reduce a trader’s profit; each time a scalping strategy opens a trading position, the risk of such an event happening is present.
We also mentioned in earlier that many brokers discourage these type of strategies. While it is not impossible to find a broker that allows scalping, many new traders may be disappointed when their strategy performs well on a demo account but not when it comes to live trading.
Forex Consulting Services for New & Experienced Traders Alike
If you are currently running a scalping strategy but are facing difficult finding the right broker to trade with, we can help. Our team of expert consultants can connect you to several brokers that would be happy to onboard you as a client. In addition, if you are completely new to FX and don’t know where to begin, feel free to contact us. We are happy to discuss your needs in more detail and then recommend several reputable forex brokers to trade with.
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