The forex market is a highly volatile space, which sees an estimated $6.6 trillion traded globally every day.Interestingly, there are numerous ways in which you can realise a profit in this market, depending on your risk profile, understanding of forex, and expectations in terms of a monthly yield. If you have a healthy appetite risk and want to pursue short-term gains, scalping may well be your preferred strategy. Here’s a breakdown of forex scalping and the key considerations.
What is Scalping in Forex?
The term ‘scalping’, a popular forex trading strategy, refers to the process of opening and closing multiple market positions during each 24-hour period.Interestingly, this strategy differs from day trading thanks largely to the sheer volume of positions opened during a 24-hour period, while most scalping trades will last for just a few seconds or minutes.So, instead of opening one currency pair position at the start of a trend and closing it at the end, scalpers will open and then close multiple positions throughout a single trend.Forex scalpers typically aim to gain just a few pips at a time, in the pursuit of several small and incremental gains rather than a concise number of larger returns.
The Key Considerations Before Scalping
Before you look to start scalping as your primary way of leveraging forex market profits, there are a few key considerations that you’ll need to keep in mind.One of the most important is the role of liquidity in scalping, with forex considered to be the most liquid entity of its type anywhere in the world. Liquidity refers to the ability to buy and sell quickly without affecting a market’s price, and major pairs like the EUR/USD are among the most liquid financial assets in the world.Ultimately, high liquidity is good news for scalpers, who are required to enter and exit their forex positions quickly (sometimes within a matter of seconds) and choose to pursue reliable and incremental returns rather than being at the mercy of volatile price shifts.Liquidity in forex isn’t fixed, of course, as it depends on various factors including your chosen currency pair and the time that you choose to trade.As we’ve already touched on, major currency pairs such as the EUR/USD are highly liquid and best suited to forex scalpers, while trading during periods where different sessions overlap (such as 1 pm and 5 pm when both the London and New York Stock Exchanges are open) see increased activity and inflated levels of liquidity.