Scalping Trading Guide

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Scalping is a very popular trading strategy and on this page we will explain in detail what it is. In addition our experts have made a list of the best brokers if you want to invest by scalping.

Scalping Brokers

What is scalping?

Day-trading is very short-term trading, but always with trades that are opened and closed on the same day; scalping (to put it colloquially) is a more radical version of this system: the aim is to make money in the form of small profits in a very short space of time (just a few minutes or even seconds). This means, of course, that scalping traders make very large numbers of trades per day. They use candlesticks (charts that show the price fluctuation of an asset over a specific period of time), which are no longer than 15 minutes, but usually no longer than five minutes.

The ideal markets to implement this technique are indices, commodities and currencies. And the most commonly used assets: Mini S&P500, Mini DowJones, DAX or EUR/USD.

Not all brokers are prepared to execute this technique. Conservatives, and those who are overly stressed when trading, should refrain from scalping. Scalping requires maximum self-control and, above all, speed in analysis and decision-making. If you like to be on an adrenaline rush, this is a great opportunity for you.

Product and market characteristics

There are times when this investment system can pay off, but it is not always appropriate. To find out, it is necessary to inquire into the characteristics of the market/product and the conditions of access to the market.

> Market/Product

  • Level of liquidity: the higher the level of liquidity, the more opportunities there are to open and close trades without execution problems. Forex is the most liquid stock market in the world, hence it is common to find traders scalping in this highly liquid financial market.
  • Volatility level: a very volatile market makes trading more difficult, as it is much more difficult to find the right time to trade. This makes it common to activate the “stop loss”, i.e. to give the broker a “stop loss” order.
  • Spread: if the asset has a very wide spread, it is not suitable for this system.

Market access conditions:

  • Commissions: Broker commissions and other implicit costs are a critical factor, which must always be taken into account to avoid the broker getting rich at our expense. The goal is to find a trader whose associated costs are sustainable over time. Do the maths and choose the one that suits you best after analysing the following aspects:
    • Cost of the platform or software used: programmes prepared for this type of trading usually have a cost.
    • Fees charged by the market access provider for both the execution and settlement of trades.
    • Administrative, management and account maintenance fees.
    • Market-related costs (market fees), which are set according to the asset being traded.
    • Costs linked to market regulators.
  • Leverage: as always when talking about leverage, it must be assessed from two sides: both the one that magnifies your profits with little investment, and the one that intensifies your losses. In addition, when it comes to scalping, another variable comes into play: if the leverage is too low, it is better not to use this method.

Appropriate times for scalping

Volatility is key to scalping, as scalping is based on price movements. The times when volatility is highest are the openings and closings:

  • Europe: opening from 9:00 to 11:00 (local time)
  • United States: opening from 9:30 to 11:30. In Spain this would correspond to 15:30 to 17:30.

Plan your trading days around these schedules if you plan to make scalping your primary trading strategy.

How much can a scalper earn?

There is no single answer to the above question. Not two, not three, but infinite. In fact, the correct question would be: is this trading style the most appropriate for me? If you choose the one that best suits your investment characteristics, you will have more options to make money. And not to lose.

But we are going to give you an answer, albeit with all possible precautions, and bearing in mind that in order to give an accurate answer, different variables such as the size of the account, the leverage or the trader’s capacity would have to be analysed.

Roughly speaking, with the scalping strategy, 15 to 20 trades are opened and closed in an hour. With an average account, you can earn up to 500 euros per day. But you can also lose.

The best financial assets for scalping

In reality, you can implement this short term scalping strategy with all financial assets: stock indices, futures, Forex scalping, commodities, bonds, CFDs.

But keep in mind that the best products for this type of investment are obviously those with high volatility and sufficient liquidity. Therefore, the ideal assets are currencies or indices. Among commodities, gold and oil are the most interesting.

Scalping strategies

There are many options, and there is no one with which, a priori, you are more likely to get big profits. Scalping can be done by following trend line breaks, Fibonacci levels, chartist figures, triangles, breaks of the highs or lows of the day… the famous one minute scalping strategy. You will have to test and experiment to find out which one works best for you.

5 factors when choosing a scalping intermediary

What is the broker’s policy on scalping?

Most often, the broker – in its Terms and Conditions section – clarifies whether reselling is allowed on its platform. Make sure that this is the case, as there have been cases of intermediaries who have been ambiguous on this point and have ended up sanctioning brokers for carrying out these operations.

Where is your corridor located?

Scalping is prohibited in some jurisdictions. Make sure that the broker you have chosen does not operate in one of these jurisdictions and allows you to adopt this trading strategy.

Scalping on ECN platforms

Scalping is normally only allowed on accounts trading on ECN platforms. This condition is not only better for scalpers (because of the speed of execution), but also for ECN brokers, because the more trades are made, the more commissions are generated. On these platforms a commission is charged for entries, exits and spreads.

ECN brokers do not act as counterparties and are therefore not affected by whether traders make a profit on their buy and sell trades. The opposite is true for market makers (market makers, which, in the forex market, are usually banks, forex trading platforms, institutions or companies): they do act as counterparties and can therefore lose if traders win. This is why many market makers do not allow scalping on their platforms.

Is the intermediary able to update the price quickly?

Volatility was mentioned earlier as a baseline element. So is speed. The intermediary has to provide updated prices with a lot of speed. This is essential for the implementation of this investment system.

What specifically does the broker say about scalping?

If there are any questions about the scalping regulations applied by the broker, please contact the broker via email or live chat and resolve them. A good trader should give you a quick and concrete answer. In fact, it can serve as a test to assess the quality of the chosen broker.

Scalping on Forex

Forex trading with the scalping strategy involves very short-term trading. It is a variant of day-trading and the objective is to achieve very small profits (usually a maximum of 5 pips). They are trades that are sometimes opened and closed within minutes, or even seconds, and with a high level of leverage. Therefore, it is common for the scalping trader to make many trades in a single day.

How to succeed in scalping Forex?

Obviously, there are many circumstances and characteristics that affect the good (or bad) result of scalping in Forex, but, broadly speaking, we are going to highlight three essential items.

  • Self-control: many trades are made per day (perhaps as many as a hundred) and each one lasts a very short time. Self-control is a necessary virtue for scalping.
  • Time: it is not enough to be attentive to the market for a short period of time each day; it is necessary to dedicate several hours to it with the utmost attention.
  • Liquidity: logically, it is key to have sufficient liquidity.
  • Spreads and commissions: when making so many trades in a single day, it is essential that the chosen broker applies low spreads and commissions.

Does scalping sound interesting to you? Two more recommendations: start with a demo trading account and, before that, go through all the basics of Forex trading. In addition, you should inform yourself and familiarise yourself with technical and fundamental analysis as well as other tools such as trading courses. It is also important to choose the right broker to trade with and for this you can consult our list of the best forex brokers.

Time scale when scalping on Forex

Candlesticks are graphical representations that show the change in the value of a financial asset over a given period of time. They are used by investors to research the behaviour of the asset and, on the basis of this research, to make investment decisions about it.

Forex scalpers use 5-, 10- or 15-minute candlesticks. Sometimes even 1 or 2 minute candlesticks (although this is less common).

So much for our Scalping guide. We hope you found it useful and remember that online trading carries risks of capital loss. In fact most retail investors lose money quickly due to leverage.

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  • Negative Balance Protection
  • Demo trading accounts
  • Fixed spreads
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