Forex Scalping: A Fundamental Explanation

Are you thinking about a Forex strategy? Perhaps, Forex scalping strategy is the ideal one. You need to understand what it means and how to implement it. Forex trading is a good way to make money and achieve financial freedom, but there are requirements.  

Two most important things a person needs to achieve success in forex are knowledge and strategy. It is one thing to learn about a simple forex scalping strategy, it is another to implement it. 

What is Forex?

To understand the answer to the above question, an explanation of Forex will help complete newbies to benefit. Forex is an acronym for the Foreign Exchange Market. This is the market where different bodies come to buy and sell currency. In another sentence, Forex is the buying and selling of currencies or the exchange of various currencies against each other. 

For example, when a person who has 10USD changes the money to EUR, a Forex trade has taken place. Here, he has to do that using an exchange rate. The two currencies here are EUR and USD, which experts have paired as EURUSD. If the exchange rate of EUR vs USD is 1.2500, you’ll pay 1.25 USD to get 1 EUR. So the person who wants to convert 10USD to EUR will get 8EUR in return. 

Let’s say after a day or two, the EURUSD exchange rate increases to 1.5000. If the person converts 8EUR back to USD, he’ll receive $12 in return. He has made a profit of $2 because the exchange rate increased while he held on to the EUR. 

Forex online is the simultaneous buying and selling of currencies for profit. If you believe the exchange rate between two currencies will increase, you buy it and hold on to it. When it increases, you will make a profit. 

This is actually done virtually but with real money. So you don’t have to buy and sell physically. Forex trading is done through a platform where you deposit money from your bank account or electronic wallet. After that, click the buy button or sell button to make money. We have discussed this in previous articles. Now it’s time to understand what Forex scalping is.

What is Forex Scalping?

Some traders click the buy or sell button and do not close the trade immediately. Their trading strategy allows them to open a trading position for over one day. These traders are long-term traders. Others close their trades the same day and they are called short-term traders. 

There are a unique set of traders that do not allow their trades to be open for over 5 minutes. These are called Forex scalpers. Forex scalping is a trading strategy that involves opening and closing of a position within a short time. Here, less than 5 minutes and in other cases, less than a minute. 

Since currency exchange rates fluctuate every second, it is logical to assume that one can profit from every turn. So a scalper goes into the market, opens a position, waits for the price to move two to 10 pips in his favor and closes the trade. The currency exchange rates go back and forth, so he must close the trade before it turns around. Scalpers don’t make a lot of money in a single trade, but with multiple positions, the profit accumulates into a significant amount. 

One thing we have learned about scalping is that it requires attention and a quick finger. A Forex scalper is ready to fix his eyes on the computer. Even though it is for a short period, it is difficult. Learning Forex scalping strategy is easy but requires attentiveness and strong concentration. 

Another thing we have learned about scalping is that a trader can only make enough money by opening many positions in one day. A long-term trader may need one trade to make a $100, but a scalper needs over 10 trades to achieve that. If this is the case why do traders use the Forex scalping strategy when they can make more from one trade? This a good question, but the answer will satisfy you. 

The Benefits of the Forex Scalping Strategy

Quick Profit

Scalpers believe it is easier to get 100 pips in multiple trades rather than holding a single trade and suffer from the physical and psychological effects of market fluctuations for a longer duration. It is better to suffer for 5 minutes than 2 to 7 days. 

Technical and Fundamental Analysis 

There is no need to study technical and fundamental analysis. It is only necessary to use the rules of opening for scalping. This is a relief for new traders who get headaches from the technical languages of Forex. There is no drawing of charts, uploading indicators, mapping resistance, and support levels. Opening and closing is all you have to do as a Forex scalper 

No Market Barriers 

Nothing stops a scalper from opening a position. The appearance of a trend is not essential as you can trade at any time of the day and on any trend. 

Managing Forex Risk

To be successful as a Forex trader, you must learn to manage two things; emotions and risk. Forex scalping strategy helps you manage both at the same time. Forex scalpers don’t blow up their account as long-term traders do. Their market risk exposure is low. 

Now that you know what Forex Scalping is and its advantages, it is best to start practicing it on a demo account.