Scalping is a technique where the trader aims to profit from tiny price changes on the market by doing a multitude of small trades within a very short time-frame. For a scalp trader, rapid execution of orders on the trading platform is of imperative importance.
Scalpers tend to be most active on markets where there is high-liquidity, high-volume and tight spreads. Unlike many other types of traders, scalpers enjoy fairly calm markets, since they make money from minute changes up and down rather than rely on longer-term swings or trends.
It is not unusual for scalpers to carry out a very high number of trades within a few seconds or minutes. They do not attempt to make much from each individual trade; it is instead the accumulated profits that drives them.
Do scalpers only do forex?
No, scalp traders exist for many different asset types, but they have become strongly associted with forex because there are several FX pairs that offer exactly what the scalper wants: high-liquidity, high-volume and tight spreads.
Company stocks, commodities and cryptocurrency are just a few examples of asset types that have attracted the attention of scalpers.
If you plan to do one $20,000 long-term investment in Johnson & Johnson (JNJ) shares, a broker fee of $50 wont make a big difference in the grand scheme of things.
If you, one the other hand, plan to go into scalp trading, executing thousands of trades within a day, and earning a miniscule amount from each, paying $50 per trade to the broker is out of the question.
If you are interested in scalping, picking a broker and a broker account where the trading costs are adapted for scalpers is of imperative importance. Otherwise, the broker fees will eat any pre-fee profits you make.
Don´t spread yourself thin
A common mistake among novice scalpers is to jump on every percieved opportunity and start scalping a myriad of different assets.
We recommend you start simple by focusing on one asset first, such as one high-liquidity & high-volume currency pair with a tight spread. Once you´ve started making a consistent profit over time with this asset, you can widen your scope – preferably within the same asset type (e.g. forex if you´re already doing forex).
Do scalpers use leverage?
Some do. When you carry out a leveraged trade, you are risking money that you just borrowed from your broker.
Using leverage is tempting, since making a 1 pip profit per unit from 10,000 units is nicer than making a 1 pip profit per unit from 100 units.
Using leverage is risky, however, and you can end up losing more money than you ever hand in your account. We do not recommend leveraged trades for inexperienced traders. Also, even if you are an experienced trader, you are not an experienced scalper when you first start out scalping.
Important: Regardless of experience, never risk more money than you can afford to lose.
Trading bots for scalpers
Some scalpers use trading bots that act based on Expert Advisors (EAs). You can build you own EAs, but paying a fee to subscribe to EAs created by someone else is also very common.