Investing > Scalping Forex Explained

Scalping Forex Explained

Scalping forex is a fun and challenging way to make a profit—if you know what you’re doing. 

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Updated January 10, 2022

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Looking to spice up your forex strategy?

Scalping could be just what you’re looking for. But there are some crucial factors you need to be aware of, first.

Forex scalping can be a fun and challenging way to monetize small movements in the forex market. If you’ve hit a wall with your forex trading strategy, don’t worry—scalping can certainly shake things up and draw you into a new world of potential gains. 📈

With the record volumes of people trading forex in 2020, it’s smart to go into 2021 looking for new strategies to keep your edge. For scalping to be worth your while, you need to understand the basics and what to expect. A good scalper needs the right broker, an intimate knowledge of their trading platform, live charts that update quickly, and a personality well-suited for a fast-paced environment.

Through this guide, we’ll help you understand the essential strategies that make forex scalping profitable, and how to set up your office and routine for worthwhile scalping. Because of the fast-paced nature of scalping, you’ll need to learn the basics and set your system before you begin trading—and we’ve got you covered for everything you need to know.

Ready? Let’s go!

What you’ll learn
  • What is Scalping?
  • The Profitability of Scalping
  • Pros and Cons of Scalping
  • How to Scalp Trade in Forex
  • Steps to Start Scalp Trading
  • The Risks of Scalping
  • Before You Start Scalping
  • Scalping Forex FAQs

What is Scalping? 💹

Forex scalping relies on making a large number of trades with short holding times. Basically, scalpers profit from the minute price fluctuations that happen in the hours and even minutes of any given day on the market. These can occur naturally, or due to major economic events like the Bank of Israel purchasing $6.8 billion of forex, which strengthened the USD.

Day to day, this means that scalpers open and close several positions throughout each day on the market. They might do this themselves, or through an algorithm set up for scalping.

Either way, scalpers identify a dip in an upward-trending position, and trade usually minutes later when the pair has increased in value. Forex scalping is very fast-paced, and is a good fit for people who like to be actively involved in their investments and can make decisions quickly. 

Is Forex Scalping Profitable? 💸

Scalping really focuses on the small gains that are possible over short periods of time. These gains get magnified by increasing the size of your position, and by making a high volume of trades. 

Forex scalpers will often see profits of 5-20 pips per trade, and most of them will use leverage so that these trades become significantly more valuable. For example, if you hold a $5,000 position and see a ten pip profit, you earn $5. If you leverage that position to control $50,000, you earn $50.

Some forex strategies don’t require a lot of pips. Just take a look at the 50 pips per day strategy. It aims for just 50 pips per day in profit – a fairly simple, though not necessarily easy, strategy.

Forex requires liquid assets that you can trade quickly. It requires a time commitment and a decisive attitude, which may not be suited for everyone. If you become adept at forex scalping, you may be able to apply it to becoming a day trader and using additional strategies in forex and other markets.

Keep in mind that many brokers don’t allow scalping—they may even freeze your funds if they find you closing trades too quickly. The popular brokerages for scalpers include FXTM and AvaTrade, but these two are far from being the only ones.

The Good and the Bad with Scalping

Pros

  • Make profit on the small gains of the market
  • Fun and challenging
  • Strategy applies to other markets

Cons

  • Time-consuming 
  • May not be suitable for all personalities
  • Requires leverage and liquid assets for big gains 
  • Many brokers don’t allow it

How to Scalp Trade in Forex 💱

As with all trading on the forex market, you’ll need to stay on top of larger economic trends. For example, you’d need to know that the dollar is expected to continue falling as we wait for news of the new stimulus package. In addition to that, there are specific strategies that apply to scalping forex. 

Find the Trend 🔎

All pairs will naturally fluctuate in value over the course of the day. These fluctuations will generally happen within a certain range in a certain amount of time. If you look at a stock market chart, you can draw a line across the highest a pair will go, and the lowest a pair will go, in the course of their natural fluctuations. 

A resistance level refers to the highest value a pair is achieving within a certain time frame. This is the upper limit, or “ceiling,” of its natural fluctuations. Usually, it will take an external event to bring a pair higher than this value, such as a new policy that is expected to strengthen one of the currencies. 

The support level refers to the lowest value a pair achieves through its natural fluctuations. The goal of the forex scalper is to buy a pair at its support level, and sell it at its resistance level. 

You also need to monitor the trendlines for each pair. The above examples refer to a stagnant pair that is hovering around the same basic price point.

More often, a pair will be trending upward or trending downward. If the support level of a pair is generally increasing, that means it is trending upward. If it is decreasing, that means it is trending downward. 

You’ll want to purchase an upward-trending pair when it reaches its support level. If a pair is trending downward, then you’ll want to sell whenever your pair hits a resistance level. 

Get Your Charts Ready 👨‍💻

Because forex scalpers trade so often and so quickly, you’ll need a live chart that updates as frequently as possible. This will help you catch the tiny price fluctuations that you are profiting from.

You can use a one-minute chart to determine your buy and sell points for each trade. A ten-minute chart can help you see how the market is trending at a glance. 

Trade Away 🏎️

Now, you’re ready to begin your trades. Remember, you’ll need to be alert and decisive in order to scalp well. If you are feeling fuzzy or unfocused, it’s not a good time to scalp. This strategy requires you to make decisions on your feet in order to jump on the minute fluctuations. 

Let’s walk through what a trade will look like. Say you’ve determined that the USD/EUR pair is trending upward. Buy this pair at the support line—the lowest it is likely to go based on previous data.

Then, watch closely until the pair goes over the previous resistance point – which it will do, since it is trending upward. Repeat this throughout the day, and you’ll start to see a profit! 

What You Need to Start Scalp Trading (7 Steps) 🏁

In order to scalp forex, you need a platform that can help you buy and sell very quickly, as well as liquid trades and a system you can follow. The following are the essential ingredients for your forex scalping endeavors.

1. The Right Broker 🤝

As we’ve mentioned, not all forex brokers allow scalping, and some will even freeze your account. Make sure you understand your broker agreement, and how your broker works with leveraging forex. Choosing a reliable forex broker that also allows scalping is paramount.

Finally, remember that some forex brokers are unregulated. This means it’s important to know how to recognize a scam. Check your broker’s execution guarantees to see whether it has any limitations that could keep you from your profits. Even the Russian Central Bank is struggling with illegal forex dealers, so be sure to vet all parties thoroughly and greet anyone promising to help you “get rich quick” with skepticism. 

Be sure to check your broker’s spreads. High transaction costs can eat up scalping profits, since you are making a high volume of trades. Make sure that your spread is half or less of your target profits so your trades don’t amount to nothing. 

Fees
Average spread EUR/USD standard

0.9

0.75

All-in cost EUR/USD - active

0.363

N/A

Minimum initial deposit

$250

$50

General
Total currency pairs

93

47

Demo account?
Social / copy trading?
Rating
Fees
Average spread EUR/USD standard

0.75

N/A

All-in cost EUR/USD - active

N/A

N/A

Minimum initial deposit

$50

$0

General
Total currency pairs

47

105

Demo account?
Social / copy trading?
Rating
Fees

Average spread EUR/USD standard

0.9

0.75

N/A

All-in cost EUR/USD - active

0.363

N/A

N/A

Minimum initial deposit

$250

$50

$0

General

Total currency pairs

93

47

105

Demo account?

Social / copy trading?

2. Familiar Trading Platform 🖥️

You’ll also want to preview a broker’s platform to make sure it can keep up with the high pace of forex scalping. Get a practice account, and use the platform until you know all its ins and outs. 

You definitely don’t want to hit the wrong button and lose out on a trade. Many platforms will have “buy” and “sell” buttons for each currency, which makes it easier for you to manage multiple trades throughout the day.

3. Guaranteed Trade Executions ✅

Some brokers have trading terms that will only guarantee that your trades are executed when markets are moving more slowly. This is the opposite of what a forex scalper needs, since scalping takes advantage of market volatility. Some brokers don’t have execution guarantees at all. 

Because you are trading with minute fluctuations in the market, you need a guarantee that your trades will be executed as you intend them. This will help you avoid “slippage,” which refers to a trade being executed a few pips off from where you intended it. In scalping, consistent slippage can add up to make a significant difference in your profits.

4. Liquid Markets 💱

Scalping works best in the most liquid markets, which are usually found in the major currency pairs—these are popular markets with very high trading frequencies. The more fluctuations you see in a pair, the more profit you can make by scalping. 

You’ll want to identify your pair as well as the session when it is the most liquid. For example, London picks up in volume when it opens at 3 AM EST, and New York adds to this when it opens at 8 AM EST. Once both of these centers are trading, there is more liquidity in the market. 

5. Live Charts 📈

You will need a set system in order to scalp forex across a large number of trades. In the quick decision-making of scalping, you need to be able to make a call based on a quick glance over your materials. 

This means your charts should be tracking micro-fluctuations, and therefore should update frequently. Tick charts, one-minute charts, two-minute charts, and some five-minute charts can help scalpers. 

6. Redundancy ⚙️

Redundancy means having multiple ways to enter and exit trades. What will you do if your internet goes out? 

Make sure to have the phone numbers of dealing desks handy in case this happens, and that you know how to execute a trade over the phone. If you find yourself needing to exit a trade quickly without internet access, you’ll be thankful you have this action plan. 

7. Setting Up Your Office ⚡

Because of its fast pace, forex scalping has very little room for human error. We’ve already mentioned the need for high-speed internet access and a redundancy plan. 

Set up a system for yourself that works based on your other obligations, the time of day you are most alert, and your basic strategies for buying and selling trades. Keep your charts easily visible and make sure you can give your full attention to your trading. 

Set aside time away from your charts to stay up to date on worldwide economic news. While the dollar has been down recently, strong job creation numbers in the US could help it recover.

How Risky is Scalping? ⚠️

All trading involves risk, and scalping is no exception. Executing a large number of trades very quickly can make the profits stack up, but if a scalper doesn’t know what they’re doing, it can make the losses stack up just as fast. Just because the risk is small for each individual trade doesn’t mean these can’t accumulate to more. 

If you’re using leverage, these risks magnify. Just as leveraging forex can magnify your gains, it can also magnify your losses. Major news announcements may cause larger drops in a pair than you were initially prepared for, and thus lead to larger losses.

You may buy a pair with an understanding of its risk based on its support and resistance levels, and end up losing much more due to a significant unexpected dip. 

Of course, all risk goes both ways. Sudden unexpected spikes in pairs can work just as easily in your favor, such as Bitcoin’s 20% overnight surge after Tesla announced their investment. The risk may also depend on your ability to learn the broker’s platform and make smart trades in a short timeframe. 

Before You Start Scalping 🔎

Forex scalping isn’t for everyone. We don’t want to send you off to your nightmare scenario if you’re someone who loves to wait patiently for payoffs and hates to make fast decisions. Before you dive into the world of forex scalping, ask yourself: do you…

  • Love fast-paced environments? 
  • Enjoy the quick rewards of fast trades? 
  • Execute decisions quickly? 
  • Have the time and energy to focus actively on charts? 

For these personality types, scalping can be a fun challenge. But remember: trading is emotional. You don’t want to put yourself in a situation where you will make emotional decisions instead of logical ones. Find the trading strategy that is best for your portfolio, but also for your personality type.

Scalping also requires a significant time commitment, while other trading strategies require less upkeep. Forex scalping is not a good fit for those who have limited time to spend on it, or want to make higher gains from fewer trades. 

Scalping Forex FAQs

  • Is Forex Scalping Legal?

    Forex scalping is legal. However, not all brokers allow it. Make sure to check that your broker will support forex scalping to avoid your assets being frozen. 

  • How Many Pips per Day is Good?

    Scalpers may make 5-20 pips per trade. If they make 10 profitable trades per day, they may see 50-200 pips per day in profit. 

  • Why is Scalping Not Allowed in Forex?

    Some brokers do not allow scalping because trades happen faster than they can place them. If a broker is trading through a terminal operator, you may be trying to sell the trade before they have even closed your purchase of the trade. This causes the broker to take the loss, which they don’t want. However, there are brokers who allow forex scalping, and it is completely legal. 

  • Which Forex Broker is Best for Scalping?

    FXTM, FxPro, FIBO Group, and Moneta markets are all quality brokers that allow scalping. Good scalping brokers will allow the strategy, offer small spreads, and have platforms that allow you to make quick purchases. 

  • Where is Scalping Illegal?

    Scalping is legal in all markets. However, some brokers may not allow scalping on their individual platforms.

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.

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