In online Forex trading we use the term scalping to refer to buying or selling currencies and holding the position for a very short time and closing it for a small profit. This practice is interesting and exclusive, especially if you compare it to the normal procedures possible with investments made through a bank. We have seen that Forex can only be negotiated through a broker, or an intermediary company that has the authorization to act directly with purchases and sales of financial products. In this series of lessons we’ll refer to Forex, but the practice of scalping is possible in all aspects of online trading and is the daily bread of those who practice day-trading.
Advantages of Scalping in Forex
Among the benefits of scalping is the ability to take advantage of moments of increased volatility in financial products, including currencies. These moments of frenzy are not random, but often respond to events, such as a statement by a member of the ECB (e.g., the president, currently Mario Draghi), or the IMF (International Monetary Fund), the FED (Federal Reserve), or others. Consider the EUR/USD cross, for example. Events involving the US and Europe will have to be taken into account. In the GBP/USD ratio, it will be the case with Great Britain, and so on. You have the advantage of acting before scheduled events and basing your trades on predictable outcomes.
Disputes over the use of scalping in Forex
As you can well understand, the use of scalping in Forex is regulated in such a way as not to allow exaggerations in speculations. Speculation in itself is a completely legal and normal practice, if carried out within the limits of the regulations. Buying low to resell high is a fundamental cornerstone of capitalism. Moreover, if a broker allows you to complete certain transactions, the final responsibility is with said broker. We will dedicate a separate article on brokers’ terms of service and internal regulations. For now, it’s enough to know that the trading software of the most important brokers is programmed in such a way that as long as you can click, the operation can be deemed feasible.
Eye on costs
Although scalping may be interesting and convenient, consider that for each operation you submit (every position you open), the broker will deduct a small sum. We remind you that the broker does not earn if you win or lose, but simply charges a small cost at the opening of a position. In order to be a profitable scalping operation, you must see a profit margin that takes into account the costs of the operation, and not just the upside. In other words, the increase must also cover the cost of the operation. For this reason, products with greater volatility are recommended (e.g., raw materials or currencies in times of greater frenzy).
Go to the next lesson – Economic indicators