Scalping is a unique approach to intraday trading. Using it, traders close deals right after they gain a small profit of several points (or pips, so the other name of this strategy is pipsing). Sometimes, it takes a few seconds. Experienced traders can make hundreds of such fast deals in one trading session. As a result, hundreds of small profits make up a hefty sum. For professional traders, scalping is one in an array of efficient tools while amateurs may use it as a self-sufficient method for earning money and getting an insight about trading. Moreover, scalping is a general-purpose strategy that can be applied in any market: forex, futures, stocks, and/or cryptocurrencies. However, brokers are not equally versatile in this regard. Some brokerage companies forbid scalping.
Otherwise, if a broker allows this trading strategy, then it should provide the following conditions for effective work:
- ultra-low spreads
- commission-free trading
- market execution of orders
Importantly, the scalping strategy requires total concentration and patience. Scalpers should monitor the price movements constantly as well as react to any changes and make decisions promptly. What is more, the stress level is high. It can be rather challenging to withstand several stop loss orders that are triggered in a row. In scalping, it is a common occurrence. Besides, pipsing has some drawbacks such as:
- high equity requirements: even the smallest asset price changes are compensated by bigger investments;
- considerable risk of losses, as the entire volume of free margin should be involved;
- spreads are charged.
Despite these disadvantages, scalping is one of the most popular trading strategies. Mainly, it is so because scalpers can get the most out of every price movement. They always keep abreast of the market developments and control the situation. Other advantages are:
- potentially high earnings. Professionals can increase their deposit by over 50% in one trading session;
- trading can be carried out at any time, especially in the currency market that never stops fluctuating;
- no special knowledge such as the basics of technical or fundamental analysis is needed.
Now we know why the scalping strategy is so popular. However, keep it in mind that true scalpers should be scrupulous and stress-resistant.