When traders participate in commodities and foreign exchange (forex), the term scalping is often used in reference to securities trading. This method of arbitrage is legitimately accepted regarding small price gaps which are often created by the bid-ask price. For those outside of the industry who are unfamiliar with its practices, it works on very basic principles which are explained below. When newcomers are unsure about the process, they should ask an advisor about the practice to be sure they understand it before moving forward. The principles, risks, exposure and other factors should be explained and understood.
Market makers maintain the liquid nature and order flow of a market by exercising the role of forex scalper. When someone makes the spread, also known as buying at the bid price and selling at the asking price, they gain the bid/ask difference. A scalper handles the establishment and liquidation of a trading position immediately, within seconds or minutes, depending on the transaction.
Understanding the Principles
One term that users must understand in forex trading is that most markets operate on a bid- and ask-based system. When a buyer wants to enter into a transaction quickly, the execution price is the asking price. The bid prices are market prices for sellers looking for immediate execution. The spread is seen as either trading costs or trading bonuses, depending on the parties and various forex strategies at play.
Minimising Risks – Minimising Exposure
Forex scalping does not hold overnight, as scalping is only exposed for short periods of time.
Success with Smaller Market Moves
When traders move in small ranges, the prices tend to remain more stable. Smaller forex market moves are easier for scalpers to discover and capture, which typically happens most of the time.
Maximising Profit and Volume
There is a small amount of profit per share, or profit per contract, in scalping. As a result, forex scalpers have a tendency to trade in larger volumes, rather than smaller ones.
Determining Factors for Scalpers
There are a number of factors that affect scalping performance. One of the most notable is the market's liquidity. Since scalpers operate on a short time frame, the amount of time involved in the forex transaction is critical. Another factor is volatility, which is determined by the movement of the pricing. A fourth factor which affects forex scalping is risk management, which should be handled strictly and carefully.
Author is a freelance copywriter who writes about forex online trading and forex. This material is considered a marketing communication and does not contain, and should not be construed as containing, investment advice or an investment recommendation or, an offer of or solicitation for any transactions in financial instruments. This material has not been prepared in accordance with legal requirements promoting the independence of investment research and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. Any opinions made may be personal to the author and may not reflect the opinions of FxPro.
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