Forex Scalping 101

With its daily average trading volume of 1.6 trillion dollars, which is roughly 5 times of that of the U.S. Treasury Bond Market and around 150 times of that of the U.S. Stock Exchange, liquidity is the best word to describe the ever-growing foreign exchange market. Because of this distinguishing attribute, traders in the forex turn to "scalping", a trading strategy that takes advantage of the highly liquid nature of the currency market.

Scalping in the world of forex is done through the use of the particularly high leverage of the foreign exchange market combined with the tactic of amassing large number of short-term trades, each targeting only about 1-5 pips.

The trading strategy that is scalping benefits traders especially those who are dabbling with day trading as it is very much compatible with it. The short term principle of scalping will very much complement the forex day trading tactic of buying and selling of a currency within the same day.

Aside from complementing day trading, scalping also benefits generally all forex traders in the sense that it lessens the risks involved in currency exchange. With the numerous short-term trades that are employed in scalping, risks are dispersed among the large number of trades. Apart from that, risks are also avoided as exposure to the market is only short-term, making the possibility of losses coming up less likely.

There are three factors that greatly affect the forex strategy that is scalping. These factors are: the market's liquidity, its volatility and the time frame involve in the trading.

The liquidity of the foreign exchange market greatly affects scalpers as they need to cash in on the numerous short term trades that they make immediately which is fundamental in the strategy of scalping.

Volatility on the other hand, affects scalpers in the sense that the more stable the forex market is, the better will it be for currency exchange scalpers as they only benefit from small and short-term market fluctuations, things which are not present in a very volatile market.

Time frame is another factor that scalpers must take into consideration as scalping involves quick, successive short-term trades where timing is very much essential.

Scalping is a forex strategy that greatly benefits those traders that prefer short-term trades such as day traders. It may not appeal to some traders however, but what is important is that every forex trader understands the complete concept of this trading strategy as it provides important advantages such as the lessening of trading risks.