Scalping: Strategy, Speed & Risk Explained

The scalping trading strategy is a trading style that consists in taking fast positions on the financial markets. Known as scalpers, the traders who use this style take positions on commodities, forex, stock market indices, stocks and also cryptocurrencies. What does this trading strategy involve? What is the ideal broker for scalping? Find out in this article how to trade with the scalping trading strategy.

What Is the Scalping Trading Strategy?

• Scalping: a trading technique that draws its returns from very short-term order placement. Based on trading currencies such as forex, stock market indices, cryptocurrencies or commodities, scalpers aim to make small but quick profits by holding their positions over very short scalping timeframes. Scalping requires a strong command of the financial market and of the underlying assets, as well as excellent concentration.
• The main goal of scalping: is to take advantage of the opportunities that arise from small market fluctuations in order to generate income, even if it is not particularly large. Traders using this strategy are free to place anywhere from 10 to more than 100 transactions over the course of a day. In this way, they manage to generate profits to manage any potential losses.
• How the scalping trading strategy works in practice: scalpers do not hold positions overnight. In principle, they open and close their positions within the same trading session, much like day trading. This is where scalping vs day trading diverges: the difference between day traders and scalpers lies in the charts they use to analyze the market. Generally, scalpers also rely on press releases that report information about market movements.

How Does Scalping Trading Work?

Scalping trading centers on predicting short-term price outcomes, which is never a certainty. Some trades are kept open while others are cut short. Generally, all traders seek to make the maximum profit without letting market opportunities slip by. With the scalping trading strategy, it is not uncommon to see traders place the bulk of their transactions before they begin to achieve better results.

When profits are maintained at a higher level than losses, the win rate a scalper can achieve may be considerable — this is ultimately what determines whether scalping is profitable. For the scalping trading strategy, liquidity must genuinely be taken into account, since traders entering and exiting the market quickly is what secures the best price offers.

Who Can Use the Scalping Trading Strategy?

• Full-time traders – Scalping is a trading technique whose use comes at a cost to each account, so whether to use it is up to each individual user. Full-time traders can spend an entire day in front of their computer in order to take advantage of every opportunity. Full-time users will need highly advanced command of their IT tools and enough time to set aside if they want to succeed in trading.
• Experienced traders with good reflexes – Scalping is also ideal for experienced traders. Moreover, when they have the right reflexes to seize the market’s best opportunities, it becomes a genuine asset. Fast decision-making and a feel for the best timing are the defining qualities of these traders. Traders with more experience, capable of cutting their positions in unfavorable situations, are the ones who will succeed with the scalping trading strategy.
• Traders with good discipline – To truly profit from the scalping trading strategy, it is important to show discipline. Disciplined traders can therefore protect themselves from the financial market’s occasionally unfavorable situations. What is more, they can avoid falling into certain traps, even when using highly risky leverage, precisely because they target very small returns.

Which Markets Can You Scalp?

In principle, it is possible to do scalping trading on all markets, whether stock indices, commodities, forex, futures, etc. In practice, however, it is important to watch the markets that offer greater volatility and a narrower trading range.

Forex, stock indices and select individual stocks are the most suitable and advantageous markets for earning substantial returns. To take advantage of volatility in algorithmic scalping, you simply need to position yourself on these markets. It is also advisable to choose underlying assets that allow you to close your positions more simply and easily.

The Advantages of Scalping Trading

• Fast closing of positions
• Small but regular profits
• Less risk and less dependence on market conditions
• Constant profit opportunities for experienced traders

The Disadvantages of Scalping Trading

• The need for maximum, unbroken concentration
• The risks associated with leverage
• The need to master the underlying assets
• Transaction fees
• A stressful activity

Read next: How to Get Started in Trading

Scalping Rules to Follow Before You Start

• Choose liquid assets (currencies)
• Choose assets with tight spreads
• Choose a broker with low commissions
• Avoid excessive leverage
• Limit the number of underlying assets
• Stay reactive when scalping trading
• Keep track of economic announcements
• Consider combining scalping and auto-trading

This article is intended for educational purposes only and does not constitute investment advice. Leveraged trading carries a high risk of losing your capital.