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Scalp trading, also known as scalping, is a trading technique where the trader carries out a large number of trades within a short timeframe – typically a few seconds or minutes.
Scalp traders strive to make a profit from tiny price changes. They do not make much from each individual trade, but the accumulated amounts can be significant.
Even when many other types of traders call the market ”boring” because of its stability, scalpers can make a lot of money since they exploit tiny price fluctuations rather than major trends or swings.
When and what?
Scalp traders exist on many different markets. There are for instance scalp traders that specialize in trading company shares, commodities, foreign currency, or cryptocurrency. Scalpers tend to gravitate towards high-liquidity assets.
The typical scalper will be active during the busiest times of the trading day. Scalping tends to work best when the market is recognized by both large trading volumes and tight spreads.
Here are a few examples of key aspects to look for when you decide what to scalp and when:
- High liquidity and tight spreads
High liquidity and tight spreads tend to go hand in hand. On a high-liquidity market, the scalper can move in and out of positions in the blink of an eye. - Low volatility
Scalp traders tend to do best when the market is fairly stable, since they make their money from small price fluctuations.
Of course, if you can identify a good situation for scalping, others probably can too. When scalping conditions are ideal, you can expect professional scalpers to move in and their actions can make it more difficult to predict the market´s next move.
Examples
The currency pairs EUR/USD, USD/JPY and GBP/USD are all very popular among traders specializing in forex scalping since they offer high volume, high liquidity and tight spreads. The times of day when major trading sessions overlap are especially interesting.
Beware of broker fees
When you engage in scalp trading, you carry out a large number of trades and do not expect to make a big profit on any individual trade.
Because of this, it is of imperative importance to use a broker and account type that is suitable for scalp trading. Otherwise, the broker fee you pay for each individual trade will be equal to – or even bigger – than any profit from that trade.
Rapid execution is necessary
Scalpers make money by rapidly going in an out of positions, earning a few pips here and there. They are fast-movers even compared to the regular day traders, and some of them make money from shifts that are so small that we can´t even see them on the 1-minute charts.
