Scalping when used in reference to trading the forex market returns to a method of arbitrage of small price gaps created by the bid-ask-spread. It specializes in taking profits on small price changes, right after a trade has been entered and profited from. This scalping method requires a forex trader to have a very strict exit strategy, because if the trader incurs even just one big loss they lose all of their small gains. Having the right tools for scalping is a big part of the equation, a very fast internet connection is worth its weight in gold. A live feed or direct access to a broker and of course the will to place as many trades as possible to make the scalping work.
Scalpers play the spread , and that means to buy at the bid price and sell at the ask price, to gain a big / ask difference. Scalping, unlike some other techniques, can profit even when the big and ask do not move at all, as long as there are forex traders who are willing to take market prices. Like stated before, it involves entering and exiting a position very fast, within minutes sometimes seconds.
Scalping is based on an assumption that stocks will complete the first stage of a move (as in the stock will move in the direction you want for a small period of time but where it goes is uncertain); some stocks wont move at all and others will. The main point of scalping is Lessened exposure to limits risk (margin call) – a brief exposure to the market eliminates the probability of running into a forex margin call.
The ask prices are immediate enter prices, usually the prices of the market for the quick buyers. Bid prices are for quick sellers. If a trade is entered at market prices, exiting that trade immediately without queuing would not get you back the amount paid because of the bid-ask difference. The spread can be viewed as trading bonuses or costs according to different people and different techniques. One one hand, traders who do not want to queue their order instead of paying the market price, pay the spreads. And traders who wish to queue and wait for execution receive the spreads.
A change in price is the result of imbalance of buying and selling orders. Most of the time, prices stay stable, moving within a small range. This means neither buying nor selling power can control the situation. There are only a few times which price moves towards a certain direction … and thats when the selling or buying power controls the market. It requires larger imbalances for larger price changes. Scalpers like the smaller moves and avoid the bigger ones altogether.
The liquidity of the forex market affects the performance of scalping, each currency pair within the market receives a different spread. The more liquid the market and the pairs are, the higher the spreads are. Scalpers like to trade in a more liquid market since they can make thousands of trades a day to add up their small gains.