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Risk Warning: CFDs are leveraged products & 73% of traders lose money when trading CFDs.
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Risk Warning: 78% of retail investor accounts lose money when trading CFDs with this provider.
Trade Markets via
Risk Warning: Retail investor accounts lose money when trading CFDs with this provider.
Scalping is a specific style of trading used by traders. Irrespective of the fact you are new to trading or have enough experience, scalping can offer you a lot of profit in a very short period of time. It’s the style that helps you gain profits/multiply your capital account very quickly or in reverse it can completely blow your account if you do not properly manage risk.
Whether you are trading Forex, Commodities or Stocks it’s important to understand that as a trader that scalps you are actively seeking for small price fluctuations/movements. As we know that fractional movements in any instruments are measured in PIPs (percentage in points). For example, let’s say if you are trading Forex and you are particularly interested in trading the EURUSD (euro dollar) and you spot a nice trade setup. Imagine the EURUSD price is 1.1353, the values that every trader will be concerned about is the 53 (the 3rd and 4th decimal places). If this 53 goes up to 54, then this is actually what we call a ONE pip differential or gain by one pip. In real terms, it means the euro gained & strengthened by one pip (one point) versus/relative to the US dollar.
Many traders ask the same question- How much should my profit/stop loss targets be for scalp trading? The simple answer is that there is no definite percentage gain, particular profit or pip range targets for scalp trading. According to ukspreadbetting.com, a maximum of 10 pips should be the target. As with the Foreign Exchange Market especially around highly volatile news events such as the NFP (Non-Farm Payroll) range can burst literally 40-50 pips in less than a minute. It’s totally dependent on an individual’s appetite for risk. The core ideology of scalping is that a trader liquidates his position will small range targets notably in the 20 pip range in a fairly short time frame ranging from 10 seconds to 10 minutes. Scalp traders normally analyse and assess the 1min, 5min and 15-minute chart timeframes for potential setups.
We can ascertain that the scalping involves taking multiple positions in the region 20+ trades. According to Tradingsim.com, scalp traders take on average 100+ trades per session hence taking its title as the style that carries the highest risk. XM Global broker (our recommended broker) offers the XM Zero Trading Account that allows traders to open a maximum of 200 positions (dependent on capital account size) at once and with very low spreads.
There is a saying that your trading style can be determined by your personality. If you have a cautionary approach to life in terms of investment, money decisions i.e. someone who takes the risk-averse approach, then scalping may not be for you. When scalping you are continuously making quicker decisions than a trader that takes positions in the medium term (swing trading). If you are slightly indecisive when making decisions, then that trait can be overtly relatable to your style of trading. Traders that scalp has to execute and liquidate their positions in a very short time frame, therefore, must be sure and perpetual in regards to their analysis and strategy implementation.
When it comes to positional or swing trading you only hear of the 1% or 2% risk trading rule. This rule basically means you only risk 1% or 2% per trade on your overall capital account size hence it’s fairly manageable because you won’t be taking that many trades per month. An average swing trader (holds trading positions for 1-5 days) will place on average 10-30 trades per month. You can control your risk to some degree without thought of blowing or burning your whole trading account.
Now the difference here is that with scalping you are going to place 10-50 trades or even 100 trades per day. In no way, you can use the 1% per trade rule. You will be at the mercy of blowing your full trading account very quickly. The average number of 10-50 trades per day (mentioned above) is only average. One of the main concepts of strategy trading is that you only trade based on your formula derived from your trading plan, therefore, it could mean you may only have 5 potential setups on a particular day. You should calculate your overall risk profiling very carefully if you are thinking about scalping.
Scalping unlike other styles of trading requires adequate capital funding i.e. larger trading account. Your broker requires a margin for trading. So if you place multiple trades i.e. 10+ trades at the same time; your broker, therefore, requires a larger margin for trading. ‘Margin’ in effect covers any potential loss that a broker may incur in the event of you losing out on a trade.
Choosing to trade with a broker that offers low spreads is critical factor scalping (compare forex brokers with low trading spreads). As you're scalping, you may want to look to close trades at 4/5 pips profit therefore if you execute the trade on low spreads you won’t be in loss. GBPUSD is considered as one of the major FX currency pairs because of the sheer volume trader per day. The more trading volume per particular instrument the more volatility can be expected. If you trade off a normal standard trading account, then you can expect spread to be 2-3 pips per trade. Trading of a normal standard account may suit swing/positional traders that have a longer-term view of their trading bias and projections. This means when you execute a trade you will automatically give 2-3 pips to the broker and in loss of 2-3 pips.
If you are scalping and only looking to gain 8-10 pips it seems illogical place a trade and give up 2-3 pips as you are looking for that small increment in price change. Therefore, going for a broker that offers low spreads is vital. XM Brokers’, XM Zero Trading account and Pepperstone Brokers’ Razor Trading Account are amongst the best for offering low spreads.
Choosing a broker that offers fast execution service allows trades to be executed inѕtаntlу, tаking аdvаntаgе оf livе, streaming, best еxесutаblе рriсеѕ in thе mаrkеtрlасе, with immеdiаtе confirmations.
When it comes to trading, there is no method that can be termed as wrong or right. Day Trading and Scalping being two different methods of trading have their own benefits and pitfalls. As you gather more experience, you learn to use these methods side by side to make your profits go high. With experience, you learn how to mix them in your strategy to make sure you do not lose a lot of money, rather win a big amount at the end of the day. But still, to use them properly, you will need to understand what they are and how they differ in their style so that you can utilize them properly.
Time Frame: This is the most important of the factors that differentiate these two strategies from one another. Scalping, as you know already, involves a lot more frequent trading and it’s all about making a small but definite profit. So, basically, it involves not much of a specific time frame. You can trade at any moment after a particular stock starts to go up whereas, in the case of Day Trading, you will have to wait till a stock reaches its potential profit point. In this route to its probable destination, the stock may go high or down, but you will have to be patient and wait until you get a good profit ratio over a longer period of time.
Experience: If you think about the two strategies, well, scalping does not really ask for a lot of experience. Rather, it’s the real-time data that gets the priority to earn you a good amount of profit in a short period of time. But in case of Day trading, it’s not at all same. To be a day trader, you will have to know your stocks, expected time for it go up, and the expected or potential peak value it can reach. And this you cannot learn in just one day. You will have to take time and then only you will be able to make a perfect decision at Day Trading.