DEFINITION of 'Forex Scalping'

Forex scalping is a trading strategy used by forex traders to buy or sell a currency pair and then hold it for a short period of time in an attempt to make a profit. A forex scalper looks to make a large number of trades and earn a small profit each time.

Because the objective of a forex scalper is to make a small amount from many trades, the scalper holds onto these trades for a matter of seconds. 

BREAKING DOWN 'Forex Scalping'

For the most part forex scalping involves large amounts of leverage so that a small change in a currency equals a respectable profit. Forex scalping system strategies can be manual or automated. A manual system involves a trader sitting at the computer screen, looking for signals and interpreting whether to buy or sell. In an automated trading system, the trader "teaches" the software what signals to look for and how to interpret them.

It is thought that automated trading takes human psychology out of trading, which is vital in forex scalping because the fast-paced environment can be hard for traders to stomach. As technology and electronic trading has grown, forex scalping by individuals has become less prevalent. Quant traders have built systems that can do thousands of trades per day making manual trading obsolete. 

Forex scalping can be most lucrative around periods of high volatility and significant market moves. Scalping can be particularly popular leading into and after important data releases such as the U.S. employment report and Federal Reserve meetings. 

Scalping does come with risks. Should a trader enter a position which they can't exit, they can be left with an open position that could potentially wipe out some profits. 

 

RELATED TERMS
  1. Scalping

    Scalping is a trading strategy that attempts to make many profits ...
  2. Forex Trading Strategy

    A forex trading strategy is a set of analyses that a forex day ...
  3. Real Time Forex Trading

    Real-time forex trading relies on live trading charts to buy ...
  4. Scalper

    A scalper is a person who holds a position in a security for ...
  5. Active Trading

    Active trading is the buying and selling of securities with the ...
  6. Forex Analysis

    Forex analysis describes the tools that traders use to determine ...
Related Articles
  1. Trading

    Forex: How To Scalp Fundamentally

    Learn why event-driven scalping in the currency market involves balancing fundamentals with technicals.
  2. Trading

    Forex or Stock Trading: Which Works For You?

    Even though the odds favor stock trading, forex trading has several advantages to offer a particular type of investor.
  3. Trading

    10 ways to avoid losing money in forex

    When approached as a business, forex trading can be profitable and rewarding. Find out what you need to do to avoid big losses as a beginner.
  4. Trading

    How to Build A Forex Trading Model

    Forex trading markets work 24/7, providing ample opportunities to make profitable trades. How can you build a profitable forex trading model for yourself?
  5. Trading

    Why It's Important To Regulate Foreign Exchange

    In an increasingly globalized economy, the significance of the foreign exchange marketplace cannot be underestimated.
  6. Trading

    Forex day trading: 5 mistakes to avoid

    Learn more about the five common mistakes that foreign exchange (forex) day traders often make in an attempt to boost returns.
  7. Trading

    Forex automation software for hands-free trading

    Automated forex trading software scans the market for favorable trades based on your input. Find out more about this valuable forex tool.
  8. Trading

    Top Reasons Forex Traders Fail

    This market can be treacherous for unprepared investors. Find out how to avoid the mistakes that keep FX traders from succeeding.
RELATED FAQS
  1. Is scalping a viable forex trading strategy?

    Scalping in the forex market involves trading currencies based on a set of real-time analysis. The purpose of scalping is ... Read Answer >>
  2. What am I buying and selling in the forex market?

    The forex market is the largest market in the world. According to the Triennial Central Bank Survey conducted by the Bank ... Read Answer >>
  3. How does the foreign exchange market trade 24 hours a day?

    Because foreign currencies are in high demand, the forex market is open 24 hours a day, and trading is not done at one central ... Read Answer >>
Hot Definitions
  1. Intrinsic Value

    Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, and may differ ...
  2. Current Assets

    Current assets is a balance sheet account that represents the value of all assets that can reasonably expected to be converted ...
  3. Volatility

    Volatility measures how much the price of a security, derivative, or index fluctuates.
  4. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  5. Cost of Debt

    Cost of debt is the effective rate that a company pays on its current debt as part of its capital structure.
  6. Depreciation

    Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life and is used to account ...
Trading Center