Jump to navigation Jump to search This article is about trading in securities or commodities. This article needs additional citations time frame forex scalping system verification. This section does not cite any sources. Scalping is the shortest time frame in trading and it exploits small changes in currency prices.
Scalpers attempt to act like traditional market makers or specialists. The role of a scalper is actually the role of market makers or specialists who are to maintain the liquidity and order flow of a product of a market. Spreads are bonuses as well as costs – Most worldwide markets operate on a bid and ask based system. The numerical difference between the bid and ask prices is referred to as the spread between them. Lower exposure, lower risks – Scalpers are only exposed in a relatively short period, as they do not hold positions overnight.
As the period one holds decreases, the chances of running into extreme adverse movements, causing huge losses, decreases. Smaller moves, easier to obtain – A change in price results from imbalance of buying and selling powers. Most of the time within a day, prices stay stable, moving within a small range. This means neither buying nor selling power control the situation. There are only a few times which price moves towards one direction, i. It requires bigger imbalances for bigger price changes. Large volume, adding profits up – Since the profit obtained per share or contract is very small due to its target of spread, they need to trade large in order to add up the profits.
Scalping is not suitable for large-capital traders seeking to move large volumes at once, but for small-capital traders seeking to move smaller volumes more often. Momentum traders on technicals – These traders look for fast movements hinted from quotes, prices and volumes, charts. When a real breakout occurs, price becomes volatile. A sudden rise or fall may occur within any second. They need to get in quick before the price moves out of the base. Momentum traders on news – When news breaks out, the price becomes very volatile as many people watching the news will react at more or less the same time. A trader needs to take the market prices immediately as the opportunity may vanish after a second or so.
Cut losses on market prices – The spread becomes a cost if the price moves against the expected direction and the trader wishes to cut losses immediately on market price. Individual scalpers – They trade for spreads and can benefit from larger spreads. Market makers and specialists – People who provide liquidity place their orders on their market books. Over the course of a single day, a market maker may fill orders for hundreds of thousands or millions of shares.