You’ve surely heard of scalping (i.e. trading style) before, and hence you are well aware that opinions on it diverge. Some claim it to be a profit mine, while others advise against it. What’s the truth? Let’s take a look and see for ourselves.
What is Scalping?
In a sea of trading styles – scalping stands out as one of the most active forms of trading. Unlike day, swing or position trading, opening and closing a scalping position doesn’t occur within a day, few days or weeks. Instead, positions are opened and closed within minutes, or, sometimes, even seconds, adding up to hundreds of transactions per day.
The idea of scalping is to make small profits from frequently-occurring price changes, with trades often opened in opposite directions. The idea of “letting profits run” doesn’t apply here. The primary focus lies on making as many small trades as possible.
Is it right for you?
Choosing a trading style is a complicated notion. Not only does it take understanding and sticking to a chosen pathway – it is also greatly dependent on your personality type.
Scalping is considered a fit for impatient traders, who don’t want to wait out for a potentially bigger win. Scalpers prefer small, but fairly constant gains. Active by nature – they don’t like to have their positions sit, and possess the necessary amount of time and energy to spend hours opening and closing positions at every minor fluctuation.
If this sounds like you, could it be worth a shot? Well, before you jump in – consider asking yourself: why do the majority of regulated brokers, including Stratton, forbid scalping?
The Other Side of the Coin
Seemingly innocent, scalping is in fact, one of the most controversial and risky style selections out there.
To begin with, in order to make it as a scalper – a high initial investment is required, simply due to the fact that scalping is, on average, done with a spread as low as 0.5 – 1 pip. The achievement of this spread level is hardly ever possible without an initial deposit of around $10,000.
Furthermore, since scalping relies on having a high percentage of winning trades (and because the average winning trade tends to be smaller than the average losing trade), one or two false decisions can easily wipe out all profits.
To make matters worse, major market volatility is one of a scalper’s greatest enemies. A sudden piece of economic or political news can easily result in an over 100 pips’ fluctuation, leaving the scalper helpless and unable to set his/her stop losses.
So where does that leave us?
Simply put, the choice is yours. Some traders do, indeed, find scalping to be the right style for them. Nevertheless, we encourage you to always abide by your risk management practices, and pick a style, dependent on your attitude towards risk, as well as on how much you are prepared to lose.
Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 82% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you can afford to take the high risk of losing your money.
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