Basically scalping in Forex is a very simple trading strategy that involves taking advantage of very small changes in price movements to make profit. Soon after a trading opening is opened, there are small increments in currency prices experienced. Rather than waiting for massive price increment, the trader takes this profitable opportunity to bag in the small price change soon the trade is opened. Scalp trading strategy aims to capture the small price increment when still less than 50 pips. Forex scalping is indeed a quick trading strategy. Besides, using it may sound very simple and easy. The following are some of the common issues that scalpers experience.
1. Opening numerous trades
Normally, Forex traders would think that they can increase the profit levels by opening so many trading positions. This might be true it also increases the level of risks involved. A greater percentage of your fund is subsequently exposed to the market uncertainties by opening many trades thus increasing the prospects of losing massively if the market does respond to your wishes. Placing too many short term trades is the first common problem affecting so many scalp traders. The Forex brokers maybe unhappy about this but they have no control the number of positions a trader can open. The brokers react to this by increasing spreads so as to keep off scalpers. This is one way by which Forex brokers overcome this problem. Additionally, they can send friendly warning against the continuation of your short term trades.
2. Large spreads
Spread is the difference between the ask price and bid price. In actual sense, this difference is the commission or fees that broker firm charges for every trade initiated on their platform. The Fore scalpers, the profit level is lowered when the spread is increased. This happens because a scalper would needs an increment in prices big enough to offset the spread amount in order to make a considerable profit. In real trading time, the price movement might take too long to achieve this high increment. For example, if your broker provides a spread of 4 for say EUR/USD pair, then an increment of 5 or6 points wouldnt be profitable enough. Most Forex brokers offer large spread making scalp trading less profitable. To avoid this problem, look for a firm that offers lower spreads.
3. Broker-trader interests
A trader is at a better position to be highly profitable when scalping but also leads to conflict with the brokers interest. A broker may not be happy when you are totally smiling to bag lots of profits within few minutes. This leads to another conflict of interest with your broker firm. The broker may not be happy and would want you to use the long term trading methods rather than scalping. The broker thus may resort to use repressive tactics to hunt scalpers such as increasing their brokerage fees indirectly. This will forcefully dissuade any Forex scalper using their platform to change their trading strategy. To avoid this conflict of interest, it is important to understand the nature of business of your broker and avoid over-scalping.
Conclusion
Forex scalp trading is a very profitable trading strategy but is often associated with very many issues such as conflict of interest between the broker and the trader. There are many other common issues associated with this strategy such of unreliability, security and safety of the traders funds. It is pretty wise to understand these common scalping issues so as to design a good and workable trading strategy to use, and also decide on the right methods to overcome them.
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