Scalping

What is scalping?

Scalping is a very short-term trading method. Positions are usually held for only a few minutes, sometimes just seconds, to profit from small price movements, and are then closed again. Trading mostly takes place on the smallest time frames, such as the one-minute chart. Scalping is the fastest form of day trading; every scalping trade is by definition an intraday trade.

How scalping works

Scalpers look for small, quick price moves and aim to capture a few pips or points per trade. Because each individual profit is small, they trade frequently, often many times a day, and use tight stop-losses. Fast order execution and liquid markets with narrow spreads, such as major currency pairs or leading stock indices, are essential.

Example: a scalper buys EUR/USD and closes the position four minutes later after the price has risen by 5 pips. With a position of one standard lot (100,000 units), one pip is worth $10, so the gross profit is $50. If spread and commission together amount to 1 pip, costs take $10, a fifth of the gross profit.

Why trading costs matter

For scalpers, costs largely decide whether a strategy is viable at all: spread and commission are paid on every trade, and with many trades a day they add up quickly. Some services refund part of these costs as a rebate per traded lot, which lowers the effective cost per trade, so it is worth comparing the conditions of different brokers. A rebate does not change the risk of the trades themselves, however. Scalping also demands a high level of concentration and discipline, as many decisions have to be made quickly and under pressure.