Scalping in trading refers to a strategy where a trader makes numerous trades throughout a day with the aim to gain small profits from each trade. The key idea is that the cumulative effect of all these small profits will lead to substantial gains.
Scalping is typically associated with day trading, which involves opening and closing positions within a single trading day. It requires a deep understanding of the market, a quick reaction time, and the ability to make decisions rapidly based on real-time data.
Scalpers generally make trades within minutes or even seconds, staying in positions for a very short time, which reduces the risk of suffering significant losses from market fluctuations over a longer timeframe. However, scalping can still be high-risk, especially if a trader is unprepared or doesn’t adhere to a specific strategy.
Scalping also often relies on high trading volumes. Because the profit from any single trade is small, to make meaningful earnings, scalpers often need to execute a large number of trades. This implies a substantial time commitment and the capacity to perform under pressure.
It is important to note that not all trading platforms or brokerage firms allow scalping, as it requires a specific infrastructure due to the high number of trades. Therefore, it’s crucial for anyone interested in this strategy to check with their broker first.