Spread Betting Scalping
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Spread Betting Scalping
Spread betting - Wikipedia
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CCI -1 Min Scalping System - Spread Betting Examples
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Forex scalping can be very exciting for traders. The promise of "free" cash with a good scalping strategy can make a trader's head spin and their fingers very trigger happy (by which traders start taking many trades). However, no Forex scalping strategy can be effective without understanding the size of the spread and how to exploit the advantage of low spreads. This article will address questions such as 'What is a spread in Forex?', 'What is scalping in Forex?', and 'Why are low spreads important?'. We'll also cover two key strategies for scalping pairs that have their spreads lowered.
In Forex trading, the 'spread' refers to the difference between the Buy (or Bid) and Sell (or Ask) price of a currency pair . For instance, if the EUR/USD Bid price is 1.16909, and the Ask price is 1.16919, the spread is 1 pip . If the Bid price is 1.16909 and the Ask price is 1.16949, the spread would be 4 pips. When trading Forex, a trader makes a profit based on the movement of the currency pair. However, the trade only becomes profitable once the currency price has crossed the spread.
So, if the currency pair has a 1 pip spread, in a Long trade, the value of the currency would need to increase by at least 2 pips before the trader would profit (1 pip for the spread, and an extra pip for the profit). The wider the spread, the longer it will take for any trade to become profitable. So if we compare EUR/USD with a 0.6 pip spread to a high-spread pair like AUD/NZD (which is typically 6-10 pip, though the typical spread at Admiral Markets is just 3.1 pips),* the EUR/USD currency pair wouldn't need to move as far as the AUD/NZD currency paid in order for a trade to become profitable.
Scalping in the Forex market involves taking advantage of minor price changes in the market, by making many small trades over very short time periods - usually between 1 and 15 minutes. For a 1 minute trade, a trader would look to make a 5 pip profit, while a 5 minute scalp would aim for a 10 pip profit.
Because these trades are so small, the importance of choosing low-spread currency pairs is clear - if a spread is too large, there will be no profit left over once the trade ends. Because the focus is on such small trades, this is a very popular trading style for many traders, as it creates many opportunities within a single day.
When it comes to taking advantage of low spreads, Forex scalping strategies provide many opportunities for traders. An FX currency pair may move 25 pips long or short for a minute, then pull back 10 pips the next minute, oscillate at this level for another 5 minutes, and make another strong 25 pip move over the next ten minutes.
This is usually a minor move in the Forex market, occurring over a matter of minutes, and this is what you, the scalper, are after. But first, let's discuss why it is so important to get educated on scalping. Of course, scalping wouldn't be nearly as popular if it didn't provide benefits, mainly:
On the other hand, scalping also has some disadvantages, including:
Pairs traded: EUR/USD , GBP/USD , USD/JPY , USD/CAD
For this strategy it is strongly recommended to download and use the MT4 Supreme Edition , as it incorporates the Admiral Pivot indicator that is used in this strategy.
Source: MetaTrader 4 Gold. Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
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When using low spreads as a part of their trading strategy, it's important for traders to keep the following factors in mind:
ATR is the indicator that measures the volatility of a financial instrument. It also projects high and low range based on its calculation. The higher the ATR, the higher the volatility. For instance, if the AUD/NZD moved 60 pips a day while the EUR/USD moved 90-120 pips a day, the EUR/USD would have a higher ATR.
When it comes to low-spread trading, while higher volatility can compensate for a wide spread, the ideal scenario is one where the volatility is high while the spread is low. To go back to the previous example, if the AUD/NZD moved 60 pips a day, and you paid a 6-pip spread, the total trading profit would be based on 54 pips. By contrast, if the EUR/USD moved 100 pips and had a one pip spread, the profit would be calculated based on 99 pips.
Source: MetaTrader 4 GBP/USD. Charts for financial instruments in this article are for illustrative purposes and does not constitute trading advice or a solicitation to buy or sell any financial instrument provided by Admiral Markets (CFDs, ETFs, Shares). Past performance is not necessarily an indication of future performance.
You also need to consider what happens when your stop-loss gets hit on those high spread pairs. You are paying a huge spread when your 'market order' stop-loss order hits the market. That might create a pattern that collects all stops above or below it. The more stops that are hit, the stronger the move of the price is going to be. This might even push the price to the next support or resistance level , creating a fake out, caused by a stop grabber.
Source: MetaTrader Supreme Edition - Correlation Matrix
In financial terms, correlation is the numerical measure of the relationship between two variables. The range of the correlation coefficient is between -1 and +1. A correlation of +1 denotes that the two currency pairs will flow in the same direction. A correlation of -1 indicates that the two currency pairs will move in the opposite directions, 100% of the time. Meanwhile, a correlation of zero denotes that the relationship between the currency pairs is completely arbitrary.
So in the chart above, you can see that EUR/GBP and GBP/USD are negatively correlated (-98). This means that they move in a completely opposite direction. If you compare the current ATR of EUR/GBP(70) to ATR of GBP/USD(128), it is very easy to see which pair to trade. Moreover, the spread on EUR/GBP is 2.5 pips, while GBP/USD has a spread of 1.4 pips.Occasionally you'll see that brokers change the spread and allow you to trade with extremely low costs, so make sure to look out for them!
The trader's account should be in a better position to handle setups with larger drawdowns before problems with margins hit the radar. Traders are, therefore, less limited in terms of the number of trades. This can be particularly useful when the market accelerates in its price action, and it suddenly offers the trader more opportunities to trade.
The spread fluctuation might also depend on market factor, namely, liquidity. A market that is liquid means that it has many trades on a daily basis, and is composed of many active traders. The Forex market is extremely liquid because hundreds of banks and millions of individuals trade currencies on it every day. The spread is then divided by the average daily range of a currency pair. This gives us a percentage which tells us more precisely how much the spread costs. The lower the number, the better it is.
The spread can be considered an opportunity cost in the sense that it might reduce the amount of profit gained from the daily range calculated by ATR. The higher this opportunity cost, the more likely it is to convert to losing trades and, subsequently, real financial losses. In the table below are some examples using current average spreads* and ATR (the lower, the better).
* MT4 average spreads as of January 26 2017
Spread as a percentage of ATR: 1.0/87 = 1.14 %
Spread as a percentage of ATR: 0.85 %
Spread as a percentage of ATR: 0.72 %
Spread as a percentage of ATR: 0.8 %
Spread as a percentage of ATR: 1.23 %
Spread as a percentage of ATR: 3.11 %
Source: An example of a MetaTrader 4 account.
If we compare the first five instruments with the GBP/NZD currency pair at the bottom of the table further up, we can see a clear difference in the numbers, and therefore, it is easy to understand the effect of low spreads on opportunity costs, their benefits, and why they should be considered by professional traders.
The example in the screenshot above clearly shows that highly profitable gains are possible when using low spread scalping strategies. If you would like to attempt these strategies yourself, we would recommend that you use a Demo account first, in order to test them in a risk free environment, before transitioning to a live account and testing them in the real-life markets.
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A demo account is the perfect place for a beginner trader to get comfortable with trading, or for seasoned traders to practice. Whatever the purpose may be, a demo account is a necessity for the modern trader. Open your FREE demo trading account today by clicking the banner below!
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