What do these two terms mean? This type of trading allows gaining profit from intraday currency fluctuations on the market. As a rule, such trades are kept opened only for a couple of minutes. A single pipsing or scalping trade would not provide you with much profit, that is why the main principle of these two trading styles is having as many positions closed as possible.
The number of deals carried out by pipsers and scalpers runs to approximately 200 per day. It is, however, imprudent to expect that all the deals will prove to be profitable. The result to strive for is a positive balance by the end of a trading day. To accomplish this aim one needs to set a stop-loss level close to an opening price rate. This will help to minimise a loss in case the price moves in the opposite direction.
It is a well-known fact that Forex is the most liquid market in the world. Prices on Forex mix, fall and rise again, following the cycle. If a price passes approximately 60 points within a day, the gap between its high and low is rather substantial. Trading based on hourly price fluctuations (highs and lows) ensures even more profit. That is why pipsing and scalping are so popular with traders. The novices on Forex may think that through such trading, incredible profit is possible to make. The sum fancied may even go beyond any real limits, taking into account an opportunity to reinvest. Such conviction is hardly true, despite the Internet abounding in the stories of lucky traders who managed to boost their deposits manyfolds. In fact this strategy will not guarantee you any success. Let us investigate the reason for this.
First, a stop loss level approaching a price rate increases a possibility to suffer losses at the slightest fluctuation if the strength of bulls and bears has been misestimated, even though a further trend has been foreseen. It is far too easier to make a mistake in defining a direction for a short period of time (1-2 hours), than to define a price direction for the whole day.
The simplest way to escape the execution of the order with a risk of loss is not to have such an order, but then, there appears a risk of losing many sources after the strong movement is against you. This happens when the price moves far and is not likely to return to its preliminary positions in the nearest future. If a trader keeps the greater part of his deposit as a margin and does not set any stop loss levels, he may well get a margin call and later the loss of all the funds on the account.
Secondly, most traders grow nervous and anxious when dealing with real money. As a rule, such type of trading is tested on a demo account first, since there is no real money involved. Consequently there is no risk. Thus, the emotional state of a trader handling a real account worsens with each pip should the price move in the wrong direction.
Pipsing and scalping imply that a trader is to be on the market constantly, which is a stress of course, this can lead to hasty and ill-considered actions.