IB/MIB Application

Short Term Forex Trading

Short term trading in the futures market is quite distinct from the type of short term trading that is conducted with equities or commodities. In the stock market a short term position will usually involve holding the stock for one to three days. However in the futures market because of the huge amount of liquidity in the market and the tight bid/offer spreads prices are constantly moving in small increments. This means that speculators are able to make quick short term trades even if the currency moves only a few pips. This means that short term trading in currencies can be for only a few seconds or minutes. Holding a short term position in the currency market rarely means holding onto the position for more than an hour. This trading strategy involves constantly opening and closing out positions making trades which may only be one or two pips.

Short term trading is known as jobbing the market or alternatively as scalping. Only the most disciplined and fastest traders can make at as a short term trader in the Forex market. The skills required are the ability to make split second decisions and be able to react rapidly to changing circumstances. Also important is the ability to control your downside risk. If you are scalping your possible upside is only a few pips. If you can't make more than this you risk than a few pips as well.

You also need to be able to maintain a very short term focus. A scalper is not interested in any single position they are only looking at next couple of pips. They are certainly not interested in the long term “story” of the currency or even which way it will head over the next day. They only want to get in and out as quickly as possible and capture their pips.

When scalping currencies you want to change your risk and reward expectations based on the spread of the currency that you are trading. If you are only dealing with a 2 to 5 pip spread you should be aiming for a minimum of 3 pips per trade. And ideally as high as 10. You will need these gains to offset the losses that you are sure to encounter.

You also want to avoid holding your position into the release of new data. Because of the large gaps that occur after a data release your short term strategy can suddenly be upset. Carrying your positions into a data release is a high risk play. You will also want to avoid holding a position in half hour before a major data release as this can trigger other orders.

Scalpers often refer to the rhythm of their trading. Scalping requires having an intuitive feel for the market that you are trading. As such if you want to be a scalper you need to concentrate on only one pair at a time. In order to successfully scalp the few pips you are after you need to be fully concentrated on that pair. Also by following a single pair you will gain a feel for the rhythm of that pair. When jobbing the market concentration is key.