Forex Scalping

Different exchange rate systems

We have 4 different types of exchange rate systems where an exchange can operate.

1. Fully fixed exchange rates

In these systems, the government or the central bank intervenes in the currency market to maintain the exchange rate in a fixed quantity. This kind of systems doesn’t allow fluctuations from their central rate.

2. Semi fixed exchange rates

These systems are characterized for permitting a little movement in a determinate range. The exchange rate is the dominant target of the economic policy-making and the interest rates are established to meet the target exchange rate.

The advantage of both kinds of fixed rates is the less speculative activity of the market, providing a great certainty for exporters and importers.

3. Free floating exchange rates

In these cases, the value of the currency depends on the foreign exchange market’s demand and supply. Ought to that, the trade and the capital flows are the main elements that affect the exchange rate.

The main characteristic of these systems is the exchange rates’ possibility of moving according to the market force, always without the intervention of the government or economical institutions.  The currency can experiment a change on its value due to the changes in the supply and demand.

These systems are not very common as the governments usually try to control and manage the value of their currencies.

4. Managed floating exchange rates

These systems are the preferred for most of the countries, where the value of the currency is determinate by the market forces and where the government can intervene if needed.

In the case of the floating exchange rates we can highlight two different advantages, the first one is the fact that the large balance o payment deficit that some countries could experimented can be solved by an automatic adjustment provided by the fluctuations in the exchange rate. The second advantage is the possibility of the government to flexibly determine the interest rates.

Tags: exchange rates, foreign currencies, Forex scalping

The Best Currencies

In general we can say that the best currency pairs for scalping are those that are not prone to registered sharp movements in a long period of time, or if they are, such movements are less frequent than in the other currencies’ cases. Considering that, the best group for scalping is the group described as the major pairs, and among them, the EUR/USD pair is the best one ought to its characteristics, as it is the most liquid and least volatile one.

Major pairs

In this group could be included pairs such as the EUR/USD, the GBP/USD, the USD/CHF, and other pairs formed by some of the currencies of the most powerful and stronger countries all over the world. Although the pairs that include the JPY (Japanese Yen) can be also included in this group, they behave differently and could be risky to treat them as the others.

The main characteristic of the majors pairs is liquidity. Their second characteristic is relatively subdued responsiveness to market shocks. Any cause that could evolved into a 100 pip movement in the AUD/JPY pair, will at the same time move the EUR/USD by 30 points in most of the cases, and sometimes even  by less points. The major pairs are used all over the world because their common trade; almost all the banks and important institutions can buy, sell and change money in these currencies. They are the giants of the currency market in terms of trade volume, and slowly movement.

The scalpers that would not like to risk so much and get conservative profits could concentrate their operations in the major pairs.

Carry pairs

Carry pairs have the good nature of been liquid, but also the problem of been volatile. This pairs such as the EUR/JPY or USD/JPY are traded all over the world but this operations have a higher risk ought to their volatile behave. The Japanese currency is used by many financial actors to invest and buy in insecure business and assets.  As a result, when there is any crisis, change or shock in the market these pairs react in an excessive mode which is even difficult to interpret for the traders, especially in the short time frame where they usually act.

The carry pairs are mainly used for incoming operations and interests. Scalp with them is not always a secure business because due to a unknown causes, the spreads could widen so quickly that even a stop-loss order couldn’t avoid us from an important loss. The sudden widening can also happen with the major pairs but in the carry pairs case is more common, deeper and longer.

It’s not recommend for the beginners to scalp in these currencies, the experienced scalpers could trade them according to the typical tendencies of following strategies and achieve benefits from the breakouts and any kid of sharp movements.

Exotic Currencies

Exotic is a term used in the options market, but we are also going to use it to discuss about the “rare” or uncommon currencies, characterized for been less liquid and less well-known. Almost all of these pairs are unsuitable to scalping. This group includes volatile pairs as the NOK/USD (NOK being the Norwegian Krone), the BRL/USD pair (with the Brazilian Real), and many other formed by lesser known different currencies.

This group is not suitable to scalping because we can often find unpredictable price gaps that make almost impossible to use, in a short period of time, money management strategies.

Tags: foreign currencies, Forex scalping, market scalping