Scalping is a popular trading strategy where one buys and sells currency pairs or other assets within a short period. At times, scalpers hold trades for as little as 3 minutes. Their goal is usually to make little profits several times a day. Therefore, most of them focus on several currency pairs that tend to display a certain degree of volatility. In this article, we will look at some of the best currency pairs for a scalper in forex.
How scalping works
Before we look at the best currency pairs to scalp, let us do a small recap about how the trading strategy works. Scalping is a simple day trading strategy, where traders open extremely short-term trades and leave after they make a small profit.
These traders tend not to worry a lot about the overall long-term trends. As such, most of them use extremely short-term timeframes that range between 1 minute to 5 minutes. While scalping is the primary strategy for many traders, others use it as a supplement strategy. Let us now look at some of the popular currency pairs for scalpers.
Turkey is one of the leading emerging market currencies in the world. The country is well-known for its geopolitical significance and the strength of its export business. It is one of the biggest exporters of vehicles, machinery, and fashion products.
In trading circles, Turkey is also known for the close relationship between the current president, Recep Erdogan, and the central bank. Also, its relationship with Western countries, like the United States, is a key issue.
In the past few years, the volatility of the Turkish lira has surged as the president has used his position to change the central bank governor at will. In the first quarter of 2020, the lira declined by more than 15% in a single day after the president fired the central bank governor he had appointed five months earlier. That reminded many traders of the Turkish lira currency crisis in 2018.
In 2020, amid the pandemic, the Turkish lira declined as the then Central Bank governor refused to hike interest rates even as inflation rose.
The USD/TRY is also a popular currency among scalpers because of geopolitical issues. In the past few years, the country has been involved in the crisis in the Middle East. It has also moved to buy military weapons from Russia, angering its NATO colleagues. Therefore, as shown below, this makes it relatively volatile and ideal for day traders. The EUR/TRY, and GBP/TRY are other alternatives to USD/TRY.
The Canadian dollar is another popular currency to day trade among scalpers because of the several factors that move it.
The currency is affected by domestic factors like the Bank of Canada (BOC) interest rate decision and inflation. Also, the country is one of the biggest trading partners of the United States. In 2020, the country exported goods worth more than $307 billion to Canada and imported goods worth $320 billion. Therefore, events from the US tend to have an impact on the USD/CAD pair.
Most notably, the USD/CAD pair is also affected by the prices of crude oil. The Canadian dollar does well when the price of crude oil rises and vice versa. That’s because Canada is the fourth-biggest oil exporter in the world after the United States, Saudi Arabia, and Russia.
Further, traders follow the market data from China closely. These include employment, manufacturing and services, and retail sales. All these events tend to increase the volatility of the pair, as shown below. The GBP/CAD and EUR/CAD are also popular alternatives.
Emerging market currencies are known for their volatility, making them popular by scalpers. In addition to the USD/TRY pair, the USD/ZAR is another popular currency pair among scalpers.
The South African rand is moved by several factors. First, South Africa is one of the members of BRICs, a group of closely-watched emerging markets. The other countries are Brazil, Russia, India, and China. Also, South Africa Reserve Bank (SARB) is one of the closely-watched central banks in the world.
Second, South Africa’s fiscal situation has led to more volatility for the rand. The country’s debt has surged, leading to several credit rating downgrades by Fitch, Moody’s, and S&P Global. The situation will likely continue since the country increased its borrowing in response to the pandemic.
Also, several systemic significant companies like Eskom and South African Airways have been in trouble and strained the country’s economy.
Third, the South African economy is rapidly changing, with the mining sector playing a smaller role in the economy. The manufacturing and services sectors are also going through some challenges. Therefore, all this makes the USD/ZAR an ideal currency for scalpers.
The EUR/USD is the most popular currency pair in the world because of the close relationship between the United States and the European Union. It is the most liquid currency, making it one of the most affordable pairs. Most brokers provide it with the lowest spreads.
The EUR/USD is a popular currency pair among scalpers because it is usually the first to react when there are significant events globally. For example, in times of a major crisis, the pair tends to decline as traders move to the safety of the US dollar.
Also, the European Union and the US release important economic numbers on most days. These include employment, retail sales, industrial production, and inflation, among others. These numbers lead to more volatility of the currency.
Most importantly, the Fed and the European Central Bank (ECB) are among the most important global central banks in the world. When their leaders speak, the market listens. The chart below shows the recent volatility of the EUR/USD pair.
In this article, we have looked at the concept of scalping and why many traders use it. We have also looked at some of the most popular currency pairs among day traders and explained the reasons behind that. Some of the other popular currency pairs among scalpers are GBP/USD, AUD/USD, and NZD/USD.