Scalping vs Long-term Investment in FX: What are the Pros and Cons of Both?
If you are thinking of investing some of your spare money to build wealth, there are lots of options open to you. Trading cryptocurrency is a good example, as is investing in stocks or ETFs. One enduringly popular choice for investors, however, is Forex. This is a massive global market that sees currencies traded in pairs. Easy to grasp and simple to access via online trading platforms, its liquid nature also appeals to people.
To get the most from investing in FX, you need to decide on the trading approach you will take. Scalping and long-term investing are two of the most common. But what are they and what pros/cons does each style have?
Scalping and long-term investing explained
Scalping is known as a day trading strategy and sees investors making a large volume of trades per day. Each trade is only held open for a short amount of time – minutes at the most. The aim is to make a small profit on every trade – in effect, scalping value off the top of it. Once the trade is open, scalpers will close it very quickly if it heads their way or even if it goes against them. For a more detailed overview of this approach, check out the forex scalping strategy at AskTraders. This shows more of what is involved from a trusted online source for investment advice.
Long-term investing is done over a much longer timeframe and is not considered a day trading approach. People who invest for the long term can hold open trades for weeks, months, or even years. Thorough research is made into assets that should make decent money over time. These trades are monitored but usually left to run, to bring home the targeted return. Long-term investing normally sees traders make a lot fewer moves than scalping.
What are the pros and cons of scalping?
One pro of scalping for some investors is its fast-paced nature and excitement. Opening lots of trades per day keeps you directly involved in the market and gives you a real buzz. This way of investing is also good for exposing you to less risk and offers plenty of investment opportunities per day. The small profits you can make on each trade soon add up and see you making a decent amount per month. This strategy is also good to use in flat markets when there is no obvious trend to jump on. Scalping is also a good fit if you need to see fast returns and do not want to do lots of in-depth research on currency pairs/financial news.
The adrenaline-fueled buzz of scalping can sometimes leave traders burnt out though. Opening lots of trades every day and being plugged into the market constantly can get a bit much for some people. Scalpers also need to handle taking smaller wins and sometimes missing out on bigger ones. Add in the fact that high transaction fees can leave scalpers out of pocket, and you need to think carefully before trying it out.
What are the pros and cons of long-term investing?
This type of trading is generally better for those who want to be more hands-off and value a slower-paced investment experience. As trades are opened and then left to run (with some monitoring naturally), this approach does not take up huge amounts of time and is not stressful. A longer-term approach also allows investors to ride out small fluctuations in the market and achieve the return they target overall. In addition, this way of investing can also bring home bigger profits and more money.
But what about the cons? For some traders who like to be active each day, it could involve too little action and be too boring. Apart from checking in on how your trades are doing, there is not much else required! It is also not a good trading style if you have little patience to allow trades to play out. In addition, this way of investing is not ideal if you are looking to make quick returns or need extra money fast. Long-term investing can also involve a lot of work, as you need to fully research every aspect of the pair you will put money into.
FX scalping vs long-term investing – which is best?
The simple answer is that neither is better than the other. It is just that some investors will suit scalping, while others will enjoy long-term trading more. The key is to understand what each approach involves and choosing the one you like best.