Short-term trading in the forex market functions much like short-term trading in most other markets. However, the designation “short-term” in the forex market takes on an entirely new meaning. Short-term trading with currencies typically means holding a position for only a few seconds or minutes, at the most, an hour. Whereas stock and commodities market’s definition of short-term refers to holding a position for a day to several days at the very least.
But it isn’t the length of time which makes the short-term, high frequency day trading unique. Rather, it’s the fluctuations of pips. A pip is the slightest price change that a given exchange rate can make. For most currencies, it is about 1/100 of one percent, or one basis point.
Traders who practice a short-term trading style will repeatedly open and close positions after only a few pips in hopes of making a profit. Usually, this involves five to ten pips but can be as few as one or two pips. Another term used to describe this type of trading is “jobbing the market” in the interbank market and “scalping” for online currency traders.
To be a successful short-term trader, one must be fast, disciplined and capable of making immediate decisions. A lot of scalpers trade based on intuition rather than fundamental analysis. Their vision is extremely short-term so they aren’t concerned with the long-term response of a currency pair. They are focused on the few pips they hope to profit. Their goal is to minimize their losses by not staying in one position for too long.