What is Swap, Scalping, Drawdown, and Pivot Point in Forex Trading?
- August 1, 2021
- Posted by: Daniel Richard
- Category: Forex Trading
It is crucial to have a clear idea about the swap, scalping, drawdown, and pivot point while trading in the forex market. If you want to exist in the forex market, these four ideas will be helpful in your trading. In forex trading, traders must have proper knowledge about different ideas, which will help them to be successful traders.
What is Swap in Forex?
In the forex market, a swap is an interest fee, and the broker takes interest from the trader. Every forex broker collects swaps from traders for trading. But sometimes, brokers give swaps to traders. Generally, swaps are transacted in a swap account. If you want to take an interest, you will select the swap or yes option. But if you want to avoid interest, you need to choose the “no” option.
In a swap account, you will get interests when you buy currency, and you will provide interest while selling currency. The swap may be negative or sometimes positive, depending on the different currency rates. For instance, suppose you are buying in the currency pair EUR/USD, the interest rate of EUR is 3%, and the USD pair is 2%, and it will be a positive swap because you will get (3-2)%=1% interest.
But if you sell at this rate, buy the USD and sell the EUR; it will be a negative swap because it will be (2-3)%=-1%.
In forex, you will recently find another kind of account that is swap-free or Islamic account. The Islamic-minded traders use the swap-free account. In this account, they never get or provide any interest.
What is Scalping in Forex?
Scalping is one kind of trading system used by forex traders. When traders use a few minutes and earn 1 to 20 pips per trade, that is called scalping. If you earn more than 20 pips, it will not be scalping. Generally, it will be a trade. The forex market is moving every moment, so you have to earn a few pips within a few minutes by understanding the market movements.
Before starting scalping in forex, you must learn broadly about this system because it has risks like other systems. Therefore, you may lose while scalping without proper analysis. Some brokers use a two minutes rule, which means if you close your trade before two minutes, brokers may remove your trade.
What is Drawdown in Forex?
Drawdown refers to the amount of loss. In forex trading, drawdown indicates the losing amount which you lose in a specific trade. Drawdown is counted by differentiating between the high points and the low points in your account balance. It shows the lossing amount by percentages.
For instance, you start a trade at $100000 in your balance, but for a bad trade, your balance falls, and now your balance is $90000. So your drawdown is 10%.
As a trader, you have the quality to manage the drawdown. If you manage your drawdown correctly, your trade will be profitable in this field. An experienced trader can easily overcome the drawdown. It is quite important to measure the drawdown because it refers to your trading performance, and you will try to recover your loss amount.
What is Pivot Point in Forex?
A pivot point is a tool of technical analysis which is very popular in forex trading for identifying the buy and sell signal. For indicating the reversal point, generally, the trader uses the pivot point. It also provides the market sentiments, and according to the sentiment, you can trade and get profit.
In a chart, there are some sections, and the middle point of this chart is the pivot point. If the price crosses the pivot point, the price of the market will be upward. However, if the price is under the pivot point, the market price will low-rise. The highest point of a pivot point chart is the resistance level, and the lowest point is the support level.
The forex trader uses the pivot point to identify the possible support and resistance levels. The price above the pivot point is called the bullies bias, and below the pivot point is called bearish bias.
Thus, the swap, scalping, drawdown, and pivot point are the four different methods in forex trading. All are equally important for the forex trader to earn profit.