Scalping is one of the most favored trading strategies, but not all Forex brokers allow it. Of those who have no restrictions on scalping, many do not provide the required infrastructure to succeed. As with any trading strategy, traders need to understand what it is and how it works, and then determine if it is suitable for their trading mentality.
Scalpers, as traders are known who use scalping as their preferred trading strategy, favor large trading volumes and minor price movements. While the basic principle of scalping remains simple, implementing it is far from easy. Many new retail traders attempt to scalp the Forex market, as capturing a minor price move, sometimes as little as 1.0 pips or less, in theory, requires less of an effort than maintaining a low-volume trade over a prolonged period. Scalping remains the shortest form of short-term trading, and those who utilize it successfully can reap the benefits of it daily, adding to its growing popularity.
While all traders must practice discipline, scalpers require it even more. One of the most defining aspects of Forex scalping is psychology. Many new traders overlook it, as scalpers maintain positions for a short period and might place hundreds of trades daily, but unless a trader masters the psychology of trading, each strategy, including scalping, will fail. Scalping Forex pairs can also be one of the most exciting and rewarding ways to trade, but it also carries higher risk. Most associate the added risk to leverage, which is an incorrect assessment. Traders who wish to learn how to scalp successfully must learn how to accept losses. Scalpers rely on trading volume, trading frequency and leverage. Therefore, there can be hundreds of small profits and losses throughout the trading session. Executing any scalping strategy with the wrong type of broker is as devastating as not knowing how to scalp.
What is Scalping?
Scalping refers to placing high volume trades to profit from small price movements. Scalpers often conduct dozens or hundreds of transactions per day and require tight spreads, maximum leverage and excellent liquidity. A Forex scalping strategy is the highest-volume trading strategy available, and many scalpers seek a broker with a cash rebate program to boost their revenue stream. Small profits can add up to a respectable amount at the end of the trading session, but scalpers must strictly follow an exit strategy to avoid one loss from wiping out a series of minor profits. Usually, scalpers close all positions at the end of the trading day and avoid unexpected price spikes and swap rates on leveraged overnight positions. Trading psychology and precise entry levels represent essential tools for successful scalpers, who rely exclusively on technical analyses and prefer high-volume fundamental events due to the liquidity spike that surrounds them. The most sophisticated scalpers will use automated trading solutions and expert advisors (EAs) in the MT4 and MT5 trading platforms. Scalpers prefer to trade liquid major currency pairs while avoiding more illiquid minors and exotics.
The Risks of Scalping in Trading Forex
Psychology and discipline remain two primary risks for scalpers. Since scalping Forex involves placing hundreds of trades daily, there will be many small profits and losses. Scalpers must follow their strategy precisely while also understanding when to make swift adjustments to dynamic market conditions. Learning how to accept losses remains paramount to earn profits, especially as a scalper. Allowing a losing position to run can swiftly wipe out a daily profit and lead to more errors. The longer a scalper holds a trade, the greater the chances it will become unprofitable. Scalping from an insufficiently funded trading account is another risk, especially for new traders.
The Best Times for Forex Scalping
Since scalpers require liquidity and prefer volatility, scalping just before and after economic data announcements is one of the best times for Forex scalping. The first hour of the London trading session is another one, together with the first hour of the New York session, and the last hours of official trading in London and New York, respectively. It also depends on the currency pair, with Japanese yen traders showing activity during the first and last hour of the Tokyo trading day.
Why Should You Select a Broker Who Allows Scalping?
Many of the brokers that allow scalping have the necessary infrastructure in place to enable a profitable Forex scalping strategy. While the MT4, MT5, or cTrader trading platform, all of which support automated trading strategies, are available at most brokers, scalpers must consider liquidity, execution, and costs. Another reason to select a broker that allows scalping is to ensure that traders do not violate the terms and conditions of the client-broker agreement. Violations can result in the loss of accumulated profits, a warning, and ultimately the return of the initial deposit together with the closing of the account. Therefore, traders interested in scalping must read the terms and conditions. Usually, a reference to scalping or trading strategy restrictions is available. Should it be missing, customer support can clarify the position of the broker regarding scalping.
The Regulations Concerning Scalping
Most global regulators leave the applicable rules up to brokers, but the US Securities and Exchange Commission (SEC) prevents traders with less than $25,000 in capital executing a scalping strategy. It falls in the category of pattern day trading, and those in violation of it will have their account suspended until raising the equity threshold to satisfy the requirement. The $25,000 rule applies to US equity markets only. Futures and Forex traders do not face it, leaving it up to individual brokers to set rules and regulations.
Broker Policy Towards Scalping
Each broker maintains terms and conditions, where traders can locate the policy towards scalping. Given the popularity of Forex scalping, many brokers answer the question directly in their FAQ section. Always make sure to scalp with a broker that allows it, and while many place no restrictions on it to attract more traders, the cost structure discourages it. Others may implement restrictions on the number of allowed trades per day, open positions, or total lot size, all of which can negatively impact scalpers.
Is the Scalping Broker Using an ECN Platform?
Usually, ECN brokers permit Forex scalping as they are not the counterparty to client positions and charge a commission per transaction. Unlike market makers, who are the counterparty with direct exposure to client profits and losses, ECN brokers have none. Therefore, the higher the trading volume, the higher the revenues for ECN brokers. It also ensures top-tier liquidity and access to raw spreads, a requirement to scalp consistently with a profit. The technology infrastructure also remains superior, resulting in competitive trade execution and price improvements.
Terms & Conditions of the Scalping Broker
Besides confirmation regarding the policy on scalping as a trading strategy, traders should also familiarize themselves with the cost structure which includes both commissions and other fees. Traders must read the fine print and, if in doubt, reach out to customer support. The terms and conditions will outline any restrictions, if not directly for scalpers, indirectly on other aspects required to execute a scalping strategy. While most ECN brokers allow scalping, most market makers do not, and there are always exceptions. Trading with a broker that does not allow it will result in financial losses and other complications, which traders can avoid by reading the terms and conditions carefully and understanding them.
Funding & Withdrawal Methods of Scalping Brokers
Since scalpers generate profits and losses daily, they often conduct more financial transactions to withdraw and protect their capital. It can result in an increase in costs, which will lower the overall profitability. Most brokers do not charge for deposits, but withdrawal fees can apply, depending on the preferred payment processor. External costs, dependent on the same, can also exist. Therefore, scalpers must consider the funding and withdrawal options of scalping brokers to ensure a cost-effective structure exists. Online payment processors often provide a significant advantage, and some brokers grant low-cost debit cards as an alternative, restricted by geographic location.
Scalping Brokers' Customer Support
While most traders do not require customer support, the high-frequency nature of scalpers may result in more assistance. Trading with a broker that offers easy access to a representative and features swift response times via live chat or phone is beneficial. Since the majority of scalpers close all positions at the end of the official trading day, 24/5 or 25/7 assistance is not a requirement.
Technical Tools for Scalping Traders
Manually scalping the Forex market is how the bulk of scalpers initially learn how to scalp. Given the fast pace of scalping strategies, more sophisticated traders deploy automated solutions. Since MT4, MT5, and cTrader fully support automated trading strategies, they are ideal for scalpers, and the marketplace includes Forex scalping software for a one-time purchase or a recurring license. One example of an automated system is Trade Scalper, which identifies entry and exit points for positions. It is not available on MT4, MT5, or cTrader, but developed for independent NinjaTrader.
There are similar and more advanced solutions for MT4, where scalpers may obtain a fully automated system, which can trade without the presence or interference of traders. While it sounds appealing to have a set-and-forget system, it can also be dangerous. Traders should never use one without learning how to trust it by monitoring the automated trading solutions over an extended period. It remains an evolving and fast-growing industry, but scalpers must implement safeguards and exercise patience. With many options and technical tools available, ignoring the free ones and the cheap ones can eliminate unprofitable ones. Traders should also consider the costs of the automated solution and determine if their portfolio can generate enough profits to make it an economical choice. The most sophisticated systems rely on machine learning (MM) and artificial intelligence (AI), but access remains limited to FinTech companies and quantitative hedge funds.
Scalping with Tight Spreads
Tight spreads are one requirement for scalping Forex. The smaller the mark-up, the greater the profit. It also requires less of a price action move to turn a profit. Since trading costs remain the primary cost for scalpers, the more calculated they are, the better a Forex scalping strategy can perform. The most favored structure is a competitive commission with raw spreads, which many brokers provide together with a volume-based rebate program, combining for an ideal set-up for scalpers to thrive.
Best Forex Pairs for Scalping
Since liquidity is another core element of a successful Forex scalping strategy, the best Forex pairs for scalping consist of major currency pairs. They include the EUR/USD, GBP/USD, USD/JPY, USD/CHF, USD/CAD, AUD/USD, NZD/USD, together with the EUR/GBP, EUR/JPY, and EUR/CHF. They are usually the ones with the tightest spreads, highest trading volume and deepest liquidity.
Scalping and Leverage
The final defining aspect of a Forex scalping strategy is leverage. Many traders, including professionals, fund managers and regulators, confuse it with risk. It remains incorrectly linked to trading losses, which is misleading, as the absence of risk management results in trading losses. Scalpers require maximum leverage to lower the margin requirement on each trade and boost its profit potential. Since scalpers seek short-term positions and multiple small profits throughout the trading session, each magnification adds up to a potentially significant profit or loss.
Scalping vs. Swing Trading: What's the Difference?
Scalping focuses on hundreds of small daily trades, lasting a few seconds to several minutes, and never overnight. It remains the shortest form of short-term trading. Swing trading can last multiple days and up to several weeks, attempting to capture medium-term reversals. Both strategies rely on technical analysis for entry and exit points while monitoring fundamental events as triggers for trend reversals or liquidity aggregators.
How Forex Brokers Define Scalping
How a broker defines scalping is also very important, because what will or will not be allowed at different brokers allowing “scalping” will often be a little different. Each broker will set its own guidelines and rules and will implement them accordingly. The general definition of scalping is a strategy that involves placing a large number of trades and holding them open only for short periods of time before closing them, in an attempt to profit from small price movements. This process may be repeated by a scalping trader dozens or even hundreds of times throughout a single trading day.
It is therefore your job to identify exactly how the broker you have chosen defines ‘scalping’ and whether this will affect your own individual scalping strategy. For example, pay attention to the finer details in the small print such as the amount of trades you can place daily, and whether there is a time limit to how long you may stay in these trades before you will be required to close them.
It is very common for brokers to differ on these definitions of what exactly scalping is, so it is well worth your while ironing out the fine details before you begin to try to trade with them in a scalping style. The last thing you want is to have the hassle of having your trading account closed and deposit refunded due to a breach of rules you were not aware of.
We have shown how tight spreads, speed and reliability of execution, the precise definition of scalping, choice of Forex pairs to trade, and the use of leverage and its maximum will have a big impact in determining your performance as a scalper.
While all of the above issues are very important, it is difficult to say which one you should focus on most. When choosing which Forex broker is best for scalping you really want to choose a broker that scores highly in all these areas issues to match your requirements.
Which factors you make a priority will depend on your own individual scalping style. Don’t forget you need to be sure that your deposit is safe with any broker. If a broker isn’t reliable and well regulated, all the other factors can become irrelevant.
It is a good idea to open a demo account with your broker of choice. This will not only provide you with an insight into what they offer, it will also give you a feel for their trading platform and spreads and commission structure – but remember, a live “real money” account does not always precisely mirror the performance of a demo account.
Which Forex broker is best for scalping?
Any broker providing tight spreads with competitive commissions, high leverage with excellent execution statistics, and an ECN execution model with a volume-based rebate program will rank among the best for scalping.
Is scalping allowed in Forex?
Yes, scalping is allowed and legal, but not all Forex brokers allow it, and many who do discourage it via an uncompetitive cost structure.
Which Forex broker has the best spreads?
ECN Forex brokers will have the best spreads together with a commission, but some market makers offer an acceptable alternative.
Is scalping better than day trading?
It always depends on the trader and the details of the trading strategy. There is no strategy better than another one, but one may be superior over another specific to the individual trader.
Is scalping a good strategy?
Scalping is as good as any strategy, while it remains one of the most exciting ones due to the short time frames. It can also be the most demanding and frustrating one and best executed with the assistance of automated trading solutions.