In truth, the broker is the primary variable in determining the ability of any trader to execute a profitable scalping strategy. Scalpers are able to control their specific trading strategies, trading time frames, take profit points, and stop losses, but they cannot control the speed and stability of their broker’s servers, their spreads, and their attitude about scalping.
Today, there are dozens upon dozens of brokers operating in the Forex marketplace, and each one has a business model and a technical ability to suit varying types of traders. Most long term traders are not affected by these differences, and they may be of some significance to swing traders, but for scalpers and day traders, they can mean the difference between profits and losses. At its most basic level, the spread is a fee that must be paid for every trade in order to compensate brokers for their services, but the broker/scalper relationship runs much deeper. Let’s examine the various issues related to this relationship, which affect the ability of a scalper to execute trades and the amount of profit they may be able to receive from each.
A long term trader that does not implement day trading or scalping strategies may only execute one or two trades per day. Although spreads are an important variable to consider regardless of the number of trades placed, a successful trading strategy can be profitable and justify the small broker fees. However, it is quite a different situation for scalpers. Scalpers are known to open and close dozens of positions in a single day, making the cost of each trade an important item on their balance sheets.
For example, a scalper that opens and closes 20 positions in a day for the EUR/USD currency pair, which has a three pip spread, will have to pay 60 pips just to cover the spread. Now, let’s assume that the trade sizes were all the same and that 3/4 of the trades were profitable, with an average profit of 6 pips per trade. Let’s also assume that 1/4 of the trades that were losers resulted in an average loss of 3 pips per trade. Without taking the spread into consideration, the trader would have a net gain of 90 pips. When the spreads are added into the equation, the trader would only net 30 pips for the day.
Before taking the spreads into account, the trader would have considered it a successful trading day. After all, the number of winning trades trumped the number of losing trades by three to one and the average loss of the losing trades were half of the average gain. In spite of this exceptional trading record, the trader’s hours of scalping activity only gained him 30 pips. If the spread were only one pip, the trader would have netted 70 pips for the day, which is a considerable amount for any trader.
Considering this scenario, it’s important to choose a broker that has the lowest spreads for the currency pairs you would like to trade. As a scalper, you must scrutinize all of the account packages offered by each broker before deciding to do business with them.
Many of the large Forex brokerages with a long trading history and a large client list of satisfied clientele have a scalper-friendly trading policy that allows scalpers to execute their scalping strategies. On the other hand, other brokers openly refuse to allow scalping activities. Others may not openly have an anti-scalping policy, but they often have slow order execution, which hinders the profitability of scalping strategies.
This information should make it quite obvious that scalpers must select a competent, innovative, and technically advanced broker with the expertise and ability to expediently process the large volume of orders that accompany scalping activity. As such, a non-dealing desk broker is essential for anyone interested in scalping the market. Since non-dealing desk brokers have largely automated trading systems, there is little to no risk of trade tampering. Non-dealing desk brokers also never take the other side of a trade, meaning that they do not benefit from the results of their clients. In fact, they welcome scalpers, because scalpers execute more trades, leading to increased spreads and profits.
Strong Technical Tools
Scalping is based on technical trading and the use of technical indicators. Since scalpers work with very short timeframes, fundamentals, such as news reports, have no effect on their trading. Due to this, scalpers need brokers that offer advanced technical packages, such as MT4, with a sufficient number of technical indicators and tools.
Additionally, since scalpers spend considerable time analyzing stock prices and charts and executing trades, it is a wise idea to select a broker with an intuitive trading platform that does not place too much strain on the eyes. At first, a bright and intense platform may seem appealing, but the visual appeal will soon wear off after hours of studying charts.
The trading platform provided by a broker should also enable multiple timeframes to be viewed simultaneously, because scalpers often use numerous timeframes to identify trading opportunities and monitor price movements. Although scalpers trade on short timeframes, such as the one minute or five minute charts, being aware of the price action occurring on 15 minute or 30 minute charts is often critical for strategic planning and proper money management.
Timely Execution, Slippage, and Misquotes
By now, you are already aware that the ideal broker for a scalper must be competent and utilize modern technology in order to acquiesce to the trading strategies and practices of scalpers. However, accurate quotes and fast order execution are equally important in ensuring the profits of an effective scalping strategy. Since scalpers tend to trade in very short timeframes, they must utilize a system that provides them with accurate and timely price quotes that provide them with the opportunity to react quickly to the markets.
If slippage occurs, scalpers will be unable to execute trades the majority of the time. If misquotes take place, scalpers will suffer from frequent losses, making scalping an impractical practice. Not only can this affect the ability to profitably scalp the market, but the emotional duress caused by this broker-related frustration can be equally unnerving. Scalping is already a test on one’s nerves, and scalpers should not have to suffer from broker incompetence in addition to the other burdens that may already exist.
Scalping is a highly intense trading method that requires a friendly and efficient broker with an ample supply of trading tools. A broker that provides anything less will only cause increased problems and diminished profits. Thankfully, there are many brokers that cater to scalpers and provide them with all of the tools they need to profit from the market on a daily basis. With a little research, you’ll be able to find the right non-dealing desk broker that will cater to your needs and allow you to scalp the Forex market at will.