Scalping was initially popularised in stock markets but is now largely synonymous with forex trading. This is because price movements with forex markets tend to be very small on a day-to-day basis, making it the ideal market for scalping. If you want to know exactly why scalping is popular in forex markets and why it is important to choose the best forex scalping brokers for the job, read this essential guide to find out.
What is Scalping?
As mentioned, scalping is the practice of making many small trades within a single trading day (usually), in order to make a large profit in the aggregate. Each trade executed in the scalping style is always tiny, with 5-10 pips being the typical profit margin on each trade.
While this might not sound like a lot, it can quickly add up to substantial gains over time. One of the most well-known scalpers in the business is the financial guru Paul Rotter, who claims to have made close to $80 million a year for a decade, purely from scalping.
Naturally, this level of success is rare, but it does illustrate how focusing on incremental price movements can translate to substantial gains. As you might have guessed by now, scalping is primarily used within day trading, where traders enter and exit multiple positions on a forex pair within a single market session. It is called “scalping” because the goal is to skim profits from tiny trades within a single session, often by going in and out of the same position multiple times.
To do this successfully requires an ability to master timing, as opening or closing a position during the wrong second can have catastrophic consequences. Scalping also involves fundamental analysis of real-time market data to reliably predict the most minor price movements in a currency pair. With the right scalping brokers, comprehensive analysis should translate to automated signals that can help you decide when to open and close your positions on particular forex pairs. Although scalping is naturally high-risk, it is also high-reward in the right circumstances.
The Benefits of a Scalping Broker
To understand the benefits of scalping, it is worth emphasizing that scalping is best suited to individual retail investors that do not have large amounts of capital to invest in forex markets. There are relatively few barriers to entry with scalping, as the trades are small by definition.
In addition, scalping trades tend to take place in highly liquid markets, meaning that you should be able to buy and sell exactly when you want to do so. In addition, scalping involves significantly less risk exposure than most long positions. This is because the brief market exposure necessitated by scalping reduces the possibility that you will be overtaken by unforeseen events.
In addition, scalping relies on tiny movements which are generally easy to achieve, especially given the inherent volatility of most major and minor currency markets. Smaller price movements in currency pairs tend to occur much more frequently than larger price movements, meaning that it can be more likely that a trade will pan out how you want it to. This also means that scalpers can make money even when currency markets are quiet, as small price movements of just a few pips will occur even when market activity is at a minimum. This allows you to adopt a more flexible trading strategy than would normally be possible.
The Risks with a Scalping Broker
That being said, scalping also comes with some substantial risks attached that you need to know about before you get started. First off, it is important to stress that scalpers expose themselves to risk in other ways, even if general risk exposure is less. Many traders feel the need to open up large short-term positions in order to maximise profits, which can be a recipe for disaster in a highly volatile market such as forex. In addition, successful forex scalping relies on very narrow spreads, since profits from scalping usually consist of just a few pips.
This means that any broker that does not offer fixed pips or will slap you with re-quotes can potentially wipe out all of your profits from scalping. Furthermore, most forex scalping brokers require you to place a very large deposit before you can begin scalping, as you will need continuous access to funds in order to complete the small and fast trading required.
It is also worth noting that scalping can be mentally and emotionally draining in a way that few other trading practices are. You need a high level of focus in order to pay attention to all of the market fundamentals. Scalping is a full-time occupation, as losing focus for even a second can cause a day’s worth of profits to be wiped out.
It is therefore best to begin scalping only if you can commit a substantial amount of time to the practice. Meanwhile, smaller traders can be at a constant disadvantage, as bankers and dealers who engage in scalping tend to do so because they have more knowledge of the market than you do.
How to Trade with a Scalping Broker
Let’s break down what you should be looking for in a scalping broker before you get started. The most important thing to look for is low pips. Every single pip counts when it comes to scalping, as incremental profits are the bread and butter of the trade. The tighter the spreads offered by a broker, the better that broker is for scalping. In addition, you will need a lightning-fast broker that can offer direct market access, given that profits are usually earned on a minute-by-minute basis.
This is why market maker brokers are best avoided and ECN brokers are better suited to scalping. You should also keep an eye out for brokers that can offer STP or DMA access. Since all scalping is heavily based on real-time fundamental analysis, you will also need to ensure comprehensive access to the right market data and insights. This is something that only the very best brokers can guarantee.
In addition, keep in mind that some forex brokers specifically forbid all forms of scalping. Therefore, make sure that any broker you pick is a genuine scalping broker, if this is something that you are interested in.
Let’s walk through a quick example to better illustrate what successful scalping is all about:
Let’s say you open a position on USD/EUR worth $100,000, using a $10,000 margin with 10:1 leverage. Using a candlestick chart, you could identify a price trend and attempt to open and close your position repeatedly as the price moves up and down within a specific range.
Assuming a $10 profit or loss per pip movement, you could buy at 1.2101 and sell at 1.2105 for a $40 profit, then buy back when it drops down to $1.2101 a few minutes later, completing the same process again. Over time, your leverage could translate to hundreds or thousands of dollars in profit over a full trading session.
In order to scalp successfully, it is imperative to use the best scalping brokers available to UK traders. Here are some of our favourite brokers that offer scalping trades:
AvaTrade
AvaTrade is one of Europe’s most respected brokerage services, offering scalping on hundreds of assets for deposits as low as £100. You can expect pips as low as 0.9 across various currency markets, making it ideal for any scalping strategy.
Skilling
Skilling is a sleek platform with fundamental analysis and comprehensive signals available across all major currency markets, as well as crypto CFDs. Skilling allows for scalping across all markets, with pips as low as 0.1 on some of the top pairs.
easyMarkets
easyMarkets is a trusted US broker that offers scalping across a wide range of currency markets, with pips ranging from 0.3 to 1.7 pips on forex. In addition, easyMarkets offers comprehensive 1-minute and 5-minute forex charts, allowing you to make informed forex scalping trades at any time.
Choose a Trusted Scalping Broker Today
It is absolutely essential to use a trusted and licensed UK broker for all scalping trades. For this, make sure to consult our forex broker reviews to find out which brokers offer scalping with the services and fundamental market data that you can trust.