The best brokers for scalping are highly sought after by many traders who adopt this nerve-racking trading technique. Still, not all brokers allow scalping, while others aren’t attractive due to their high initial spreads.

Scalping brokers are simply the brokers allowing scalping on the financial markets, or, who are best suited for this trading strategy.

KEY TAKEAWAYS

  • The technique of scalping consists of opening and closing several positions in a short duration of time, such as a few seconds or a few minutes.
  • The scalper's goal is to make numerous small profits by the end of the trading day.
  • ECN brokers have more competitive spreads, starting at 0.0 pip for some Majors, ideal for scalping.
  • Successful scalping is based on the high-liquidity of a security and requires a well-capitalised trading account.

What is Scalping

Scalping is a complex and very speculative adventure, as is the search for the best brokers for scalping. In fact, most brokers, for their own internal management policy, do not allow this type of highly hazardous activity.

    Scalping is a trading technique that aims to make small profits by exploiting even the smallest price fluctuations of a financial instrument.

The scalper is the trader who, more than anyone else, manages to achieve returns that are completely unrelated to the general trend of the underlying asset on which he operates.

A security, that during a trading session posts a negative performance of 3%, for a good scalper can have the inverted effect and be synonymous of various percentage points of profit.

The scalper is not so much interested in the trend direction that a financial instrument can take during the session, but rather, if the asset’s price is showing volatility and moves at all.

A scalper, trading the currency markets, for example, does not gain more than a few pips per trade (1, 2, 5 pip), but at the same time it will not lose more than a few pips. For each trade the gains are very small, with the goal to open and close several trades on an asset’s price swings, throughout the day.

The old saying of letting profits run and cutting losses short is not particularly applicable to the scalping technique. At least as far as the letting profits run part is concerned. The scalper exploits the micro-oscillations of the market, which have a limited duration in time, from a few seconds to a few minutes, and for this reason bring very small profits.

Those who use this technique are fulfilled with a few quick profits, continually repositioning themselves in the market in an attempt to exploit its many swings and trying to minimise losses.

To take advantage of the continuous price fluctuations, the scalper must devote several hours of activity on the charts, maintaining a high and constant concentration level to execute several trades successfully. In one trading session it is not uncommon to find scalpers executing on average 50 trades.

The importance of low spreads

If after reading the above you now have a clear idea of what is scalping, you will be possibly wondering about the spreads. On the other hand, if you are a beginner trader and want to know what the spread is, and why it is so important for successfully scalping the markets, it’s quite simple.

The spread of a financial instrument refers to the difference between the bid and the ask price. Spread is in reality a transaction cost, and due to the spread, each scalping trade will start off at a loss. Simply, because the selling price of a security is always the higher price (thus, you will buy at the ask price), and the selling price of a security is always the lower price (thus, you will sell at bid price).

Or, to make it even simpler, buyers always buy (if you are selling) at a lower price, and sellers always sell (if you are buying) at a higher price.

This means that the security’s price needs to have more traders executing similar trades to yours to force the price up, or down, past your buying, or selling, levels.

Here’s a quick example of how the GBP/USD spread could look like:

GBP/USD Quote Bid Price Ask Price Spread
4-digit quote 1.4728 1.4729 0.0001 = 1 Pip
5-digit quote 1.47252 1.47257 0.00005 = 0.5 Pip

So, the higher the spread, the more the distance between the two prices increases, and the lower the spread, the more it contracts. Why is this gap between the buying and selling so important for the scalpers?

Because the spread, for the scalper, is a cost and has to be dealt with for each open trade. The spread therefore limits the scalper’s profits, especially if it is around 1-2 pips.

If a scalper wants to target 5 pips profit, for each trade, with a spread of 2 pips, he would need to set a take-profit of 7 pips (7-2=5) on each trade. In the absence of a spread, the scalper could earn his 5 pips simply by setting a take-profit of 5 pip above, or below, the entry level.

But most scalpers, with a longer-term view, and aiming at 10 pips profit, for example, during the trading session, can tolerate the spread as being only a small part of the sum.

How does a Scalper Trader Operates?

We mentioned that, due to the nature of scalping, the profits made per trade, on the forex market, are very small, usually within 2 to 5 pips. In order for a scalper trader to produce consistent profits, it will aim primarily at two things during the trading session:

    finding several trading opportunities & closing a high percentage of trades in profit.

While professional traders generally aim at a risk-reward ratio (R:R) of 1:2 per trade, and above, which in turn allows them to sustain and recoup from, it’s not the same scenario for scalpers.

Closing a position soon after getting in profit, will yield an extremely low R:R ratio. Moreover, as the values are so low, this forces the scalper trader to maintain a very high winning ratio in order to generate profit consistently.

Scalping isn’t a type of trading suitable for everyone. In addition to possess good hardware; an updated and fast PC, adequate monitors, a fast internet connection, the main tools of scalpers traders are their very high skills of self-discipline and concentration.

Besides this, of course, it is also paramount to work with a good broker allowing scalping, especially a broker with competitive pricing (spreads and commissions).

In addition to a great mental elasticity, a scalper trader also needs investment capital, or an adequately funded trading account. Since the scalper will need to profit from small market movements, like a few pips, or points at a time, the scalper trader needs to keep the position volumes high in order to ensure that the actual profits are worthwhile.

For example, opening a GBP/USD long position of a 0.01 lot at 1.47257, to close with a profit of 3 pips at 1.47287, will yield only US$ 0.30 profit (and another US$ 0.06 would go to the broker as trading commission), leaving the scalper with only US$ 0.24 profit.

But, if the position size is 1 standard lot, the gross profit for the same scalping trade of 3 pips would be US$ 30, minus US$ 6 trading commission (this is the average cost with ECN type brokers for 1 standard lot), and the net profit would be US$ 24.

For this reason, a scalper trader must have a well-capitalised account, otherwise, the only other solution is to trade with high leverage, which greatly increases risk.

 TIP Try out Pip Value Tool to accurately calculate the pip value for forex pairs, indices, cryptocurrencies, and more, using live market quotes, your account deposit currency, the lot size and the traded pair.

The Best Markets for Scalping

A scalper trader prefers the financial instruments with very high liquidity, which translates in narrower spreads due to the extra market activity, fruit of the daily war between buyers and sellers, allowing the scalper to take profits in very few minutes, or even seconds.

Together with liquidity, the scalper trader also looks for volatility, for markets that tend to move around a lot during the trading session, such as highly capitalised stocks (like the Tesla Inc shares that can move substantially every trading session), indices, but above all, the forex market is favoured.

For example, in the foreign exchange market, a currency pair, such as the GBP/JPY, can post a low price to high price range of 300 pips (on average between 150 to 200 pips) in one single trading session.

Features of the Best Brokers for Scalping

Given this particular trading technique, and summing up all the points exposed so far, to successfully scalp any market, it is of extreme importance to do it in the right environment.

And by that we mean that it is imperative to find a broker offering, at least, the following basic features:

  • Supervised in a jurisdiction by a reputable regulator (such as FCA or ASIC)
  • Competitive pricing, with low trading commissions or brokerage fees
  • Low latency and fast execution of orders
  • Availability of highly liquid assets such as the forex market, highly capitalised stocks, and indices
  • Offering a robust trading platform with the availability to analyse markets using various indicators, including customisable ones
  • Visibility of an order book with several levels, or the visibility of market depth
  • Exclusive brokerage activity, possibly directly to the market, and not a dealing desk

Unfortunately, not all brokers are the same, and in fact, not all brokers see this type of trading favourably. And some, even forbid it. Yes, this trading technique, commonly referred to as the “pip & run” technique in the scalping community, has cost many scalper traders the closure of their trading account, as certain brokers do not allow it.

So, if you decide to take a shot at this stressful, dauting, nail-biting trading technique, make sure to check out our “Scalping Brokers” list, and choose one of the best as your next trading partner.

Plus, you can also earn extra cash with your scalping trading, as most of the brokers on our list are partners on our cashback program. You can earn cash rebates for your closed trades, even if they were closed with a loss!

If you don’t know how this program works, and how it can save you money on your trading commissions, please check out our What are Forex Rebates article, with all the info needed.