Scalping is a day-trading strategy with a focus on skimming small profits on a very regular basis. In fact, a scalper could open and close hundreds of positions in any one day. Few Forex brokers support scalping strategies because it can place a strain on their resources.
If this is a strategy, you’re keen to run with, you’ll need to pay close attention to the following criteria when choosing your next Forex broker.
Scalping is all about locking in profits from small price changes. Every time you open a position, you need to earn the broker’s spread before your position breaks even. The tighter the spreads, the sooner you can start making money for yourself. Brokers typically quote different spreads for each currency pair, and comparing spreads across brokers is challenging.
If possible, choose a broker with 5 decimal pricing (also known as fractional pricing) rather than the standard 4 digits. 5 decimal pricings prevent brokers from “rounding up” bid and offer prices. In turn, this helps compress spreads further in your favor.
Speed should always be a criterion when comparing brokers. However, it is even more important to factor in your decision process if you have an interest in scalping. Remember to stay away from brokers with a dealing desk or any form of human intervention. Dealing desks slow down order execution and will give rise to re-quotes if prices have moved between the time you placed an order and the moment you broker is ready to execute the trade.
Instead, you’ll want a broker that supports Straight Through Processing (STP) of trades. STP happens when your orders go straight through to liquidity providers in the foreign exchange interbank markets. In some cases, STP brokers may also act as the counterparty to your trades. Whatever the execution model, you should ask the broker you’re considering to confirm that your orders will be filled directly without human intervention.
Last but not least, scalping can place considerable stress some brokers’ resources. This is particularly the case when orders are processed through a dealing desk. Neither you nor they could pick up the phone fast enough to take your orders!
For this reason, you should always check that the broker you’re considering actively supports scalpers. If he does, you’ll usually see this advertised prominently on his website because it is a genuine selling point for experienced traders. If in doubt, please check their terms and conditions or speak directly to a salesperson.