Forex Brokers for Scalping Strategies
Forex scalping is a very popular trading strategy amongst day traders who are looking to try and capitalise on small pip movements in the price of currency pairs. Forex scalpers will enter and exit multiple trades each day, most of which will last just minutes. This means that they require some of the best trading conditions including low spreads, low costs and quick trade execution speeds. If you are planning on using this type of forex strategy, then you will need a suitable forex broker for scalping.
What is forex scalping?
Forex scalping is when you try to make profit by taking advantage of the difference in the price of a currency pair over the short term. If you thought that the price of a currency pair would increase, you would take a long trade (buy). On the contrary, if you thought the price would fall, you would take a short position (sell). The difference in price from when you opened and closed the position, would be your profit or loss minus any forex brokerage fees.
Why is a forex scalping broker important?
Using a specific type of forex broker for scalping is important because it can be the difference between a winning and losing forex strategy. Forex brokers often have different spreads, commission fees and execution policies. These can all have a significant impact on your trading strategies as you will need to pay a spread and commission fee, whilst slippage can also cause a discrepancy between the price you expect and the price that you get.
For example, if the EUR/USD was trading at 1.04600 and you thought the price would drop 10 pips to 1.04500, then you could take a short trade. Let’s say that you were right and price did fall 10 pips, great!
However, you will need to deduct the broker costs from that trade. Let’s do the maths if the broker had a 1 pip spread on the EUR/USD, charged a commission of 1 pip and there was 1 pip slippage. This would leave you with 7 pips profit. Now, if the broker charged a 2-pip spread, 2 pip commission and had 2 pips slippage, this would leave you with just 4 pips.
That shows how important a good forex scalping is if you are using a forex strategy that relies on small price movements. It is not uncommon to see a winning forex scalping system turn into a losing one, simply because of the difference in the brokers trading conditions.
What to look for in a forex scalping broker?
One of the first things I would look out for is a broker that uses ECN execution. Electronic Communication Network (ECN) forex brokers do not interfere with your trades as they have no dealing desk. Instead, they send your trades directly through to the forex market which meant that there should be minimal to zero slippage. This is preferred for scalping when compared to a market maker broker which does have a dealing desk which could cause a delay on your trades.
Forex scalping requires brokers with tight spreads. You should check to see what the spreads are for the currency pairs that you want to trade on the account type that is most suitable for your needs. The lower the spreads, the better. Some brokers will provide zero spread accounts which are probably best for scalping strategies.
Just keep in mind that if you are using a zero spread forex broker for scalping, they are likely going to charge you a commission fee. Therefore, you will need to work out if it would be cheaper to trade with zero spreads and pay a fee on top, or trade with higher spreads but without paying a commission fee. If you want to know the spread you will pay in advance, you could consider a fixed spread forex broker for scalping. However, spreads can still change when there is not enough liquidity in the market.
Some brokers charge a spread, some charge a commission fee, some charge both. If you think your scalping strategy will work best without paying any commission, then you could consider a forex broker with no commission fee. This will probably mean you will need to pay a spread mark-up to compensate for the lack of a commission fee. If your scalping strategy would work best with lower spreads, then search around for a discount broker that can help to save in trading fees in the long run.
In terms of forex trading, liquidity pertains to a currency pair’s ability to be bought and sold without causing a significant change in its exchange rate. A currency pair is said to have a high level of liquidity when it is easily bought or sold and there is a significant amount of trading activity for that pair. When a forex broker has good liquidity, they can usually execute your trades at the best prices.
I would keep a look out for a forex broker that has deep liquidity pools with liquidity being delivered from top-tier liquidity providers. If a broker uses in house liquidity, not only does it mean they might take the opposite position of your trade which can lead to a conflict of interest, it also means you may not get the most favourable prices.
Is forex scalping profitable?
Scalping the forex market can be highly profitable but it requires a lot of time, dedication and patience. When the profit margins are so tight on each trade, a single mistake can wipe out the gains from several winning trades, so risk management and discipline are essential to your success.
Not to mention, scalping strategies require the perfect broker and market conditions at all times. It is quite common to see the exact same forex scalping strategy give a completely different set of results simply due to a difference in broker conditions. This is why it is so important to choose only the best forex scalping brokers.
Which are the best forex brokers for scalping?
Thankfully, there are hundreds of forex scalping brokers to choose from. In addition to the things that we have already covered in terms of spreads, fees and execution policy, you should consider the range of currency pairs that they offer, platforms, tools, education, funding options and customer support. You can see a list of our best scalping forex brokers in the table below.
ASIC, BaFin, CFTC, DFSA, FCA, FINMA, FMA, FSA, FSCA, JFSA, MAFF, MAS, METI, NFA
Forex scalping pros & cons
- Lots of trading opportunities
- Can trade on any currency pair
- Can trade on any chart timeframe
- Can work in trending and ranging markets
- Quick way to compound an account if done correctly
- Require ideal broker and market conditions
- Hard to have a good risk to reward ratio
- Take a long time to master
Conclusion: do I need a forex scalping broker?
If you are using a forex scalping strategy then yes, a broker with good conditions for scalping could be the difference between good and bad results. Generally speaking, the lower the brokers spreads, commission and slippage, the more suitable they would be for using a scalping strategy. This can ensure you get the most favourable prices on the forex market and help you to save in trading costs over the long term. However, if you are holding positions for days, weeks or months, then it is not likely to make a big difference.
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