If you have ever considered scalping, one of the very first places you should look is here at our listing of the very best scalping brokers to choose one suitable for you.
Before that though, you may have other questions related to scalping or, in particular what we will look at here which is answering the question, is scalping trading illegal?
Here you will find all the answers you need and more to that question. Let’s take a closer look:
Table of contents
Is scalping illegal trading?
Scalping is a legal trading strategy. Though not illegal, it may not be allowed by all brokers. This is a matter of broker choice typically because it involves placing a high volume of trades in a short period. This may put too much pressure on broker systems, so some won’t allow it. Scalping is though completely legal.
Scalping illegal trading: which brokers allow it?
As mentioned, some brokers do not allow scalping. These tend to be the market maker brokers due to the fact they often operate their own internal markets without necessarily placing your trade on the underlying market. Some though, depending on their risk management model, may still choose to allow scalping, but you should check first.
Conversely, STP/ECN brokers generally allow scalping without restriction. The no dealing desk model that they operate allows them to place your trades directly on the open market without interference through their liquidity providers and network. Their profits come from spreads, and commissions, not through acting as a counterparty to your trade.
What is a forex scalping strategy?
Scalping is a fast-paced trading strategy with the goal to open a high volume of positions throughout a trading day. The aim is to make a small profit in each trade from pip movements and the positions are typically closed again within minutes, or even seconds.
As with many things, some brokers are better than others at providing the very best conditions for you to engage in scalping. Here are a few things you will need to be on the lookout for if you are searching for the best scalping broker:
The transaction costs and any fees or commissions will need to be as low as possible to avoid eating into your profit margins since you will be opening and closing many positions. You will also need a broker that provides for extremely fast, and efficient trade execution to lock in profits and reduce the risk of slippage.
Furthermore, you will need a broker that offers both high-volume trade identification and has very good market liquidity to make your trades at the price you need.
From the outside, it may seem, and you may feel, that scalping has relatively few risks. Still, there are always some associated risks as with any form of trading. You need to make sure then, that this style of trading is a fit for you.
As a scalper, you will need to be constantly monitoring the market and on the lookout for opportunities. Technical analysis and some auto trading strategies can be a big help here.
You will also need to make very fast decisions in the moment, of when to open and close trades. This means no time for hesitation. With that said, you also need to be very disciplined and set your exit limits on both sides whether it is for a profit per trade or know when to close at a loss.
Since profit margins are small in favor of high volume trading, it is worth remembering that one big loss can undo a lot of good work in many profitable positions while scalping.
What is the best time frame for scalping?
The scalping time frame is typically a very short one. The aim is to profit from market movements that are in many cases so small and fast that they are not even noticeable on a one-minute chart. This then means the normal duration for a scalping trade is seconds or minutes at the longest.
The only time a scalper will typically stay in a position longer than this is if it does not move at all.
Is scalping illegal trading FAQs
Is scalping trading profitable?
Forex scalping may be very profitable but it strongly depends on your discipline and patience. This is why you need to keep an eye on the markets and you should not hesitate when your trades need to be opened or closed.
Is scalping trading illegal?
Scalping trading is completely legal. Some brokers though won’t support it. Commonly these are market making brokers who often term scalping as “manipulation” or “abuse” since they are likely to lose money to a skilled scalper. This can be costly since a market maker acts as a counterparty to your trades.
Anthony is a financial journalist and business advisor with several years’ experience writing for some of the most well-known sites in the Forex world.
A trader turned industry writer, he is currently based in Shanghai with a finger on the pulse of Asia’s biggest markets.
He is a keen golfer with a very high handicap so when not helping you find the best broker for your needs, you may find him on the course or just as likely following any number of sports from the comfort of his sofa.
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