In this article, we will try to highlight the most important aspects of scalping, things that a potential scalper should look out for and what makes scalping successful and profitable.
A successful scalping system requires fast order execution, low spreads and a stable MT4 platform. The bid and ask price (the spread) is central to successful scalping strategy and can affect the trading profits. A scalper needs volatile market conditions to generate trading profits.
Low Spreads
Traders that don’t use scalping or day trading systems open and close only a few orders each day. Spreads are important in any currency trading, scalping systems will open and close many orders during the day, the cost of the spread can limit profits.
A scalping robot opens 30 orders during one day on EURUSD, which has a spread of 3 pips, the volume of each order is consistent and each winning trades generate a profit of 5 pips. All losing trades generate a 3 pip loss, what will be the net gain/loss for day trading?
|
Winning Positions
|
Losing Positions
|
|
20 * 5 pips = 100 pips
|
10 * 3 pips = - 30pips
|
|
Total Gain is 70 pips
|
|
The scalping system has generated valuable gains. If we now include the cost of the spread, and repeat the calculation, let’s see the results.
|
Winning Positions
|
Losing Positions
|
Cost of Spread
|
|
20 * 5 pips = 100 pips
|
10 * 3 pips = - 30pips
|
30 * 3 pips = 90 pips
|
|
Total loss is now - 20 pips in total
|
|
|
The cost of the high spreads has generated an overall loss day trading. Profitable trades were double the losing trades and still generated trading losses.
If we repeat the calculation using a broker where the spread is 1.5 pips, we can see a forex trading profit.
|
Winning Positions
|
Losing Positions
|
Cost of Spread
|
|
20 * 5 pips = 100 pips
|
10 * 3 pips = - 30pips
|
30 * 1.5 pips = 45 pips
|
|
Total profit is now + 25 pips in total ($250)
|
|
|
A low spread when day trading equals more profits, always choose a scalping friendly broker. A profitable scalping system needs a broker that offers a low forex spread on the currency pairs traded.
Forex Brokers Scalping Policy
The forex scalping strategy is a trading strategy that not all brokers except, most forex brokers refuse to allow scalping strategies. Brokers delay order execution, re-quote to make scalping forex unprofitable. These are dealing desk or market making brokers and rely on clients that lose money.
Traders’ positions are hedged against each other without risking the broker. Since scalpers enter many small, fast forex orders, a broker is unable to cover its financial exposure efficiently and sooner or later terminates the scalpers account or slows down order execution, re-quotes to make sure the scalping system leaves the broker. Scalping systems are a nightmare and puts a dealing desk broker at financial risk.
These reasons are a factor to the massive growth of STP/DMA and ECN brokers for forex scalping systems. All orders are sent directly to the liquidity providers to ensure that there is no longer a conflict-of-interest. This makes the no-dealing desk broker model a must for any scalping system.
Slippage, no re-quotes and timely execution
Fast order execution and accurate prices quotes are essential for a successful scalping strategy. Since the scalping system trades many times during day trading, it must receive accurate quotes on a system and allow rapid execution.
Slippage (unavoidable fast moving markets) can cause difficulty in generating profits using scalping systems. If there are re-quotes, the trader will suffer losses so often that trading is useless. At Yadix, we believe that we deliver leading trading conditions, order execution and low spreads that are ideal for all forex scalpers and scalping systems.