When most novice traders enter the world of trading, they tend to get carried away by the initial excitement that trading offers and spare very little thought for one of the most important trading decisions that every trader must first make: choosing the best forex broker for scalping.
Not all brokers are created equal or cater for all types of trading styles. Selecting the right broker to suit your trading style should be the first crucial step to consider before you place your first trade.
In this article, we will take a look at the best forex brokers for scalping and what to look out for before you choose to open an account with them.
How to Choose a Broker for Scalping
Scalping refers to a trading style whereby traders seek to exploit small price moves by getting in and out of trades quickly, often multiple times a day. If this is the trading style that you would like to pursue, then it is of the utmost importance that you select a broker that is well-regulated, highly trusted, and offers the right conditions and tools for you to scalp the forex market.
It is also important to note that not all brokers allow scalping, so always make sure that you have read and understood the terms and conditions that are set out before you open a trading account.
Finding out that you are not allowed to scalp after you have signed up and deposited your money will undoubtedly be very frustrating, not to mention a waste of time as you will have to withdraw your funds and start the process all over again.
Apart from choosing a reputable broker, the best forex broker for scalping will also offer low spreads, a wide variety of good technical tools, fast trade execution and excellent client support.
Below in this article, we will go into greater detail about these important factors to help you make the best-informed decisions when selecting a broker.
Low Spreads
Due to the small price movements and the large number of trades that scalpers make during a day, trading costs can quickly rack up and even turn a good scalping strategy unprofitable.
Take the EUR/USD pair, for example, where the spread is often 3 pips. Hypothetically speaking, if your scalping strategy were to target 5 pips profit per trade while only risking 3 pips, and your scalping strategy wins 2/3 trades over 60 trades on average, then you can calculate your net gain/loss as follows:
(Profitable trades) – (losing trades + cost of the spread) = Net profit/loss
(40 x 5 pips) – (20 x 3 pips + 60 x 3) = -40 pips in total
What this simple calculation shows is that although most of your scalping trades reached their target objectives, you would have ended up with an overall loss instead, all because of the cost of the spread.
Now, let’s take the same formula, but this time we factor in a cost of only 1 pip per spread.
(Profitable trades) – (losing trades + cost of the spread) = Net profit/loss
(40 x 5 pips) – (20 x 3 pips + 60 x 1) = +80 pips in total
This time around, the same scalping strategy would have turned a net profit of 80 pips, with the only variable in the calculation being a reduction in the cost of the spread.
As traders, we only earn money on our profitable trades, but we pay the broker for each position we take whether it is profitable or not. Scalpers should therefore carefully compare various brokers and select the ones with the lowest spreads before they decide to open an account with them.
Technical Tools
The majority of scalping strategies rely on technical analysis rather than fundamentals. It is therefore very important that a scalper has access to the best technical indicators available to assist with their decision-making.
Apart from the technical aspects of trading, the trading platform supplied by a broker should be easy to navigate yet provide you with enough functions to personalise it to your liking.
Scalping requires a lot of concentration, and traders will often spend a considerable amount of time staring at their screens.
Having the ability to open multiple charts with different timeframes and changing the chart background to a darker colour that is easier on the eye is another consideration in finding the best broker for scalping.
Trade Execution
As a scalper will likely be placing many trades over the course of the day, it is crucial that a broker supplies a trader with timely, accurate quotes on a trading platform that allows rapid trade execution.
With the small moves that scalpers aim for to meet their target objectives, they cannot afford to have to deal with slippage or any misquotes.
If there is slippage, the scalper will be unable to trade most of the time. If there are misquotes, they will suffer losses so often that trading will be impractical. Also, we should not neglect the emotional pressures that will be caused by such a stressful, difficult and inefficient trading environment. Scalping is already a burdensome activity on one’s nerves, and we should not agree to suffer the added trouble of broker incompetence on top of all the other problems that we have.
Conclusion
Scalping is a high-intensity technical trading method that requires a lot of focus, and apart from needing a good strategy, a highly competent and efficient broker is just as important if you wish to make a success out of scalping the forex markets.
Hopefully, this article provided you with the information you need to select the best forex broker for scalping, and therefore you can focus on the business of trading and have the peace of mind that you will not have to deal with issues that can make scalping an unprofitable endeavour.
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