Why Forex Brokers Hate Scalping?

Brokers hate scalpers

Brokers hate scalpers. If you are a scalping or thinking about using scalping as a trading strategy than you should this fact that most of the time brokers don't allow it. The reason is this that a broker needs time to move money when it is traded. You see, a broker is acting as a market maker for its clients. So the broker is forced to execute the client's buy/sell order even when the liquidity in the overall market is low.

I give you an example, suppose you are trading 10 lots of EURGBP. The market suddenly moves in the wrong direction 3 pips in just under two minutes. You get scared and close your trade immediately. You are out of the trade but your broker is stuck with this money in the system.

It takes time for the broker to offset a position in the interbank market. That sometimes can be 15-30 minutes or even more. You have made your quick profit but you left your broker to handle the debris. Who likes to handle the debris. Not your broker. What brokers want is long term position traders that keep their trade open for weeks. This way, brokers are able to offset the transactions with ease in the interbank market.

If you are trading a mini account then too you are causing problems for your broker. A broker has to accumulate many mini lots together and lump them into a standard lot before offsetting it into the interbank market.

Now many forex brokers use computer software to identify which one of their clients is using scalping consistently. Scalping means losing profits for the broker! So if the broker determines that you are a scalper and causing them to a profit loss, they are definitely going to take action. That action maybe a sudden banning of your account, my friend!

However, things are changing as banks are also entering into the retail market. Forex brokers may lose their business in the market as more and more banks enter directly into the retail market. But banks are also as aggressive against scalpers as brokers. Some brokers have very lean operations. They just have a website and a small support staff. They can license the MetaTrader Platform to an outside server that specializes in it. They can also outsource the dealing desk to another broker. You will be surprised at how much consolidation has taken place in the retail forex market over the last few years. What to do if your broker does not allow you to scalp? Always look for an ECN.

by: Ahmad Hassam

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