Brokers and forex scalpers hate each other. Both are looking for profits at the expense of each other. Brokers provide liquidity to their clients by taking the opposite position in each trade. Most of the trades in the retail market are too small in size to be immediately offset in the interbank market. Retail forex broker is just a middleman between the small trader and the interbank market. A broker needs time for the lots to accumulate before offsetting them in the interbank market. Interbank market is the big boys club open to banks, hedge funds, institutional investors and corporations but closed to retail traders; small traders like you and me. Forex dealers and brokers act as the middlemen between the retail forex market and the interbank market. They need time to move money from one market to another. When a scalper makes quick trades, a broker gets no time to offset the positions in the interbank market. And if you are a successful scalper, you are eating into the profits of your broker. The broker will not easily forgive you for eating into their profits.
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.
Mini account cause even more problems for brokers. A broker has to collect and accumulate many mini account together and lump them into a standard lot before they can off load those positions in the interbank market. So if you are scalping with a mini account, you are causing a lot of trouble to your broker.
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!
Over the last few years, things have started changing in the retail forex market with more and more banks directly entering the retail market and dealing directly with the retail clients. As more and more banks enter the retail market, brokers may lose their business. But, to tell you the shocking truth, banks are also as aggressive against scalping as brokers are. So you should not relax. Many forex brokers operate as bucket shops. Most have only a website with a few hundred thousand dollars in their businss account. Most operated with a lean staff outsourcing the hosting of MetaTrader 4 to an outside server as they cannot afford to have a specialized server of their own. Most will even outsource the dealing desk too to another big broker. So you beware of your broker if you want to seriously dabble into forex trading. Always look for an ECN when opening a trading account. ECNs give better spreads as compared to brokers and they don't mind scalping as they are market makers themselves!
Author Resource:-
Mr. Ahmad Hassam has done Masters from Harvard. Learn this 10 minute a day Swing Trading Strategy that works for forex, stocks and futures. Get these FREE Forex Scalping Cheatsheets!
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