Why do most brokers frown over scalping strategies?

Posted By Robert On Wednesday, January 21st, 2015 With 0 Comments

Scalping is not allowed on most dealing desk platforms because the broker is often holding the other side of trades. Scalpers create an abnormal amount of transactions, which generally come too fast for the dealing desk to properly manage their risk. In addition, profitable scalpers compound the issue for dealing desk brokers as the dealing desk can wind up holding several losing positions after the scalpers have already gotten out.

Many market makers will tell you that prices are automated and/or derived from banks prices. However, what does “automated” or “derived” mean? In fact, dealing desks create their own prices. They will watch the prices of major banks and market makers and often shadow them closely so they can manage their own market risk. The dealing desk can also change prices to suit their own needs depending on what client orders they see and client positions are on their books.

Other brokers may quote best bid price and the best offer price from the broker’s network of banks and market makers, while adding a fixed mark-up to the price (typically about 1 pip on major currency pairs). This mark-up acts as a commission, meaning that the forex broker has no interest in where or how you place your trade.

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