Why Do Brokers Restrict Scalping?

By Emil Sinclair
Published: Nov 25, 2021
Last Updated: Apr 18, 2024

As a popular strategy, scalping is quite controversial. One of the reasons is brokers' restrictions on traders who implement the strategy. Is it normal or just another scheme from cheating brokes?

For scalpers, it's useless to choose a broker with low spreads and fast execution if they tend to limit scalping. But isn't scalping just another strategy to find opportunities in the market? Why do brokers have to restrict or even ban scalping altogether? The following discussion may not fully cover the reason behind it, but there are some points that will make you realize why such brokers feel the need to adjust their trading policy for scalpers.

Brokers Restrict Scalping

Risk of Overloading the Server

This is the most common answer that is usually given when traders ask why brokers limit scalping practices. If you consider the principle of scalping, which is executed by opening many positions in a short time, this is quite reasonable. Aggressive scalpers can even open multiple positions within minutes.

If many scalpers perform that action several times a day, the broker's server can be overloaded. Such a situation can cause the price chart to crash, pending orders canceled, and positions not executed properly. These things can lead to countless cases of traders filing complaints due to significant losses.

See Also:
How to Deal with Problematic Brokers in 6 Easy Steps

Depends on the Broker's Type

The explanation above is convincing, but you may need to check on the broker's type to normalize it. An NDD (No-Dealing Desk) broker has no reason to prohibit scalping, considering the broker will connect client orders directly to the real market, not processing them in the 'broker-made market'. Clients in this type of broker should not be capable of overloading the server because their orders are delivered to the market.

In contrast, a Market Maker or Dealing Desk type broker distributes and executes client orders in their own market. Market Makers are also suspected of hedging their traders' positions. If many traders scalp, their system will be quickly overwhelmed, so they try to mitigate the risk by restricting or even banning the practice of scalping.

Is every broker not allowing scalping a Market Maker? The answer, of course, is yes. However, that doesn't mean you can judge a broker from their scalping policy alone. What you need to know is that not all Market Makers explicitly ban scalping. Those who are trusted, experienced, and committed to serving their clients with the best condition usually have solutions to deal with risks that come from their clients' scalping.

There are currently so many forex brokers that are probably Market Makers but allow their traders to scalp without minimum to no restriction. Tight competition between brokers inevitably pushes them to find ways to avoid server overload problems due to the high number of orders that scalpers execute. So if you come across a broker that still bans scalping explicitly, it's better to avoid it since it can be considered a Market Maker with no sense of competitiveness nor commitment to put traders' needs on priority.

How to Check Broker's Policy on Scalping

To detect a forex broker's policy on scalping, look for information on the broker's official website. The freedom of trading with scalping is a feature that is often considered an attraction. So, it is normal for brokers to put it on their official webpage, particularly on parts where traders can find the information easily. Suppose a broker does not provide any information about scalping policy, you can ask directly to the customer support. Check whether scalping is really allowed without restrictions or only allowed under certain conditions.

Final Words

Is it normal for brokers to disallow the use of scalping? The exact answer depends on the type of forex broker you choose. Suppose the broker claims to be an STP/ECN (Non-Dealing Desk), then the scalping ban imposed by the broker is unreasonable. However, if your broker is confidently promoting as an NDD or a hybrid, opposing scalping can be quite normalized for they want to avoid server overload.

Nevertheless, it's best to be careful when trading with such a broker because usually, the interests of Market Makers conflict with those of the traders'. If your condition allows you, look for an STP or ECN broker that does not have any restrictions on forex scalping. Then, make sure the broker provides low spreads and fast execution to support your strategy.

Emil Sinclair

An enthusiast for NFT art and cryptocurrencies, I have been involved in the digital market since 2018. With the rising popularity of non-fungible token on today's art, I am currently doing research on NFT art.

6 Comments

Linda Yeo

Jan 6 2023

I think most brokers these days offer scalping as a feature as more and more traders open accounts there. However, in my experience, scalping requires lower spreads, so not many brokers offer such low spreads. However, some brokers may offer the trader to have raw spread accounts that are ideal for scalping. The Raw spread account offers 0.0 pips , which may have higAAher fees than regular accounts but very low at spread's fee. And if I read the article, there was said that Market Maker of course don't offer scalping. It is interesting since me, for the first time heard about market makers. What is the type of broker anyway. And is it safe to trade?

Grace

Jan 6 2023

Linda Yeo: A market maker is a dealing desk broker. Yes, it's a kind of broker. There are two types of brokers in the forex market. There is a non-dealing desk (NDD) market known as STP and ECN brokers. These two types are mostly general brokers and the other is dealing desk (DD) brokers, known as market makers. Why are we called Market Makers? Because of the working mechanism they perform. Instead of passing client orders to other liquidators who are directly connected to the live market, they find orders for other clients. This is contrary to other clients. Such an example: Client A is trading long EUR/USD, so the broker found other clients short EUR/USD and gave them EUR/USD position of long position, something like that . Basically It's like a position swap, and if no one is found, the broker will go trade with the client. So basically it's like client-to-client or client-to-broker. Whatever such terms broker creates directly creates the market itself which has nothing to do with the live market. It's pretty scary, isn't it? In fact, brokers can customize their terms almost like they would on a live market and trade safely. As a note, you should find a regulated broker market maker.

Linda Yeo

Jan 6 2023

Grace : wow, thanks for the answer. Basically all trades on STP are sent from the broker to the liquidator instead of directly from the broker to the market, right? And as far as market makers go, that sounds pretty interesting, but It's still terrifying. Traders are still trading with them anyway. I think market makers are very risky because brokers like to manipulate charts and markets for their own benefit. When trading with clients, I presume this broker is actually profiting from them, if I right. And why can't they don't allow scalping when you said they were market creators in their respective fields.

Joey

Jan 6 2023

Linda Yeo: Let me answer maam, I agree with your statement about the broker can do manipulate and broker takes profit from their client because they do the trade with them. But that's their advantage, As you can understand, the STP or ECN Brokers actually have spread and commision, right? Meanwhile Market Maker mostly don't charge spread and commision but sometimes they still charge but in very little spread and commision. Meanwhile since the trader trades with broker, the speed execution will so fast and will not acquire thing like slippage. As my experience at trading with them, (I trade with eToro which is hybrid broker, that some instruments of trading are DD type), I never acquire that thing such as requote too. The key to trade with DD broker is see their regulated or not and their review at many website. Why DD broker don't allow scalping. As the article said at first, opening and closing many position at same times or I can said entry position with large amount will make the broker server lag and since you trade with them, they will not provide many liquidity because they also have limited resource. On the other side, trade with live market, your instrument will be more liquid since the market itself have higher supply of the trading instrument.

Wheeler

Jan 6 2023

Hey, I'm a newbie here, I want to ask about the articles here. in this article, it says brokers forbid trader to do the scalping. I would like to ask what is scalping? I have heard about scalping and day trading. Is it the same as day trading or is it different from day trading? Also, scalping may or may not be risky. What about the funds needed for scalping? Does it have to be big bucks? Nevertheless, I hope my question is answered. thank you very much

Yugi

Jan 6 2023

Wheeler: Dude, scalping and day trading are completly different each other although the time at closing trading entry is same which is at that day but still have very big different. Scalping which is the trading method that entry and closing position within minutes. Mostly they trade at minutes time rate. It is mostly hard to trade because need fast execution and fast thinking. Also you need in front of monitor and focus on it during the scalping session Meanwhile day trading is trading method that entry and closing position within day. For example, you open position at 7.00 AM, and then during 15.00 PM For example you close your order or even close it at tommorow. after all, scalping have target pips that fewer at their each trading position but they can open order with even hundred entry during scalping session so they need spread that lower and just like the article said, the broker, also need good server to handling their entry in order to avoid overloading server. Meanwhile day trading needs more pips to be profit, sometimes only 1-10 position that aquired at day trading depends on your margin.

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