As Forex traders get more savvy in programming custom indicators and trading robots, the pattern of the prevailing interest to Forex scalping opposing to other trading methods is very evident; many trading Expert Advisors are based on scalping tacticks.
This tendency cannot leave Forex brokers without worries. There are still many of them who keep accepting all trading EAs, but other brokers already took or are taking measures to protect themselves from successful scalpers with automated scalping robots.
What it means to us, scalpers, if we want to use a scalping EA.
Below I'd like to give some tips and warn about possible pitfalls when it comes to using automated trading with a scalping EA:
1. Be sure to read the Term & Conditions when applying for a trading account. Look for such words as "scalping" or "snipping" and trading conditions applied to it.
Don't complain later if you missed it and caught with a scalping EA.
2. Do ask your Forex broker directly how they treat scalping as well as scalping EAs.
Some brokers have a requirement for a minimum time of holding a position open (30 sec, 60 seconds etc), yet they would tell you that scalping is still allowed. But they may not tell you about the limits, if you don't ask correct questions.
3. Ask if there are any penalties in stock for you if you're found as a scalper.
Forex brokers don't hesitate to apply very high penalties to scalpers, where usually a scalper is stripped off all his profits up to 80% at once.
4. Be aware that Forex brokers know about major scalping EAs, such as FapTurbo, for example. So, if you're after buying this robot, keep in mind that you'll have a very limited to none choice of brokers you can trade this robot on. (Btw, the mentioned robot requires 1 pip fixed spread, which is not widely available, normally you'll find it with some limited number of dealing desk brokers, but many of them aren't trustworthy at best).
5. Be also aware that Forex brokers have capabilities to recognize new scalping EAs, which, if found to be harmful to their financial well-being, could be easily counter traded to the disadvantage of a scalper.
6. The worst case scenario, however, (beside penalties) is when you're identified as a scalper and put on a manual execution with a broker; or, if there is no dealing desk to put you on, a broker can still put you on a automated simulated dealing desk, which virtually does the same thing - delays your orders, re-quotes, increases spreads etc, e.g. does everything to make your scalping EA fail.
I hope this gives you an idea how challenging it could be to trade with a scalping EA under such close monitoring from brokers.
I forgot to mention that many scalping EAs require fixed spreads, because there is a strict money management requirement in the base of a scalping robot in order to give it a winning edge.
Fixed spreads can be found only with market makers (brokers, who trade against you and don't want to see you winning too much), and with STP brokers, who route your orders to the largest market makers (although an STP broker cares less about your winning trades, it still cares because of a partnership relationships with a marker maker, and that's what counts when it comes to winning large amounts of money by scalpers).
As you can see, having a scalping EA is not always enough. A scalper also needs to be a smart sophisticated trader to be able find a suitable broker (with scalping it is better to seek acceptance from ECN brokers) and create an EA that wouldn't "bug" any side, yet make fair profits for a scalper.
Good luck!
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Wednesday, February 24, 2010
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