Market spreads and broker commissions are incredibly important to any trader attempting to scalp. The choice of broker for a scalper is thus a decision that can not be taken lightly.
When it comes to scalping it makes no sense to use a regular fixed spread forex broker. You are better off just plumping for an ECN (Electronic Clearing Network) broker that gives you direct access to multiple bank feeds. The spread on an ECN broker is dependent on the number of bank feeds as well as the overall volume transacted. While many ECN brokers have seemingly similar spreads one area where they differ widely is in their commission costs.
The three ECNs which most interest me at this point as potential candidates for scalping live are:
1/ MB Trading
2/ ADM Derivatives
3/ Interactive Brokers
I have had a backup account with MB Trading (formerly EFX Group) for several years now, so I’m pretty familiar with their trading platform and cost structure.
MB Trading does not have any charting capabilities as part of the Trading Navigator platform. It is thus necessary to use a third party charting package. I have been using NinjaTrader for my charting needs. It is a generally robust charting solution that also now allows a cut down version of the Trading Navigator platform to be used from within NinjaTrader. To complicate matters further, MB Trading does not currently provide any historical data so when starting up NinjaTrader it is first necessary to connect to Gain Capital to download historical data (using a dummy demo account) before switching to using the MB Trading feed.
MB Trading allows leverage usage up to 100:1 and accounts can be opened with as little as $400. They also support micro-lots (1000 units of base currency) which is a huge boon for anyone trading with a small account balance.
The biggest tick against MB Trading is their commission structure. They charge $5 for every $100,000 transaction ($10 round trip), which is double that of the two other ECNs I have short listed.
Their customer service has always been prompt and any issues I have had have always been resolved to my satisfaction. Their customer service is generally considered to be excellent.
ADMD offer slightly different setups depending on your account balance. If you have $25,000 or more you can jump straight in with their Currenex Pro platform.
If your pennies don’t quite reach that far but you do have $2500 you can opt for their Currenex Lite option (which goes by the name of Viking Trader). They allow 100:1 leverage.
In striking contrast to MB Trading their commission is only $2.25 per $100,000 traded ($4.5 round trip).
To balance things out they do have one restriction that I don’t like at all: the minimum lot is a 1 standard lot (100,000 units of base currency). This means that if you opened an account with the minimum amount of $2500 and traded just one lot of EUR/JPY (when EUR/USD was 1.4000) then your initial gearing is 56:1! Oww!
Viking Trader has the basic suite of charting features but the inability to go below a one minute timeframe (i.e. no tick or second options) means these charts aren’t really suitable for my scalping needs. On the plus side you can trade directly from the charts if so desired. ADM Derivatives do not currently have their data feed or historical data supported by any third party applications.
Their customer service seems to be good; any questions I have had during my trial period have been answered promptly to my satisfaction.
IB are a discount broker and seem to allow you to trade everything under the sun. Their forex commission rate is $2 per $100,000 ($4 round trip) with a minimum cost of $2.50 per order. This means that if any transaction is less than $125,000 in size you’ll pay $2.50.
To open up an individual account with IB you need to deposit a minimum of $10,000.
One area where IB are different than most other forex brokers is in their allowed leverage. For the major currency pairs they allow 50:1. For all cross currency pairs they only allow 25:1, which would be the case if I was to stick to trading EUR/JPY.
Lot sizes are also slightly quirky. The minimum lot size is 18000 of the base currency, but above that you can specify the lot size exactly. So you could buy 27389 EUR in EUR/JPY.
The IB trading plaform, TWS, is comprehensive and complex. While it does offer charting capabilities many third party trading applications offer better solutions, such as Sierra Charts.
There are also numerous third party trading platforms that can hook directly into IB’s backend. One such application that seems to be highly praised amoungst scalpers is ButtonTrader.
The flip side of being a discount broker is that there are many reports of terrible customer service.
If I had the starting capital to open an Interactive Brokers account I think that would be my first choice. I think I’m experience enough with most aspects of trading and computer technology to put up with crappy customer service on the few occasions when it might be required. The commission structure is good and the leverage limits are not an issue with a sufficiently funded account. I also like the ability to pretty much use whatever charting package and trading platform suits me best.
ADM Derivatives has good commission rates but the lack of micro or even mini lot sizes is an upfront killer. To use standard lots right off the bat I would want to have a large enough capital base that I’d start straight off with the Currenex Pro offering.
Which leaves me back with MB Trading for now. The ability to use micro lots allows me to keep my gearing in tune with my account size. The increased commission costs (compared to its competitors) means that I have be that bit more profitable with my scalping to see a positive return. I can demo trade using NinjaTrader hooked into the MB Trading Navigator platform to give a pretty decent approximation of how the same setup would work live.
I’m going to be demo trading this scalping approach for quite a while yet. No point in getting the cart before the horse.