February 16, 2021

We think everyone who has watched American westerns knows what a scalp is and why it used to serve as a war trophy. We will not dive into the history of the American Wild West, we will just explain that this word comes from the Latin scalpere, which means "to cut".

Scalping in Forex and Other Financial Markets

Accordingly, scalping in Forex is a strategy in which you try, like with a scalpel, to cut off a thin layer of profit. A scalper trader must make dozens or even hundreds of trades per day to convert these tiny pieces into a weighty profit, each of such trades sometimes takes only a few minutes. And it is necessary not just to open and close a transaction. It is necessary to analyze the market situation correctly in order to open a transaction at the right moment and in the right direction, and then close it in time, so that it brings a profit.
What normal person can withstand such emotional and physical stress? Dozens, hundreds of transactions every day. A normal person is highly likely to break down at some point and lose their entire deposit.

Scalping, High Frequency Trading and Robot Advisors on Forex and CFD1

About the "good old days" or a little from the history of trading

Things were different 100 years ago, when people gave orders by telegraph. You wake up in the morning, go to get a fresh newspaper, drink your coffee, read the stock market news, and then go to the post office to send a telegram to your broker: "so, they say, and so, dear, be so kind as to buy for me ...". That was the trade.

Scalping, High Frequency Trading and Robot Advisors on Forex and CFD2

Moreover, the process looked about the same 50 years ago as well. The client called the broker and gave a verbal trade order over the phone. The broker either executed it after receiving or decided to wait for a few more similar orders from other clients in order to get a better price by increasing the order volume.
It should also be borne in mind that brokers worked in noisy trading rooms filled with competitors, and all this noise, shouting and crowding could interfere with the exact and timely execution of the client's order. And what scalping can we talk about in such a case?
Surprisingly, many brokers were categorical to refuse to provide their services to scalpers not 100, not 50, but just 10 years ago, and some continue to do so until now. After all, there is a lot of work for a broker, but little commission.
But progress does not stand still, the Internet and computer technologies have made a real revolution in the financial markets. With the development of automatic trading (algotrading) and the advent of robot advisors - special computer programs that trade automatically according to a given algorithm - the number of transactions that one trader can make has grown tens, or even hundreds of times. And these transactions can take place on a variety of trading instruments, around the clock, 5 days a week, and as for cryptocurrencies - all 365 days a year.
Moreover, there has emerged such direction of algorithmic trading as High Frequency Trading (HFT).

All the Best Ideas Are Born in the Garage

The founder of HFT is Steve Swanson, a 21-year-old mathematician and computer geek who graduated from Charleston College (USA) in 1989.
Steve spent the lion's share of his time in the garage of his statistics teacher Jim Hawkes, where no one prevented him from creating algorithms, which then formed the basis of high-frequency trading.

(In general, it seems that all the best ideas are born in garages. Suffice it to recall Steve Jobs's garage, where Apple was born. Bill Gates and Paul Allen also founded Microsoft in a garage in 1975. The creators of such companies as Disney, Harley Davidson, Lotus Auto, Hewlett-Packard, Nike, Google and Amazon did not do without garages either. And John Lennon of The Beatles also began his musical career in a garage).

But back to Steve Swanson and Jim Hawkes. They installed a satellite dish on the roof of the garage, they received information about quotes updates with its help, on the basis of which their computer algorithms predicted prices for a particular stock within the next 30-60 seconds, and automatically made the corresponding transaction.
Steve Swanson was obsessed with the Star Trek series, which inspired the name for his development, BORG (short for Brokered Order Routing Gateway). If you have watched Star Trek, you will understand that we are talking about an evil alien race, capable of absorbing entire species of creatures, turning them into parts of a single cyber mind.
The first creatures that BORG absorbed were the market makers from trading rooms, who used to fill out orders to buy and sell securities manually. In contrast, BORG did it in one second. Profits averaged less than 1 cent per share, but Swenson's Automated Trading Desk (ADT) traded millions of shares a day.
By 2006, ADT daily transactions were around 700-800 million, or almost 10% of the total volume of the US stock market. It is clear that such an impressive success could not be overlooked by competitors, and many large brokerage companies and banks are using similar trading strategies today.

Scalping, High Frequency Trading and Robot Advisors on Forex and CFD3

HFT-Rocket vs NordFX Business Jet

It should be noted that while scalping with the help of robot advisors is available to almost every private trader who makes transactions from a home computer or using mobile gadgets - a smartphone or a tablet, HFT is an expensive thing that requires special equipment and a number of conditions.
And there comes a question: maybe you don't need flights on a "HFT space rocket", but your own fast and comfortable "business jet" is enough? Let us look at both.

The United States Commodity Futures Trading Commission (CFTC) formulated a number of key features of high frequency trading in 2011, including:
- the use of computer systems that do not require human intervention and implement extremely fast placement, cancellation and modification of orders in less than 5 milliseconds;
- availability of direct access to the market or dedicated data transmission channels offered by exchanges and other organizations in order to reduce network and other delays;
- placing a large number of orders that are executed or canceled immediately or within a few milliseconds.
That is, in other words, in order to engage in high-frequency trading, you need at least:
- to have super powerful computers,
- super fast internet,
- direct access to exchanges or to major liquidity providers, without intermediaries,
- significant funds for the simultaneous opening of a huge number of transactions,
- and of course, the appropriate software.

It is clear that an ordinary person cannot pull it all. But you shouldn't be upset, because here such brokers as NordFX come to the rescue of those wishing to start scalping.
- Super powerful computers? Why do you need them? As already mentioned, what you already have is enough - a desktop, a laptop, a tablet or a smartphone. Any of these devices will work.
- Speed? Of course, you will not get the trade execution in 5 milliseconds (0.005 seconds) in this case. But here, too, the speed is huge - less than 0.5 seconds.
- Direct access to exchanges? What do you need it for? NordFX works with many major liquidity providers, so commissions are lowest, and spreads start at 0 pips.
- Significant funds? You will receive them at NordFX automatically, immediately and without any collateral or unnecessary procedures, thanks to the leverage that reaches 1:1000. That is, you will be able to carry out transactions in the Forex market, which exceed your own capital 1000 (!) times. Simply put, with, say, only $100 in your account, you will be able to operate with an amount of $100,000. Is this not enough for you?
- And finally, the software. Once you sign up with NordFX (which happens online and only takes a few minutes), you will receive the world's most popular trading platform MetaTrader-4 (MT4) for free. You can trade currencies and cryptocurrencies, stocks and exchange indices, oil, gold and silver. And to do it both in manual mode and fully automatically, using special computer programs called robot advisors (sometimes they are also called expert advisors).
Where can you get them? You can buy them or download for free on the Internet. But it is better to do it using the same MetaTrader-4 platform. By clicking on the “Market” tab on it, you will be taken not just to a supermarket, but to a super-mega-giga-market, on the virtual shelves of which you will find more than 15,000 various expert robots that you can buy or rent. And more than 5,000 of them are offered by developers absolutely free. In addition, you can read a detailed description of the expert you like there, get advice from its developer, and test its work using the strategy tester built into the same MetaTrader-4 platform.

Scalping, High Frequency Trading and Robot Advisors on Forex and CFD4

Well, the boarding on the NordFX business jet has already been announced. Passengers, that is, traders, are asked to board.

Have a good flight!

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