Is forex scalping illegal? This is a question I get asked very often. You would often find brokers that say you cannot use scalping as your trading strategy on certain accounts. You also find some brokers that use this as an excuse not to pay you out when you request a withdrawal. Scalping in itself is not illegal, there are types of scalping not permitted at all and different forex brokers do have different policies on scalping. Make sure with your broker before opening a live account.
Forex Scalping Illegal Practices
When I say illegal in this sense I use the term quite loosely. There are some scalping strategies that are frowned upon and take a shape similar to card counting in casinos. There are 2 strategies which most brokers will not tolerate.
- Arbitrage – this is a method whereby a trader ( known as an arbitrageur ) compares pricing mismatches from 2 or more brokers and takes advantage of this. In most cases the price mismatch would happen due to a delay in the data feed of one of the brokers. If the broker can prove that you are using this method then they will not pay your profits. To find out more about arbitrage and to see how it works : http://www.forexbrokerz.com/forex-arbitrage this method, according to many brokers, makes forex scalping illegal.
- Churning – this method is used by introducing brokers (people who introduce clients to a forex broker and get paid for every trade that the client enters). Churning is entering into hundreds of trades every minute to get the maximum commission out of a forex broker. The goal is never to grow the actual trading account but rather to make commission which is higher than the original trading deposit thus resulting in a net profit. Using this method also makes forex scalping illegal according to brokers.
So is forex scalping illegal ? The answer is NO , there are methods which incorporate scalping which are not allowed by forex brokers but this does not make scalping illegal. Before opening a live account with a forex broker ask them whether or not scalping is allowed, most brokers nowadays do allow forex scalping.