Scalping Trading UK Guide 2021
Scalping trading in the UK is a popular day trading strategy, the goal is to win as many trades as possible. All traders rely on a strategy that aligns with their financial goals. When it comes to short-term trading, there are dozens of such styles to choose from.
Scalping is one of the most extensively used strategies in the online trading scene. It specializes in making profits from minute price movements. As such, traders need to have access to real-time data and charts to take advantage of gaps in the market.
If you are keen to find out more about scalping trading UK - this guide will cover all you need to know.
We’ll explain how UK scalping trading works and highlight top scalping trading strategies. We’ll also take a look at top UK broker you can use to start scalping today.
What is Scalping Trading UK?
In its most basic form, scalping trading is the process of targeting frequent and small price movements of an asset throughout the day.
Scalpers assume that most assets will finish the first phase of an initial price movement. From there, the direction of the said movement cannot always be predicted. In other words, some assets might stop rising in value, whereas others continue in an upward direction.
As such, scalping traders rarely keep their positions open for more than a few minutes. On occasions, traders will enter and exit the market within a matter of a few seconds.
Most importantly, a scalping trader places many positions during a single trading day. By the time the markets close, if you make more successful trades than losing ones - you will likely end the day in profit.
Scalping trading can be a bit challenging to understand for newbies.
With that in mind, let us provide you with an example to explain how scalping trading UK works:
- Let's say you want to try scalping trading on the forex pair GBP/USD.
- The current exchange rate of GBP/USD is 1.3714.
- You place a buy order to enter the market at 1.3718.
- You want to lock in your profits at 1.3721 - so you place a take profit order.
- You also set up a stop-loss order for 1.3716.
In this scalping trade, there are two possible outcomes:
- If the price of GBP/USD reaches 1.3721 - your take-profit order will kick in, and you make a profit of 3 pips.
- If the price of GBP/USD falls to 1.3716 - your stop-loss order will be triggered, and you make a loss of 2 pips.
As you can see from this trade, scalping traders target extremely small profit margins while ensuring that the stop-loss is also set at a minimum. For this reason - scalping trading UK is considered one of the lowest-risk strategies.
With that said, scalping trading UK can also be quite intensive, as you will need to track the markets around the clock. You need to be ready to seize any trading opportunity without delay and ensure that the right orders are set in place.
In order for scalping to be successful, you also need to have in-depth knowledge about trading fundamentals.
In addition - you should also employ a strict attitude towards entry and exit strategies, along with other trading orders. This will allow you to lock in profits and keep the risks to a minimum.
Moreover, setting the right trading orders will eliminate the need for you to manually look over every trade you set up. Whether the market aligns with your speculation or against it, you will be able to control the trade and keep losses in check.
This is crucial because, if not careful - a single significant loss could wipe out all of the profits you made in the trading day, as margins on scalping tend to be ultra-small.
Consequently, scalping trading UK is not a strategy that you can master overnight. Typically, this style is utilized by professional traders who are well-versed with the ins and outs of the market.
What Assets are Best for Scalping Trading UK?
The concept of scalping trading can be used on practically any asset class. However, there are a few aspects that make some securities more appealing for scalpers.
This includes the following:
If an asset is considered to be highly volatile - it translates to wider trading ranges. The more volatility, the easier it is for you to find scalping trading opportunities.
High Liquidity and Trading volume
As a scalper, you want to look for markets with the most liquidity. That said, it is important to note that although some trading markets might be open 24 hours a day, trading volume is high only at certain times.
For instance, the London forex market opens at 9 am GMT. When the New York forex market opens at 1 pm GMT - it adds to the volume of forex traded.
As such, you will see a high volume in trading when these markets are open simultaneously. The other major markets that can be considered are Sydney and Tokyo.
Taking these factors into account - stocks and forex are most preferred by scalping traders. On top of being highly volatile (some instruments more so than others), they are known for their high liquidity and trading volumes.
Meaning, traders will not have much difficulty in opening and closing multiple positions throughout the day.
Cryptocurrency is another trading market that widely uses scalping trading systems. However, while some coins such as Bitcoin and Ethereum offer high liquidity, a large number of digital coins trade in the low-volume range.
As such, you have to be very careful in choosing the specific cryptocurrency for your scalping strategy. The same rules apply for ETFs and commodities as well.
Scalping is also possible on options and futures. But these tend to be relatively more risky because derivatives are almost always leveraged.
Ultimately, choosing the right asset for your scalping trading UK needs requires you to find the right balance between volatility, liquidity, and trading volumes.
Read More: Complete Guide to Online Trading in the UK
Requirements for Scalping Trading UK
Apart from the specific asset, there are a few other factors that will contribute to the success of your scalping strategies.
Zero Commission Rates
For those unaware, trading commissions are direct fees charged by your online broker to execute trades on your behalf. Your profits on scalping will be significantly less if you have to pay commission to your broker - as the profit margin itself is going to be minute.
As such, it is best to choose an online broker that offers you 0% commission on your chosen market.
To explain further:
- Let's say you want to trade at an online brokerage site that charges you a commission of 0.50% per slide.
- This means - you will be paying 0.50% when you enter a trade, and then again when you exit it.
- You place a £100 buy order on an asset.
- Using the scalping strategy, you hope to make a 0.2% profit.
- This translates to a profit of £0.20.
However, you will also need to factor in the commission.
In this example, you will essentially be closing the trade with a net loss, even after accounting for the aforementioned profit.
On the contrary, if you trade on a platform like eToro, you will pay 0% commission on all assets - thus allowing you to make the most of scalping trading UK.
Similar to the commission, the spread is another fee that you pay to your broker. It is defined as the difference between the bid and ask price of an asset.
Spreads are not a serious concern when trading on a medium or long-term basis. However, when it comes to short-term strategies such as scalping, you need the spread to be as tight as possible.
After all, with scalping trading in the UK, you are looking to make extremely low-profit margins. Crucially, your profit needs to cover the spread just to break even.
In other words, when scalping trading UK - you want to work with online brokers who over the tightest spreads in the market.
As we mentioned earlier, trading volumes give you access to sufficient liquidity levels - an aspect sought after by scalping traders. This includes financial securities such as forex, blue-chip stocks, and commodities such as gold and oil.
Avoid Using Market Orders
Market orders convey to your chosen broker that you want the order to be executed at the next available price. However, there could be some slippage - meaning the price might be slightly different from the time you placed the order, and the time it is executed.
Given that scalping targets low margins, even this small variance could eat away your profits - making your strategy unviable.
Therefore, it is best for scalping traders in the UK to opt for limit orders - where you can specify at what price you want to enter the market. Your trade will only be opened when the price of the asset matches the limit order price you set.
If not, your position will remain pending until you cancel it manually.
Accessibility to Leverage
Leveraging enables you to magnify your profits - by allowing you to trade with more than what you can afford to stake.
For instance, if you have only £100 in your trading account, you can apply the leverage of 1:20, and trade with £2,000.
While leveraging can be beneficial, it can also amplify your losses. Consequently, this method is recommended only for trading pros.
However, scalping might be one exception to this caution. This is mainly because you will be aiming to make low-profit margins, and so gains of 1% to 2% is not going to make the process financially worthwhile.
As such, having access to leverage can provide you with sufficient bankroll. If you balance this with the right risk management - you can also mitigate the risks involved.
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Scalping Trading UK Strategies
Although scalping is a trading strategy by itself, there are a few different ways to apply the concept.
Traders make sure to use several technical indicators in order to arrive at their trading decisions. Your individual approach will define how you choose the entry and exit points in a trade.
Let us take a look at the most popular scalping trading UK strategies.
In trading, the consolidation period is when the price of an asset moves within a tight range.
- Let us say that the price of IBM stocks has been in the range between £80 to £82 for a few days.
- This means that the stock has not moved below £80, nor over £82 - translating to a price range of 2.5%.
- This presents an ideal range for an experienced scalping trader.
In such cases, the trader will place multiple traders within this range repeatedly, until the IBM stock price breaks out of this consolidation period.
- A buy order will be placed just above the bottom range of £80, and
- A sell order will be placed just below the upper range of £82.
As long as the stocks remain in this range, the scalping trader can continue to make profits. That said, the trader will also have to ensure that they are protected in case the stock breaks out.
This is where stop-loss orders come into play - as they will be positioned just below and above the two ends of the price range.
Moving Average Trading
5-minute Moving Average, Source: TradingView
Moving averages is a technical indicator often employed in chart analysis. It identifies the trend direction of an asset in order to determine its support and resistance levels.
When calculating the moving average, you have the option to customize the time frame you want. In scalping, the time frames used tend to be in minutes rather than days. A shorter time span will give you more sensitive price movements.
- For instance, to start with, you take a long moving average of a 200-minute period to understand the direction of the price of the asset.
- Simultaneously, you also set up moving averages for shorter time frames - such as for 5 minutes and 20 minutes.
- If the longer moving average is trending bullshit, you can choose to enter the trade when the 5-minute moving average surpasses the 15-minute moving average.
- Such a price movement often indicates that a powerful upward trend is likely to happen.
It is best to exit your trade at the first sign of a price reversal - rather than waiting for the 5-minute MA to move back below the 15-minute MA.
Low-Risk, High-Reward Ratio
Another popular UK scalping strategy is to find opportunities with low-risk, high-reward ratios. As you can guess, it is a trading approach that even newbie investors can attempt.
Put simply, you place your take-profit and stop-loss orders with a specific risk-reward ratio in mind.
- Let us say you want to follow a ratio of 1:15.
- You want to trade gold - which is currently priced at £1812.07.
- You place your limit order to enter the market at £1812.10.
- Your take-profit order is set at £1812.25.
- Your stop-loss order is set at £1812.09.
As you can see, if your take-profit order is triggered - you stand to make a profit of 15 pips.
On the contrary, if your stop-loss is triggered - your losses will be limited to 1 pip.
In this trade, your risk-reward ratio is 1:15, which translates to a low-risk and high-reward position.
Practically, you are likely to make more losses than gains. After all, you will meet the stop-loss order as soon as the price of gold moves against you by 1 pip.
However, you only need to win one trade to gain 15 pips. In other words, you will have to win one trade for every 15 trades to break even. If you win more than that, you will finish the day with a profit.
Parabolic SAR Trading
The parabolic SAR indicator is used to highlight the direction in which an asset is moving. In other words, this strategy can predict whether the asset is headed for a bullish or bearish trend.
The indicator is represented as dots on a chart. If the dots appear below the current price level, then it means that the price trend is bullish. If they are above the current price level - the price trend is bearish.
With this scalping strategy, you can open a position as soon as the parabolic SAR shifts from above the price bar to below it - or vice versa. You can close your trade when you see this price momentum starting to fade.
Stochastics Oscillator Trading
The Stochastic Oscillator is used when the market is moving sideways instead of in an upward or downward direction. As such, the indicator is highly suitable to find trading opportunities for short-term strategies, such as for scalping trading UK.
This oscillator is made up of two lines:
- One is a fast indicator %K line, and the other is a slow indicator %D line.
- If the %K line moves above the %D line, it means that the price action has shifted to a bullish trend.
- If you are trying to capture an upward price movement, you can open the trade.
- When the %K line falls back below the %D line, you can exit the trade.
The process works in reverse if you are seeking a bullish price movement.
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Benefits of Scalping Trading UK
As we have mentioned, scalping trading UK is not the easiest trading style to learn. It can take considerable time to get familiarised with different trading strategies and technical indicators.
Moreover, you need to be constantly on top of the market, not to miss even the smallest of price movements.
In spite of all that, scalping does offer a few notable benefits for UK traders.
Here are the best things about Scalping trading:
✅ Low-Risk Levels
Scalping trading UK is best known for being a low-risk short-term strategy. You are aiming to make only small profit margins, and the losses you might make will also be small. Moreover, you can define exit strategies with the help of stop-loss orders.
✅ Plenty of Trading Opportunities
Scalping traders do not have to tie themselves to a single pattern or a specific technical indicator. They can look for opportunities across a wide spectrum of assets - from stocks to cryptocurrencies.
Furthermore, if you are passionate about trading, scalping can keep you engaged on a full-time basis.
You are looking at placing dozens, or even hundreds of trades per day.
✅ Make Profits in Consolidated Markets
Unlike other popular strategies, scalping trading also allows you to capitalize on a consolidated market. In fact, the longer the period of consolidation, the more chance you have to take advantage of the price movement.
✅ Control your Bankroll Management
It is not uncommon for traders to lose sight of their risk mitigation strategy and make irrational trading decisions. However, in scalping trading UK, you are focusing on making ultra-small but frequent gains.
An effective scalping strategy will always make use of take-profit and stop-loss orders and allows you to take better control of how much money you are willing to risk.
Scalping Trading UK Risks
While the risks of individual scalping trades are relatively low, on the whole - the strategy can still carry significant risks.
Here is a list of some of the risk factors that you should consider before using engaging in a scalping trading UK strategy.
Here are the weaker parts about scalping trading:
❌ Steep Learning Curve
As we said earlier, it might take months, or even years for one to learn the ropes of scalping trading. You not only need to know the fundamentals of trading; you also have to have an in-depth knowledge of technical indicators.
Moreover, you will have to be constantly polishing your strategies, performing backtesting using a demo account.
In spite of all your efforts, market conditions can always change in the bat of an eye. As such, you will have to adapt and evolve along with the market continuously.
If you are completely new to the world of trading or do not have sufficient time to devote to it - it is best not to choose a scalping strategy.
❌ Significant Bankroll Required
As we have emphasized throughout this guide, as a scalping trader - you target small margins and place multiple trades throughout the day. That said, if you are staking only small amounts, you will not turn profits that are worthwhile.
As such, you will need to trade with larger amounts so that the small profits you make can add up to a viable sum.
Another way to bankroll your traders is by applying leverage - however, this also comes with the cost of added risk.
❌ A Single Error can be Costly
It takes experience to balance the risks and rewards involved in a scalping trade. For instance, you can make 10 successful scalp trades with 2 pips per trade.
But if you lose a single trade that costs you 20 pips - you will need to make another 10 winning trades just to make back the money you lost.
As you can see, even a small error can be extremely costly.
Scalping Trading UK Tips
Scalping trading can be overwhelming, especially if you are only starting out in the trading scene.
Here we have a few tips that will increase your chance of protecting your capital while you try your hands at scalping.
Tip 1: Use 1-Minute Charts
As the name suggests, 1-minute charts track the price movement for every 1-minute period. This particular chart is of no particular use in other trading strategies, as the time frame is too short.
But when it comes to scalping trading, the 1-minute chart can be an extremely powerful tool. It is best that you get comfortable with this chart before trying your scalping strategy.
Tip 2: Define your Profit and Risk
For any type of trading, it is crucial that you know what your goals are. This includes deciding how much profit you intend to make, as well as how much you can afford to lose.
In terms of scalping, as you are placing numerous trades - you need these parameters to stay constant in order to ensure that your trades are systematic and free from emotional decision making.
For instance, if you want to target 0.5% profits per position, you should set the take-profit for all your orders at 0.5%.
Likewise, you should also decide your stop-loss prices beforehand and make sure they remain constant.
Tip 3: Choose Specific Financial Assets
Although scalping trading can be utilized for all assets, some instruments tend to experience more volatile movements during the trading day.
Identify what the most suitable assets are based on the metrics we had mentioned earlier.
Instead of trying scalping on multiple assets, it is best to stick to one or two. For instance, if you prefer forex, go for high liquidity pairs within the asset category.
In doing so, you can dedicate your time to gaining advanced knowledge on these securities alone, and give yourself a better chance of placing more successful scalping trades.
Tip 4: Use Leverage Only When Necessary
There is a misconception among novice traders that scalping trading is worthwhile only when you apply leverage on trades. Although leveraging can magnify your gains, you should also remember that it can multiply your losses as well.
Furthermore, leveraging isn't necessary if you have a high-win ratio, that is built on an effective bankroll management strategy.
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How to Choose an Online Broker for Scalping Trading UK?
Online brokers play a significant role in the success of your scalping trades. After all, your profits often depend on trading fees as well as the timing of your order executions.
That said, the internet has hundreds of online brokers for you to pick from.
In order to make the process less daunting, we have created a list of considerations so that you can find a broker that is most conducive for your scalping trading needs.
When it comes to online scalping trading, the first thing you need to assess is the regulatory standing of your chosen broker. You want to select brokers who hold a license from at least one respected financial body.
In the UK, you need to find a broker that is regulated by the Financial Conduct Authority (FCA).
For instance, eToro is a well-known online broker that holds licenses from not only the FCA, but from ASIC, and CySEC as well. Moreover, the platform also has 17 million registered users that can attest to its reputation.
Trading Commissions and Spreads
As we discussed earlier in the guide, commissions and spreads can directly affect how much profit you make through scalping trading. Therefore, it is best to look for brokers who offer zero commissions, and tight spread on your chosen assets.
Once again, eToro comes out ahead in terms of trading fees. The platform allows you to trade all assets at 0% commissions and competitive spreads.
In addition, you also need to be wary of any administrative fees such as inactivity fees, and deposit/withdrawal charges that you are liable for while using the broker's services.
Advanced Technical Analysis Tools
Scalping trading is a strategy that heavily relies on charts and technical indicators. You need the right tools that can offer you insight into the price movements of the asset for the shortest time grames possible.
Choosing a brokerage platform that is integrated with technical indicators can save you both time and effort. To start with, they should give you access to Fibonacci Retracement levels, moving averages, charts, and the RSI.
How to Start Scalping Trading UK
We will complete this guide by explaining how you can start scalping trading in the online space using your brokerage account.
From our research, we found that eToro is one of the best choices for online traders to engage in scalping trading.
The platform not only offers zero commissions but also gives you access to thousands of tradable securities. Moreover, your funds and trades will also be regulated by the FCA.
Considering these factors, we will use eToro as a reference to show you how easy it is to get started with scalping trading UK.
Step 1: Open a Trading Account
To get started, you need to create a trading account on eToro. The process is quite simple and takes less than 10 minutes to complete.
The platform requires you to provide your basic information such as full name, address, date of birth, and email.
As an FCA broker that complies with KYC, eToro will also need a copy of your passport/driver’s license and a utility bill to verify your identity. Once you have uploaded the documents, your account will be verified within a few minutes.
Step 2: Deposit Funds
eToro gives you access to a demo account, where you can practice your scalping strategies using paper money. The account comes loaded with a balance of $100,000 and allows you to make use of all functionalities offered by the platform.
In case you are ready to trade in the live markets, you first need to add funds to your trading account.
eToro offers you several payment methods to choose from - including debit cards, credit cards, bank transfers, and e-wallets such as PayPal, Neteller, and Skrill.
The minimum deposit you need to make comes to $200 or about £145
Step 3: Place a Trade
Now, you can proceed to place your first scalping trade. If you have an asset in mind, you can find it by searching for it on eToro.
Once the trading page of your chosen asset appears, you can click on 'Charts' to access the price action.
Here, you can customize your chart based on type as well as adjust the time frame of the pricing movements. For instance, for scalping trading, you can choose a 1-minute candlestick chart.
When you are ready to take the plunge, select the 'Trade' option to set up take-profit and stop-loss orders.
Confirm the order to execute your first commission-free scalping trading on eToro!
Scalping trading UK is a great way to take advantage of the minute price changes of an asset. Traders choose to open and close numerous positions throughout the day - with the hope of making small profit margins.
The main advantage is that the risk involved with each individual trade is relatively limited, thus keeping your potential losses to a minimum.
With that said, if you want to be successful in scalping trading, you should have a firm grasp of the different strategies. Moreover, you also need to find a reliable broker that charges zero commission while giving you access to various scalping trading tools.
If you are on the lookout for an ideal broker for scalping trading - we recommend the FCA-regulated platform eToro. The broker is perfectly beginner-friendly and has a demo account that you can use to backtest your scalping trading UK strategies.
eToro – Best UK Scalping Trading Platform with 0% Commissions
eToro have proven themselves trustworthy within the industry over many years – we recommend you try them out.
67% of retail investor accounts lose money when trading CFDs with this provider.
Which timeframe should I use in charts while scalping?
As scalping is a short-term strategy, it is best to use 1-minute charts. This gives you a comprehensive view of the price movements of the chosen asset on a minute by minute basis.
What trading fees are involved in scalping trading UK?
You need to find a broker that offers zero commission and tight spreads - such as eToro.
What is the minimum number of pips I need to make while scalping?
Seasoned scalping traders target a gain of 5 to 10 pips per position, on average.
Is it possible to automate scalping trading UK?
Yes, you can find online trading systems that facilitate automated scalping trading. This will require you to install a separate software into a trading platform such as MetaTrader 4.
The software will perform scalping on your behalf and place the appropriate orders. However, it will require significant research for you to find the best automatic scaling trading system that fits your goals.
How many trades should I place a day while scalping?
Seasoned scalping traders place dozens of trades throughout the day.
What is the minimum amount required to do scalping trading UK?
As you are placing several trades a day, you are likely to need a substantial bankroll to make the scalping process worthwhile. However, if you are short of capital, you can also apply leverage on your trades - as long as you are aware of the risks involved.
How much money can you lose when scalping trading?
Scalping trading, like all other types of trading, comes with its own risks. The amount of money you can lose will depend on the specific trades you make.