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Scalping Trading UK Guide 2020

There are many systems that you can deploy when trading assets online. In this guide, we explore a popular strategy known as scalping.
Kane Pepi
Author: Kane Pepi

Last Updated: October 12, 2020

Scalping is a popular trading strategy that seeks to profit from ultra-small pricing movements. The trader will often place dozens, if not hundreds of buy and sell orders throughout the day.

Due to the small profit margins being targeting, alongside the short amount of times that positions remain in play, scalping trading is often viewed as a low-risk strategy.

With that in mind, this guide will explain everything there is to know about scalping trading in the UK. We unravel how the strategy works in simple terms – alongside a walkthrough of how you can start scalping assets online today.

Table of Contents

    How to Start Scalping in 3 Quick Steps

    Looking to start scalping assets right now? If so, follow the 3 steps outlined below to deploy your UK scalping trading strategy!

    Step 1: Open a Trading Account

    Open a brokerage account with with an FCA-regulated platform that is suitable for scalping.

    Step 2: Deposit Funds

    Deposit funds to your account by debit or credit card, e-wallet, or bank transfer.

    Step 3: Place a Scalping Trade

    Set up a buy or sell order, select your stake, choose your leverage ratio, and place the trade.

    What is Scalping Trading?

    In a nutshell, scalping is a popular online trading strategy that is typically utilised by seasoned investors. With that said, by having a basic understanding of the fundamentals, scalping is potentially suitable for traders of all shapes and sizes. The main concept is that scalpers look to target super-small profit margins.

    SCALPING TRADING GUIDE

    In order to do this, the scalping trader will often open a position and then close it just a few minutes later. In some cases, the trade might remain in play for a matter of seconds.

    • Although the scalping trader will target minute margins, the individual will likely place dozens of positions throughout the trading day.
    • In theory, as long as the trader has more successful trades than losing ones, they will finish the day in profit.

    It is important to note that for scalping to be successful, the trader must have a strict set of entry and exit conditions. That is to say, the trader must ensure that sensible stop-loss and take-profit orders are deployed. In doing so, the trader will lock in their gains if or when the take-profit price is triggered.

    This means that there is no requirement to manually close a position. Equally, if the trade doesn’t go to plan, the stop-loss order will ensure that the scalper’s losses are kept to an absolute minimum. After all, a sizable loss could wipe out all previous gains – especially considering the ultra-small margins that are being targetted.

    Example of Scalping Trading

    Scalping trading can be a confusing strategy to understand if you’re new to the online investing scene. Let’s look at a quick example in order to clear the mist.

    • You are using a UK forex trading platform to scalp GBP/USD
    • The current price of GBP/USD is 1.3208
    • You place a buy order with an entry price of 1.3210
    • You set up a stop-loss order at 1.3209
    • You set up a take-profit order at 1.3212

    Once the above orders are placed, only one of two things can happen:

    • If your take-profit price is triggered at 1.3212, you make a profit of 2 pips
    • If your stop-loss price is triggered at 1.3209, you make a loss of 1 pip

    As you can see from the above example, scalping trading in the UK not only targets super-small profit margins, but stop-loss parameters are also small. This is why scalping is such a low-risk strategy – as, in this example, the potential loss stands at just 1 pip.

    What Assets are Best Suited to Scalping?

    In most cases, a scalping trading strategy can be deployed in any asset class.

    This includes:

    • Stocks
    • Indices
    • Commodities
    • Forex
    • Cryptocurrencies

    With that being said, there are some clear conditions that must be met in order to utilise a scalping strategy. We will cover this in the next section.

    Requirements for Scalping Trading UK

    Unlike day trading, swing trading, or buy and hold strategies – scalping demands conducive trading conditions for the process to be effective.

    These include:

    0% Commission

    You will find it very difficult to make a profit from scalping if you don’t use a broker that offers a 0% commission. After all, the amount of money that you will be looking to make from each buy or sell order is going to be minute.

    tight spreads when scalping trading

    For example, let’s suppose that you are using a UK forex broker that charges a commission of 0.1% per trade. This means that you will pay 0.5% when you place an order, and again when you close it. Let’s then suppose that you place a £100 buy order, and your scalping strategy make a 0.3% profit.

    This translates to a gross gain of £0.30. However, we then need to factor in the 0.5% commission. As such, you would actually be making a net loss on this – even though you sold your chosen asset for 0.3% then you originally paid.

    Tight Spreads

    The spread is the difference between the ‘buy’ and ‘sell’ price of an asset, and it’s what ensures the broker always make a profit. You need to make gains of at least the spread just to get back to the break-even point.

    When investing in an asset on a medium-to-long-term basis, the spread isn’t an overly important metric to take into account (within reason). This is because the spread will often amount to a small percentage, so it doesn’t have much of an impact on your potential profit.

    However, this isn’t the case when scalping trading in the UK. After all, you will be looking to make super-low profit margins. With this in mind, it is crucial that you choose a UK scalping stock brokers that offers tight spreads.

    High Trading Volume

    A byproduct of high trading volume is a platform that benefits from sufficient liquidity levels. In simple terms, this means that there is enough money being traded on the market to enter and exit a position with ease.

    As UK scalping traders are working with such small profit margins, it is imperative that you only trade assets with large trading volumes.

    This might include blue-chip stocks, commodities like gold and oil, and major forex pairs. Similarly, you should also restrict your scalping trading endeavours to standard market hours, as this is when trading volumes are at their highest.

    Avoid Market Orders

    By placing a market order, you are instructing your chosen broker to execute your position at the next available price. The key problem with this is that you will often suffer from ‘slippage’.

    This is when the execution price is different from the market price that you were hoping to get. In turn, this is likely to make your scalping strategy unviable.

    Instead, always opt for limit orders. This is where you get to specify the exact price that you want your order executed at. Your position will only go live when the limit order price is triggered. Until then, the order will remain pending until cancelled.

    Leverage is Required

    Leverage allows you to amplify the value of a trade. For example, if you apply the leverage of 1:20 on a £500 buy order on gold, you are effectively trading with £10,000. Although newbies should avoid high leverage limits when first starting out, the exception to this rule is scraping.

    This is because you will be targeting super-low profit margins. In other words, making average gains of 0.1-0.2% per winning trade is not going to earn you enough money to make trading worthwhile. Of course, this won’t be the case if you have a substantial bankroll.

    But, if you are looking to deposit less than £50,000, you will need to consider applying leverage. The good news is that with the right risk management tools in place, leverage doesn’t have to be a high-risk manoeuvre.

    Scalping Trading Strategies

    Although scalping itself is a trading strategy popular with UK investors, there are many different ways to approach it.

    Consolidation Strategy

    One of the best scalping trading systems for entry-level investors is that of a consolidation strategy. When an asset trades within a tight range, this is known as a consolidation period.

    consolidation period

    For example, let’s suppose that Facebook stocks have been trading between $250 and $255 for several weeks. This means that the stocks have not moved below $250 or above $255. Amounting to a pricing range of just 2%, this is highly conducive for a seasoned scalping trader.

    The trader would look to target two particular positions over and over again until Facebook stocks break out of the aforementioned consolidation period.

    • A buy order would be positioned just above the bottom end of the range at $250
    • A sell order would be positioned just below the upper end of the range of $255

    In theory, for as long as the range remains in play, the scalping trader will continue to capitalise. Of course, the trader will need to ensure that they are protected from the eventual break out that will occur. As such, stop-loss orders would need to be positioned just below the bottom end of the range, and just above the upper end of the range.

    Low-Risk, High-Reward Ratios

    An additional UK scalping strategy that is worth considering as a newbie investor is that of a low-risk, high-reward ratio strategy. In simple terms, when you set up both a stop-loss and take-profit order (which you should always do when scalping trading in the UK, there will be a ratio in how much you can potentially win and lose.

    For example:

    • Let’s suppose that you are trading oil – which is currently priced at $40.14 per barrel
    • You place a buy limit order at $40.16
    • Your take-profit order is set to $40.36
    • Your stop-loss order is set to $40.14

    As you can see from the above example, if your stop-loss order is triggered at $40.14, you will make a total loss of 2 pips. However, if your take-profit price is triggered, you will make a profit of 20 pips. In this example, your ratio is 2-20.

    One the one hand, it is all-but-certain that are going to encounter more losing trades than winning ones. After all, your position will be closed as soon as it goes 2 pips into the red. On the other hand, you only need one winning trade to return 20 pips. In this sense, you need to win one trade for every 10 losing ones to break even. But, by winning 2 trades (40 pips profit) for every 10 losing ones (20 pips loss), you will be 20 pips in the green.

    Scalping Trading UK Risks

    Although scalping strategies allow you to trade in a low-risk environment, there are several risks that you need to consider before taking the plunge.

    scalping trading UK guide

    This includes:

    Difficult to Implement

    In truth, UK scalping trading systems can take many months, if not years, to deploy successfully. You will need to constantly run test-drives via a brokerage demo account on a trial-and-error basis.

    Even then, market conditions can change at the drop of a hat, so you will need to constantly rethink your strategy. As such, if you’re a complete newbie in the world of online trading, scalping might not be for you.

    Large Bankroll Required

    As we have noted throughout this guide, scalping traders will look to make ultra-small profit margins. With that in mind, a low-to-medium level trader likely won’t have a large enough bankroll to make the process worthwhile. For example, let’s say that you have a £1,000 account balance.

    You would need to have a substantial number of winning positions throughout the trading day for scalping to be viable. The only exception to this rule is if you apply leverage to your trades. This in itself comes with additional risks if sensible exit strategies are not deployed.

    An Error can be Costly

    Most scalping traders in the UK will enter dozens of buy and sell positions throughout the day. However, this can be somewhat overwhelming if the trader is inexperienced. As such, a single error could be extremely costly for the trader.

    For example, if you are looking to scalp profits of 3 pips per trade, but an error results in a loss of 30 pips, you will need to hit 10 winning trades in a row just to make the money back.

    Best UK Scalping Trading Platforms

    If you want to benefit from scalping trading, you need to take particular care to ensure your chosen broker is suitable. As we covered earlier, you need to ensure that your choice of broker offers commission-free trading and tight spreads. Liquidity and trading volumes need to be high, and leverage facilities must be on the table.

    Taking all of this into account, below we have listed a selection of UK scalping trading platforms that are worth considering.

    1. eToro - World Leading Social Trading Platform with 0% Commission

    eToro is arguably the best UK scalping trading platform in the online space. First and foremost, the platform offers thousands of financial instruments across heaps of asset classes, so whether you want to trade stocks or try out your forex scalping strategy, you'll be able to do so at eToro.

    Crucially, eToro is a commission-free trading platform, so you will not be charged a single penny to enter buy or sell positions. While you do still need to factor in the spread, this is typically very competitive at the broker. Additionally, eToro is perfect for scalping trading as the platform is home to over 12 million investors. In simple terms, this means that trading volumes and liquidity levels are always on high-side, so you'll never struggle to exit a position.

    When it comes to opening an account at eToro, the process takes just minutes. You can do this online or via the eToro trading app. You will need to deposit at least $200 to get started, which is about £160. The platform supports several UK payment methods, such as a debit/credit card, bank transfer, and e-wallet. Finally, eToro is licensed by the FCA and partnered with the FSCS. Regarding the latter, this means your funds are protected up to the first £85,000.

    Our Rating

    • Trade assets commission-free
    • Regulated in the UK by FCA
    • Social trading tools
    • User-friendly trading platform
    • 0.5% currency conversion fee on deposits
    75% of retail investor accounts lose money when trading CFDs with this provider.

    2. Plus500 - Low Cost Stock Trading Platform

    Much like eToro, Plus500 meets all of the requirements that scalping trading requires. For example, you will have access to thousands of financial instruments - all in the form of CFDs. This covers stocks, bonds, interest rates, hard metals, energies, digital currencies, and more.

    Irrespective of what financial instruments you decide to trade, Plus500 charges no trading commissions. Spreads are also very tight during standard market hours - especially on major asset classes like indices, gold, and oil. You will have access to several order types at Plus500, subsequently enduring that scalping strategy can be executed in a risk-averse manner.

    Plus500 is licensed by several regulatory bodies, including the FCA. It has a small minimum deposit of just £100. You can get money into and out of your account with a UK debit/credit card or Paypal - which are both instantaneous. Bank transfers are also supported but expect to wait several days for the deposit to be credited.

    Our Rating

    • No withdrawal fees
    • 0% trading commission
    • FCA regulated
    • No educational material
    80.5% of retail investor accounts lose money when trading CFDs with this provider.

    3. Capital.com - Commission-Free and £20 Minimum Deposit

    Capital.com might be the best option for you if you have a somewhat restricted budget - or you simply want to start off with small stakes. Either way, the trading platform allows you to open an account with a minimum deposit of just £20. You can benefit from this low account minimum by using a debit/credit card or e-wallet.

    You will, however, need to deposit at least £250 if performing a bank transfer. Crucially, it's not just a low minimum deposit that makes Capital.com stand out from the crowd. On the contrary, the platform is great for scalping trading because each and every asset class can be accessed on a commission-free basis.

    You will also find that Capital.com offers some of the tightest spreads in the online trading scene. The platform is also popular with first-timers, as you will have access to lots of useful educational material that can help you better understand the market. This is available online, as well as through a dedicated mobile app.

    Our Rating

    • Get started with just £20
    • No commissions and tight spreads
    • FCA regulated
    • Minimum £250 deposit when using a bank transfer
    72.6% of retail investor accounts lose money when trading CFDs with this provider.

    4. IG - Established Broker With 17,000+ CFD Products

    IG is an FCA broker that was first launched in 1974. The platform seems to offer it all, from share dealing services to spread betting and of course CFD trading. In fact, the platform hosts over 17,000+ tradable instruments across dozens of asset classes - so you'll never be short of a profit-making scalping opportunity.

    IG allows you to trade CFDs on a commission-free basis unless you are looking to scalp stocks. Although this comes with a rather competitive 0.10% commission, this might make stock scalping unviable. Nevertheless, IG also offers tight spreads and free deposits when using a debit card or bank wire.

    What we also like about IG is that you can scalp via MT4. This third-party platform is hugely popular with UK scalping traders, as you'll have access to advanced order types and lots of technical indicators. You can also employ the services on an algorithmic robot to scalp assets on your behalf. Minimum deposits start at £250 with IG.

    Our Rating

    • Spreads from 0.6 pips
    • Supports MT4 trading platform
    • Excellent research department
    • 1% fee when using Visa and 0.5% via MasterCard
    • Spreads on some crypto pairs are somewhat expensive
    There is no guarantee you will make money with this provider.

    5. FinmaxFX - High Leverage Limits

    FinmaxFX is an online CFD trading platform that offers several benefits to scalpers. First and foremost, the platform is located outside of the EU, meaning that it can offer you leverage limits above and beyond what ESMA regulations permit. For example, while UK retail clients are capped at 1:30 on major forex pairs, this stands at 1:200 at FinmaxFX.

    This is a major plus-point for those of you that want to engage in a scalping trading strategy, but you simply don't have tens of thousands of pounds in the bank to fund it. Furthermore, FinmaxFX allows you to trade via MT5. This also comes with the ability to deploy algorithmic robots and perform advanced technical analysis.

    In terms of tradable instruments, FinmaxFX offers an extensive suite of assets. This includes CFDs in the form of stocks, indices, forex, hard metals, energies, and cryptocurrencies. Fees will vary at this broker depending on what account type you wish to open. Several payment methods are supported - including debit/credit cards and e-wallets.

    Our Rating

    • Leverage of 200:1 on forex
    • Accepts most popular payment methods
    • Bonus available to new customers
    • Trading fees are somewhat high
    • Not FCA regulated
    There is no guarantee you will make money with this provider.

    Scalping Trading Pros and Cons

    Pros

    • Low-risk approach to trading financial instruments
    • Potential losses are capped to micro-percentages
    • Profits can add up as you will be entering dozens of positions throughout the day
    • Heaps of commission-free and tight spread brokers in the UK – which is required for scalping
    • Scalping trading is potentially suited to all asset classes
    • Lots of different scalping trading strategies to choose from

    Cons

    • Scalping is a strategy best-suited for experienced traders
    • It can take many months to truly understanding the ins and outs of scalping trading

    How to Start Scalping Trading in the UK

    If you’re keen to give scalping trading a go with a trusted FCA broker. eToro is a notable option. You will be able to scalp thousands of assets commission-free, alongside tight spreads. Your funds are protected up to the first £85,000 too, via the FSCS.

    To show you how simple it is to get started with eToro, check out the walkthrough below.

    Step 1: Open a Trading Account

    To get the ball rolling, you will need to open a trading account with eToro.

    eToro sign up

    This shouldn’t take you more than a few minutes – and simply requires the following personal information:

    • Full name
    • Home address
    • Date of birth
    • National insurance number
    • Mobile number
    • Email address

    As an FCA regulated broker, you will also need to upload a copy of your:

    • Passport of driver’s license
    • Utility bill or bank account statement (issued in last 3 months)

    You can upload the above documents at a later date, as long as you don’t intend on depositing more than £1,800-ish.

    Step 2: Deposit Funds

    If you want to start off with a demo account, eToro offers a pre-loaded balance of $100,000. Alternatively, if you are ready to trade with real money, you can deposit funds with the following payment methods:

    • Debit card
    • Credit card
    • Paypal
    • Skrill
    • Neteller
    • Bank Transfer

    You’ll need to meet a $200 account minimum, which is about £160.

    Step 3: Place a Trade

    You are now ready to place your first scalping trade. In our example, we are looking to trade Alphabet (Google) stocks – so we enter the name of the asset into the search box at the top of the page.

    Scalping trading at eToro

    Then, by clicking on the ‘Chart’, you will be presented with some technical pricing data. You’ll want to change the timeframe from 1 day to 1 minute if you wish to scalp small pricing movements.

    When you are ready to place some orders, click on the ‘Trade’ button.

    You will now see an order box.  First, you need to enter your stake in US dollars and select your leverage multiple. In our example, we are looking to risk $500 with leverage of 1:5.

    Scalping trading at eToro

    As we have noted throughout our guide, you also need to set up a stop-loss and take-profit order when scalping. In our example, we have our stop-loss set to $2.50 and our take-profit at $5.00. This presents a risk vs reward ratio of 1-2.

    Finally, confirm the order. Your position will remain open until either your stop-loss or take-profit order is triggered.

    Conclusion

    Scalping trading is a great way to make financial gains in a risk-averse manner. When installing sensible stop-loss losses, alongside other risk management strategies, your potential losses are kept to an absolute minimum. Even though you will be targeting micro-profit margins, scalpers typically place dozens of buy and sell positions throughout the day.

    With that said, if you want to make a success of your scalping endeavours, you will need to use a UK trading platform that offers commission-free trades, tight spreads, and heaps of tradable assets. This is why we would suggest checking out FCA regulated eToro. The platform is also user-friendly, which is perfect if this will be your first attempt at scalping trading!

    eToro: Best Scalping Trading Platform UK

    Our Rating

    • Huge range of assets
    • No commission & low spreads
    • Social trading network
    • Copy other traders
    • FCA regulated broker
    75% of retail investor accounts lose money when trading CFDs with this provider.

    FAQs

    What is the best time frame to use when scalping?

    As you will be looking to scalp super-small profit margins, it's best to stick with the 1-minute timeframe.

    What fees are involved in scalping?

    You will need to use an online trading platform if you wish to deploy a scalping trading strategy. As such, check to see what commissions and spreads your chosen broker offers. This is why we suggest using eToro, as you'll be able to buy and sell financial instruments without paying a penny in commission.

    How many pips should I try and make when scalping?

    On average, seasoned scalping traders in the UK will target gains of 5-10 pips per position.

    Are there any scalping trading systems that are automated ?

    Yes, there are hundreds of automated scalping trading systems available in the online space. You will need to download the software and install it into a third-party platform such as MT4/5. Then, the software will scalp assets on your behalf. Just make sure you do lots of homework on the provider before signing up.

    How many trades do scalpers place per day?

    Experienced scalping traders will often place dozens, if not hundreds of trades each and every day. They will often need the assistance of a software package to help with this goal.

    How much capital do scalping trading require?

    You will often need a substantial bankroll to make scalping trading worthwhile. With that said, you do have the aid of leverage if you only have a few hundred pounds at your disposal.

    Can you lose money when scalping trading?

    Yes, like all forms of trading, scalping can result in losses. You should therefore have a firm understanding of the risks of scalping before parting with your money.

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    All trading carries risk. Views expressed are those of the writers only. Past performance is no guarantee of future results. The opinions expressed in this Site do not constitute investment advice and independent financial advice should be sought where appropriate. This website is free for you to use but we may receive commission from the companies we feature on this site.
    Kane Pepi

    Kane holds academic qualifications in the finance and financial investigation fields. With a passion for all-things finance, he currently writes for a number of online publications.