Why don't DCs like scalpers and pips?

Market noise and quote flow

In the market, even in calm times, there is never a single price. Every second, bank dealers throw in their quotes from Reuters Dealing. Every second, for the same instrument, there are dozens of quotes with a difference of 2-3 or more points. Sometimes, depending on the volatility of the market or the instrument itself, this difference can reach tens of points.

All of these quotes are rebroadcast in dealing systems DC and in trading terminals clients of DCs. Some brokers set up filters and cut unnecessary quotes, averaging and smoothing the flow. This eliminates market noiseBut in the case of strong directional moves there are delays. Other brokerage companies broadcast quotes as they are, cutting off only apparent spikes. As a result, we often see the following picture, especially on a sideways trend: one or two quotes up, two or three quotes down, two or three quotes up, one or two quotes down. It seems to be a movement, but in fact, the market is standing still. This is called market noise.

What do pips and scalpers do?

Pips and scalpers are focused exclusively on the game in a narrow range of market noise in order to take out 1-2 pips at the top, opening to buy, and 1-2 pips at the bottom, opening to sell. Trades open and close within seconds and rarely last more than one minute. In the MetaTrader4 terminal, where automatic trading is allowed, this is done by specially trained scripts-advisors.

Of course, if the range of market noise is wider than the value of the spread quoted by the dealer, scalping tactics becomes super profitable.

Dumping spread - a mistake of dealing centers

Since the beginning of mass sales MetaTrader 4 trading platform and related to this rapid development of the dealing services industry, the last five years, many dealing centers in pursuit of the client began to narrow the spread down to zero, which in turn gave rise to a huge army of scalpers. These are not investors, these are not traders, these are gamers for whom Forex It seems to be nothing more than a variation of Tetris. And they naively wonder why dealers don't like them so much.

So why don't dealers like pips and scalpers?

The dealer's task is to ensure that the risks on the total aggregate position of all his clients (investors-traders) opened with him do not exceed the risks on his similar position opened with the counterparty - another dealer.

Depending on the party and the total volume of the client position, he periodically increases or decreases the volume of his position with the counterparty, which should always be more profitable for the dealer. This is what his job is all about.

Task the pipsqueak gamer catch their pips at the extremes of market noise. And since such trades have a phantom character, of course, the dealer cannot take them into consideration when maintaining his position with the counterparty. The only and the most effective measure against "gnawers" is the expansion of their spread and delays in quoting. Otherwise, all the honestly earned dealer profit will be eaten by the pipers.