Scalping in Trading: The Commission Math That Kills Profit

Scalping attracts with speed: many short trades for a tiny price move. But the main trap here is not the market, it is the commission. It sits in every trade, and the shorter the move you take, the larger the share of profit it eats, up to half. By my experience, for a retail trader this is most often the road to feeding the exchange and the broker rather than earning yourself.

Scalping is the natural urge of any trader. Here and now, get into the market fast, earn a couple of points, close the trade and go rest. I myself once started this way. In the first weeks I earned my forty dollars, almost made multiples in a couple of weeks, and it is exactly this speed that pulls you in. But there is a rule I repeat constantly: the faster you want to earn money, the harder it will be.

In this article we'll cover:

• scalping is dozens of short trades a day, and the commission sits in each of them;
• the shorter the move you catch, the larger the share the commission takes, and over the distance that gives a negative expectancy;
• without the commission the probabilities would be 50/50, and it is the costs, not the market, that most often drain a scalper's account;
• by my experience scalping is pulled into profit systematically only by HFT robots at the exchange server, while retail from home feeds the broker more than itself.

So this is not just my opinion, further on I show concrete figures: how the same commission turns from a trifle into half your result. Let's start with what scalping is and why it lures a beginner so.

What Scalping in Trading Is in Simple Terms

Scalping is a trading style in which a trade lives seconds or minutes, and the trader takes a very small price move measured in points (a point is the minimum step of a quote). In a day such trades add up not to five or ten but to dozens, sometimes hundreds. This is what distinguishes scalping from day trading, where the trader holds a position longer and takes a bigger move, and even more so from position trading.

Most beginning traders use exactly scalping, not suspecting what nuances there are. I understand them: visually it looks like the simplest and fastest way. But there is one point that immediately gives away the problem. Most beginner scalpers do not set a stop-loss at all, that is a level set in advance at which a losing trade closes itself. In my understanding this is no longer systematic scalping. It is not even trading but plain gambling, and it ends almost always the same way. Scalpers work on minute charts, most often M1 and M5, sometimes looking at M15 for context. More on how to choose a timeframe for your style I wrote separately. But whatever chart you pick, the main question of scalping is not in the chart. It is in the arithmetic, and that arithmetic I consider the most important part of the topic.

Calculating Commissions in Scalping: How Much Really Goes to the Broker

First about the subject itself. Any exchange and any broker live on commissions, this is their main income. You pay in two ways. The first is the the spread, the difference between the buy price and the sell price, because of which a trade opens immediately at a small minus. The second is the commission for the operation itself. And here is what is important to understand: the commission is always there. Whether you trade in profit or at a loss, the broker takes its cut in every trade.

Now the figures the whole thing was started for. Take a day trader. He bought conventionally at 1, sold at 10, earned nine points. Minus a commission of, say, two points, leaves seven. Converted to percentages, the commission ate about twenty percent of the result. Unpleasant, but livable. Now a scalper. He bought at 1, sold at 5, that is only four points. Minus the same two-point commission, leaves two. The commission's share here is already about fifty percent. The same commission, but it eats several times more, simply because the move is smaller. This is the whole problem of scalping. Without the commission the probabilities would be distributed 50/50, like a fair coin. But the commission is present in every trade, and that is the first reason a scalper has a negative expectancy over the distance, especially if the trading is chaotic, without a system. How expectancy is counted and why a stop-loss is mandatory I cover in the section on mathematical expectancy. The practical conclusion: I consider adequate the kind of trading where you bring the commission's share down to at least a few percent. Roughly: you bought somewhere around 1 and aim to sell closer to 100. Then the same two points of commission become a trifle against the profit.

Scalping or Day Trading: Which Is More Profitable for a Retail Trader

From the math above follows a simple answer to the main question. The longer the move you take, the smaller the share of costs in the result, and the friendlier the arithmetic is to you. So for a retail trader, day trading or calmer trend trading is almost always more profitable than scalping, and I say this from my own practice.

Scalping itself I do not file under useless, and I am not going to scare you that it does not work. It really works, but in very specific conditions: maximum speed, the absence of slippage and a server right next to the exchange. That is how the pros trade. HFT firms place their servers inside the exchange data center, next to its core, and the count goes in fractions of a millisecond. A trader from home has latency tens of times larger and cannot compete with the robots on such intervals in principle. Profit on ultra-fast trades is, as a rule, available only to such HFT arbitrageurs, not to retail. So I often repeat: a scalper is an excellent client for the exchange, because he feeds it. You spin your money through the market and pay the commission to the exchange, the broker, in short everyone except yourself. You could put a hundred million on the deposit, but if the cost structure is against you, it is just a matter of time before the money goes into the market. I have traded since 2013 mostly futures on CME and take a bigger move, by trend, where the commission does not decide and what decides is the quality of entry and the a trading system. If you want to see that very commission calculation in figures and the comparison of scalping with day trading in my telling, watch the video on why 50% of profit goes to the broker.

My Take: The Faster You Want Money, the Harder It Gets

The faster you want to earn money, the harder it will be, and that is a rule I have repeated since I have been trading since 2013. Scalping pulls beginners in because it looks like the shortest path, and I felt that pull myself early on, but the arithmetic of costs is the quiet reason most retail scalpers feed the broker rather than themselves. This is not advice for you personally, it is how I reason from my own numbers: I take bigger moves where the commission is a trifle against the profit, because that is the only version of the math I can actually win. The honest limitation is that slower trading means fewer trades and far less of the action that makes scalping feel exciting; but excitement is precisely what the cost structure preys on, and over the distance a friendlier arithmetic beats a faster pulse.