Why Schwab is Closing Accounts for Hyperscalpers: Insights from Traders and Market Realities

MOMO -

Schwab is certainly ruffling some feathers since their purchase ThinkorSwim and Streetsmart. First they discontinued Streetsmart's HOD/LOD scanner, now busting out the ban hammer 🔨 for "over trading".

In the fast-paced world of day trading, where seconds can make or break a profit, a number of traders are getting an unwelcome surprise: account closures at Charles Schwab.

This issue has sparked heated discussions among retail traders, particularly those employing high-volume strategies like "hyperscalping"—entering and exiting trades in mere seconds to capture tiny price movements. Drawing from trader experiences, including a detailed video transcript from a prominent trading community, and broader conversations on trading mechanics, this post explores the reasons behind these closures, the role of payment for order flow (PFOF), and what traders can do to adapt.

You're Not Welcome Here - Account Closures at Schwab

Traders using Schwab's ThinkorSwim have reported numerous account shutdowns, often with little explanation beyond a vague "business decision." These aren't isolated incidents; friends, chat room members, and even high-profile traders have seen their accounts vanish overnight, forcing them to scramble for new platforms. The common theme? High-frequency, high-volume trading styles such as micro-scalping, hyperscalping, or "atomic scalping," where traders might execute 100 to 600 trades a day on volatile stocks.

As one trader put it in a community post: "Why is Charles Schwab closing down accounts? Well, it has to do with money. Are they making money off of your account? That is their main concern." The shift to zero-commission trading opened the door for these strategies, but it also exposed vulnerabilities in how brokers and market makers profit.

Understanding Hyperscalping and Price Improvement

Scalping involves rapid trades to exploit short-term inefficiencies, often holding positions for just seconds. This evolved from traditional scalping (holding for minutes) after commissions dropped to zero, allowing traders to leverage free executions and "price improvement"—where orders are filled at better prices than the quoted National Best Bid and Offer (NBBO). For a buy order, this means getting filled below the ask price; for sells, above the bid.

Brokers like Schwab achieve this through PFOF, routing orders to market makers like Citadel Securities, who pay for the flow and provide those improvements. However, hyperscalpers' market orders (not limit orders adding liquidity) create "toxic order flow"—trades statistically likely to lose money for the market maker. As the concept goes:


"Citadel loses money on such flow because they cannot fill orders at quoted prices just before prices move against them, leaving them holding inventory that immediately loses value."


In essence, these fast trades don't position algos or market makers to hedge or profit from spreads, turning what should be a win-win into a loss for the "house."

Why Brokers Like Schwab Ban Hyperscalpers

The motivation boils down to profitability and system integrity. Brokers went zero-commission expecting steady retail flow, not armies of scalpers exploiting inefficiencies. When hyperscalping surged—fueled by zero fees and price improvements—market makers like Citadel started bleeding on these trades. With strong ties to brokers, they can flag "hit lists" of unprofitable accounts.

Likely reasons from trader discussions:

  • System Strain: Ultra-fast trading stresses platforms, causing latency or crashes, especially without time for data sharing or counter-trades.
  • Risk Management Challenges: Brokers can't hedge quickly enough, absorbing losses on improved fills flipped immediately.
  • Regulatory Scrutiny: While legal, it borders on practices like latency arbitrage, prompting preemptive bans to ensure "best execution."
  • Exploitation of Lags: Scalpers arbitrage stale quotes or sub-penny improvements, seen as abusive.


Recent Reddit threads confirm this: "Schwab banning day traders... for scalping, they banned my 2-year-old account." Another: "The REAL reason traders get banned... I've had about 20+ people reach out that had the same happen." On X (formerly Twitter), traders note: "Hearing of a lot of hyper scalpers as of late getting their accounts closed." Some blame visibility: "A bunch of traders wanted clout, started making videos... of course the casino would eventually fix the broken slot machine."

This ties into broader market events, like outages during high volatility, but the core issue is toxic flow eroding PFOF profits.

Adapting to Survive: Trader Advice

The biggest thing your trading style and reduce the amount of volume." Stay under 390 trades/day ( a past rule Schwab tried), consider splitting trades across accounts if needed, or trade shorter sessions (e.g., pre-market to noon). Shift to longer holds, focusing on price action, supply/demand, or momentum & swing trading.

Obviously there are alternatives. E*TRADE Pro (one of tools I use - not an endorsement and if had to switch would likely first try DAS or Lightspeed), TradeZero, WeBull, TradeStation, Lightspeed, Interactive Brokers and DAS Trader are other reasonable options.

Final Thoughts

Schwab's account closures highlight trading's zero-sum nature: someone loses for others to win. When retail scalpers tip the scales against market makers, brokers act to protect their ecosystem. While frustrating, it's a call to evolve—fly under the radar, diversify platforms, and refine strategies for the future.

If you're affected, email your story and we can update here.

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