Posted in Finance, Accounting and Economics Terms, Total Reads: 124
Scalping is a trading style aiming at making profits on small price changes. Sometimes it is also known as a subtype of day trading. It involves multiple trades within a very short period which could range between a few second to a few minutes. As the profit on one trade is quite small, scalper indulges in numerous such trades to build up profits.
Some of the principles on which scalpers work:
• Spreads are bonuses as well as costs – The difference between the bid price and the ask price is known as spread between them. On one side, traders who do not want to queue their order pay the spread which is a cost for them and on the other side, traders who want to wait for execution receive the spreads which is bonus for them
• Lower exposure hence lower risk – As scalpers are exposed to risk for a shorter period, the more this period decreases, the risk associated also decreases
• Smaller moves which are easier to obtain – Only a few number of times does the bigger price changes occur and as smaller moves happen most of the times, capturing those helps in capturing profit
• Large volumes adds up the profit – Smaller moves for a large amount of units leads to adding up of the profit
How scalping works:
Trader can put in anything from 10 to some hundred trades in a single day with the belief that profits from smaller movements are easier to make than from larger ones. It requires trader to have a strict exit strategy as a larger loss could eliminate numerous smaller profits gained over time. Scalpers do not stick to any pattern and are quick.