Reviewed by Sep 30, 2020| Updated on
Let's Understand What a Scalper is
Scalpers rapidly enter and leave the stock markets, usually within seconds, using higher leverage rates to position larger-sized trades in hopes of generating greater profits from relatively minor price shifts.
In the sense of market supply-demand theory, a scalper often refers to a person who buys large amounts of in-demand goods at regular price, such as new appliances or event tickets, hoping that the goods will sell out.
Instead, the scalper resells the goods at a higher price. For instance, a scalper can buy ten tickets to the Super Bowl and try to sell them on eBay at an inflated price several days before the game. Those transactions often take place in the black market. This sort of scalping is considered as illegal under specific conditions.
What are the Traits of Scalpers?
Disciplined: A scalper has to be highly disciplined. If they are to succeed, they must strictly obey their trading strategy. Most scalpers set a daily cap for losses and stop trading if that number is in violation. A daily cap to losses stops scalpers from chasing their loss.
Combative: Scalpers are also characteristically combative. They see the market as a war zone and see the enemy as other traders. Most scalpers who trade manually have an attitude of "us vs them" against trading programs in a black box. They look for repeated trends and try to take advantage of them for a profit.
Decision maker: When doing short-term trades, there is often little time to respond. Scalpers also have to make trading decisions in seconds or lose out on the opportunity. They also need to make quick decisions if an error is made.
What Else You Need to Know About a Scalper?
Scalpers buy and sell the price of the traded security several times in a day with the intention of making steady gains from small fluctuations in price. They can trade manually or use commercial software to automate their strategies. In addition to leveraging short-term price swings, a scalper is seeking to benefit from the bid-ask spread.
High-frequency trading has made the work of a scalper more profitable. Programs will scour thousands of securities at once and take advantage of the offer and question inconsistencies in milliseconds. Black box algorithms also track data from level 2, processing information on markets and liquidity to make short-term trades.
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