The Foundation Of Scalp Trading
Go to: Previous Article Next Article
Scalp Trading is a word that is tossed around a lot any time you hear day traders speak but truly scalp trading is an unique form of day trading. It is a technique that involves a high frequency of order tickets with a profit target of merely a small amount of pennies. The gain occurs from the size of the orders. An ordinary scalp trader at most of the Proprietary Trading Firms uses between five and fifteen thousand shares for every position with the even larger traders going up to two hundred thousdand shares for each position. This style of trading is not really commonly done by retail investors on retail accounts for a couple of main factors, great cost structure along with unique order routes.
The " transaction fee " arrangement which the general retail broker offers is too expensive for this particular style to be viable. The majority of retail brokers will provide $6 to $7 for each 1000 share trade with the better deals around $5. A scalp trader needs to be able to make money from just a 1 penny move. So even with the best retail deal of $5, a 1 penny shift would generate you $10 but would cost you $10 ($5 to buy and $5 to sell) in commissions which would leave you $0 net profit. At a Proprietary Trading Firm, traders can easily get a commission structure anywhere from 30 cents to $1 per 1000 shares. Now if you do perform the sum: an one cent move with 1000 shares grosses $10 however will only cost you sixty pennies to two dollars which of course provides a much more appealing net profit margin.
This brings me to ECNs and whom you ought to be routing your orders through. If you add liquidity to the order book also recognized as the level 2 then commonly the ECN you sent to will furnish you a kickback. On the other hand, when you take liquidity from level 2, the ECN will charge you. One might be considering what does it mean to take or add liquidity? Well as an example; consider you intend to shop for an auto. You open a car trader magazine. In the front area of the journal are offers from individuals who would like to buy automobiles. These people are detailing the mileage and price they are prepared to pay. Now in the back segment of the journal are individuals promoting automobiles for sale. Well you may be asking why don't the people in the front portion of the magazine call the individuals in the back part of the journal? This is because there is a variation in price among what the buyers want to purchase at and the sellers intend to sell at. Now these individuals whom have placed these advertisements in this auto journal are all adding liquidity. The folks whom read the magazine and eventually either sell their automobile to one of the buyers or acquire a car from 1 of the sellers are taking liquidity. This is how the stock market performs and the left part of the level 2 screen is like the front part of the car journal and is referenced to as the "BID". The right side of the level 2 screen is similar to the back section of the car magazine and is referred to as the "ASK" or "OFFER".
I pointed out before the ECN routing. So what is an ECN? ECN stands for Electronic Communication Network. When you look at the level 2 display you will witness various ECNs, Exchanges and Market Makers at each price levels and it is your choice which one you dispatch your orders to. Your choice will be primarily based on how quickly the route can fill your trade along with how much it will cost you or how much your kickback will be based on whether or not you are adding or taking liquidity.
Particular routes: A few routes will fill you rather fast but will still charge you even though you are supplying liquidity. It is these kinds of routes that retail traders buying and selling with retail accounts don't possess access to. Investors at Prop Trading Firms will have access to these routes giving them an advantage above the competition. These special routes are not essential to being lucrative in scalp trading nonetheless they do help to make the job substantially simpler.
Now that you realize what scalp trading is, you will need to learn the essential tools. The most necessary instrument is your system. You will need a Level 2 Direct Access Trading System which there are various to pick from.
You will also need a media service such as Briefing or Trade-The-News. When scalp trading, you ought to be watching a handful of stocks. They must be lower priced and have great volume on the Bid and Ask.
For each one of the stocks you observe you need to have a level 2 display as well as time and sales. Furthermore, you really should have a daily chart for each one of the stocks you observe. Believe it or not, the daily chart is the most necessary chart for intra-day traders, which also includes us scalp traders. Finally, you need to have a 5- and 15-minute graph of the general market. To look at the market, the Standard and Poor is preferred. You may watch this by watching the ES futures or the SPY. There are additional things you may wish to include to this set-up which I will go over in my next article, but the previously mentioned are the most essential.
Article Source: Articlelogy.com
- Credit Cards A big selection of Cards in all flavors: Bad Credit Cards, Secured Cards, Prepaid Cards, Canada Cards, Low Interest Cards -
Word Count: 929
Reduce Your Debts Without Bankruptcy. See How Much You Can Save. Free Debt Analysis
