Scalp Trading is a phrase that is thrown around a lot any time you hear day traders chat but really scalp trading is a precise form of day trading. It is a type that involves a large frequency of order tickets with a profit target of just a few cents. The profit comes from the size of the orders. A common scalp investor at most of the Proprietary Trading Firms employs around 5,000 and 15,000 shares for every position with the even larger investors going up to two hundred thousdand shares per trade. This type of trading is not necessarily normally accomplished by retail investors on retail accounts for a couple of main reasons, good price structure and specific order routes.

The commission rate framework which the regular retail broker gives is too steeply-priced for this particular style to be sensible. Many retail brokers will offer you $6 to $7 for each one thousand share trade with the better bargains about $5. A scalp trader wants to be able to earn money via just a one penny move. So even with the greatest retail deal of $5, a one cent move would gain you $10 but would cost you ten dollars ($5 to buy and $5 to get rid of) in commissions which would leave you zero net profit. At a Proprietary Trading Firm, traders could get a commission structure anywhere from 30 cents to $1 per one thousand shares. Now if you add it all up: a one penny move with 1000 shares grosses $10 however will only cost you 60 pennies to $2 which of course supplies a a lot more appealing net profit margin.

This takes us to ECNs and whom one should really be routing your orders thru. If you add liquidity to the order book additionally known as the level 2 then normally the ECN you routed to will pay you a kickback. Having said that, when you remove liquidity from level 2, the ECN will charge you. You may perhaps be wondering what does it mean to remove or add liquidity? Well as an example; suppose you intend to shop for a car. You open a auto trader journal. In the front part of the magazine are adverts from people who want to acquire automobiles. They are itemizing the mileage and value they are willing to pay. Now in the back section of the magazine are people promoting autos for sale. Well you may be wondering why don’t the individuals in the front part of the magazine phone the folks in the back segment of the magazine? This is due to the fact there is a difference in price amongst what the buyers want to purchase at and the sellers want to sell at. Now these people whom have put these ads in this car journal are all adding liquidity. The individuals who read the journal and ultimately either sell their automobile to one of the buyers or acquire a auto from one of the sellers are removing liquidity. This is actually how the stock market performs and the left portion of the level 2 screen is like the front segment of the car journal and is referenced to as the „BID“. The right part of the level 2 screen is like the back segment of the car magazine and is referred to as the „ASK“ or „OFFER“.

I pointed out before the ECN routing. So precisely what is an ECN? ECN is an abbreviation for for Electronic Communication Network. Whenever you look at a level 2 display you will witness diverse ECNs, Exchanges and Market Makers at each price stage and it is your option which one you transport your orders to. Your selection will be dependent on how speedy the route can fill your order and how much it will cost you or how much your kickback will be dependent on whether or not you are adding or removing liquidity.

Exclusive routes: Several routes will fill you extremely fast but will still charge you even though you are adding liquidity. It is these kinds of routes that retail traders investing with retail accounts do not possess access to. Investors at Prop Trading Firms will have access to these routes providing them an advantage over the competition. These special routes are not essential to being profitable in scalp trading however they do help make the job far less difficult.

Now that you realize what scalp trading is, you will need to learn the important tools. The most critical instrument is your system. You will need a Level 2 Direct Access Trading Platform which there are several to pick from.

You will furthermore need a news service such as Briefing or Trade-The-News. When scalping, you ought to be watching a small number of stocks. They ought to be lower priced and possess great volume on the Bid and Ask.

Pertaining to each one of the stocks you study you must have a level 2 screen as well as time and sales. Also, you ought to have a daily chart for each one of the stocks you watch. Believe it or not, the daily graph is the most important graph for intra-day traders, which additionally includes us scalp traders. And finally, you ought to have a 5- and 15-minute graph of the overall market. To view the market, the Standard and Poor is most effective. You can observe this by watching the ES futures or the SPY. There are alternative items you may wish to include to this set-up which I will include in my following article, but the earlier mentioned are the most important.

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