You might have heard about different styles of trading. Investors always have different modes and methods of trading that could potentially reap profits for them.
One such style of trading is scalping.
And as a spoiler, people also have the notion that scalping is an illegal stock trading activity just because some brokers don’t allow it.
What is a scalping strategy?
Scalping allows traders to start with this strategy even if they don’t have huge capital. It is a process that enables you to make profits from the small changes in prices. It often includes small and frequent trades. The profits are made in small amounts per trade from the pip movements.
The scalpers buy an asset at a lower price and sell it as soon as there is a profit made. They target stocks that have high liquidity and the price change is frequent during the day to make enough trades. If the stock isn’t liquid enough it won’t have the required price change for a profitable trade.
Scalpers, unlike long-term investors, believe in making profits from multiple opportunities created within the day. A long-term investor keeps his investment for a long period to earn huge profits by waiting for years. Whereas a scalper makes small profits before the opportunity vanishes. They don’t wait for big opportunities but make profits from the multiple small opportunities.
Scalpers work on the market on three principles:
- Lower exposure limits risks
- Small moves are easier to obtain
- Small moves happen frequently
Who Are Scalpers?
The scalping trading style is used up by people who want to earn profits in the short term and are willing to take the high risk as well. These small changes in stocks add up to profits. A scalper is therefore a trader who uses the scalping trade technique in his/her trades.
A scalper should have the quality of working with discipline as the risk in these trades is very high. One wrong move can eliminate all the small profits they have made in the deals. Therefore most scalpers have a very strong exit policy to be followed to avoid such situations.
Therefore they need to have the discipline, courage, and decisiveness to make quick and informed decisions. Not only these qualities but they also need to be experienced enough to identify the profit opportunities using technical trading techniques.
Features of Scalp trading
What are the features of scalp trading you need to look out for when searching for the best scalping broker?
You can start by looking for a broker that is charging low transaction costs or any fees or commission costs that there are. The lower the costs, the lower chance of eating your profit margins.
Secondly, the broker should be providing fast trades where the execution is effective to lock deals and reduce the deals slipping. In addition to this, your broker should also be able to provide high-volume trade identification and good market liquidity to make your deals feasible.
You just don’t need to look out for good brokers but also at the market with a keen eye for opportunities. Technical analysis and some tools which help in auto trading systems are mostly the key features of scalp trading.
Why is scalping considered illegal?
Is scalping stock illegal? Some people think it is an illegal stock trading activity as some brokers do not allow it. Whereas the truth is that scalping is a legal trading strategy. Why do some brokers not allow it?
Because it will involve a large volume of trades taking place in a very short time. The scalping technique of trading is unique trading that is about making various small trades during the day to earn a profit.
And some brokers do allow depending on the risk management model. These brokers operate without interference through their liquidity providers and network, hence they can place trades directly on the open market.
Is scalping illegal in India? To say, Scalping is quite popular among the traders in India. We have a number of top brokers who are allowing traders to use scalp trading on their platforms. It’s a technique that a lot of new traders are learning and applying in their day-to-day strategies.
Difference between Day trading and Scalp trading
You might find a lot of similar features in day trading as well. Without a doubt, day trading is quite similar to scalping. But both of them don’t have the same trading techniques and strategies, and there are differences between the two.
Trade-In Quick Successions, But They Trade At An Average Speed
Immediate Results, They Trade In The Market In Ultra-Speed.
Trading Decisions are based On Technical Analysis
A Scalper uses his Experience as knowledge in most cases apart from various tools
Average Account Size, Risk is present
Takes A Higher Risk In The Market Has A Larger Account Size
A Timeframe That Lasts Of 1 To 2 Hours
Shortest Timeframe To Trade Between 5 Seconds And 1 Minute
What is the best time frame for scalping?
As we have understood by now, scalping takes place in a very short time.
The aim here is to profit from the market movements that are so small that they can’t be even noticed on a one-minute chart. The normal duration is seconds or minutes at maximum for scalping trade.
The only time a scalper does stay in a long position is if there is no movement at all.
Can you make living scalping stocks?
So to conclude, If you are a trader in the market and want to try out a new strategy, you can try scalping. It can be turned into a primary or a supplementary style.
After going through what scalping is, its’ features, and the difference between day trading and scalping, it’s come to a strong conclusion that being a scalper requires dedication, discipline, and decisiveness.
If you are someone who takes time to find the right stocks and make the decision with time then scalping might not work for you.
It will be suitable for a trader who wants to make immediate profits and is comfortable with deciding with really high speed.
A scalper with all these qualities will be able to make a living scalping stock with the numerous profits they make in small quantities.