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Scalp Trading is a word that is tossed about a lot any time you hear day traders talk but actually scalp trading is a particular style of day trading. It is a method that involves a substantial frequency of order tickets having a earnings target of merely a couple of cents. The profit occurs from the size of the orders. A average scalp investor at a lot of of the Proprietary Trading Firms uses among 5,000 and 15,000 shares for every position with the greater investors going upwards to 200,000 shares for every execution. This manner of investing is not really usually done by retail traders on retail accounts for 2 major motives, great price structure and special order routes.

The fees framework that the average retail broker offers is too costly for this specific style to be possible. The majority of retail brokers will provide $6 to $7 per one thousand share trade with the best deals close to $5. A scalp trader needs to be able to gain money from simply a one cent move. So even with the greatest retail deal of five dollars, a one cent shift would generate you $10 but would cost you ten dollars ($5 to buy and $5 to sell) in commission rates which would leave you $0 net profit. At a Proprietary Trading Firm, traders may get a commission structure anywhere from 30 cents to $1 per 1000 shares. Now if you add it all up: a one cent move with 1000 shares grosses $10 however will simply cost you 60 cents to $2 which of course supplies a more desirable net profit margin.

This takes us to ECNs and who one must be routing your orders thru. If you add liquidity to the order book also known as the level 2 then usually the ECN you sent to will pass on to you a rebate. Having said that, when you remove liquidity from level 2, the ECN will charge you. You might be contemplating exactly what does it mean to remove or add liquidity? Well as an example; imagine you intend to purchase a automobile. You open a car trader magazine. In the front section of the magazine are adverts from individuals who need to purchase vehicles. These people are listing the mileage and price they are in a position to pay. Now in the rear segment of the journal are individuals promoting cars for sale. Well you might be questioning why don’t the folks in the front part of the journal speak to the folks in the back section of the journal? This is because there is a variation in price amongst what the buyers desire to buy at and the sellers want to sell at. Now these individuals whom have put these ads in this car journal are all adding liquidity. The people whom read the magazine and eventually either sell their automobile to 1 of the purchasers or buy a automobile from one of the sellers are taking liquidity. This is how the stock market performs and the left side of the level 2 screen is like the front area of the auto journal and is referenced to as the “BID”. The right part of the level 2 screen is like the back part of the car magazine and is referenced to as the “ASK” or “OFFER”.

I mentioned prior the ECN routing. So exactly what is an ECN? ECN is an acronym for Electronic Communication Network. Any time you look at the level 2 screen you will witness several ECNs, Exchanges and Market Makers at each price stage and it is your choice which one you transmit your orders to. Your choice will be dependent on how quickly the route will fill your trade as well as how much it will cost you or how much your rebate will be based on whether or not you are adding or removing liquidity.

Particular routes: Some routes will fill you very promptly but will still charge you even though you are supplying liquidity. It is these types of routes that retail traders trading using retail accounts don’t possess access to. Traders at Prop Trading Firms will have access to these routes giving them an edge over the competition. These specialized routes are not essential to being successful in scalp trading nevertheless they do help make the job far simple and easier.

Now that you are aware of what scalp trading is, you will need to understand the required tools. The most essential tool is your system. You will require a Level 2 Direct Access Trading Platform which there are a lot of to pick from.

You will additionally need a media service such as Briefing or Trade-The-News. When scalp trading, you must be watching a handful of stocks. They will need to be lower priced and have very good volume on the Bid and Ask.

With regard to each one of the stocks you follow you must have a level 2 screen and time and sales. Moreover, you really should have a daily graph for each and every one of the stocks you follow. Believe it or not, the daily graph is the most important chart for intra-day traders, which additionally includes us scalp traders. Ultimately, you need to have a 5- and 15-minute graph of the general market. To see the market, the Standard and Poor is preferred. You may observe this by observing the ES futures or the SPY. There are some other items you may want to add to this set-up which I will include within my subsequent article, but the earlier mentioned are the most required.

Affinity Trading is an professional educator in the art of Trading Stocks for a living. Their most recent forex education course teaches the art of trading with Ichimoku Clouds.

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