Day Trading & Forex Forum

PM: = Paul Mullen (Interviewer)
BT: = Ben Tippen (US Stock Scalp Trader)

PM: What is a stock scalp trader and what you do?

BT: A stock scalp trader is someone who takes small moves out of the market but with bigger size.

PM: Okay, and when you say small moves in the market with bigger size, what kind of size move are you talking about?

BT: One to three cents.

PM: What kind of size would be involved in that?

BT: That obviously varies, depending on the skill of the scalper, but I would say once you get into a situation to where you make a living out of it, I would say 10,000 shares and then once you've become a bigger player you'd be up to 50,000 to 100,000 shares.

PM: What you said there is a 10,000 share move would be something like $100 profit

BT: $100 for a one cent flip.

PM: So, $100 is obviously not enough to live on so how many times a day would you do that?

BT: Many times, maybe around fifty plus.

PM: So what you're saying there is; if you could, by looking for a one cent move and fifty times a day, that's somewhere in the region of $5,000 a day.

BT: If every trade was successful, yes.

PM: Okay obviously many people would like to be able to scalp but the costs involved in that means it's prohibitive. For example, some people who are trading with a retail broker would incur quite hefty costs doing that. Let's say you're trading 10,000 shares and you're looking for a one cent move, which would give you $100; what would the cost be for you in doing that?

BT: You simply can't do it with a retail account. I've had several retail accounts and the commission structures do vary, depending on the deal you strike with the broker, but all the deals are a million miles away from what you need to be able to do this style of trading. You need to be able to flip for a penny and have half of the profit as net profit.

PM: When you say flip for a penny, what do you mean by that?

BT: If you're going for a one cent move and you're using 10,000 shares, you need to have $50 of that as net profit from the $100 gross

PM: So $50 is the actual profit you make from that one cent move.

BT: Exactly and the example you gave where if all 50 trades were successful, you would actually only be netting $2,500 out of the 5,000 if every trade was successful. It is a different picture when you look at it like that.

PM: But you also said that one cent is the minimum you go for. Do you frequently go for two or three cents ?

BT: That's where the real profit is. If you can go for just that one extra cent, that's all net profit because you've paid for the commissions in the first cent. That's where the real profit is.

PM: What markets do you trade?

BT: At the moment I only trade NYSE (New York Stock Exchange) but I'm not saying it's not possible on others as people also do it on the NASDAQ. The reason I'm on the New York Stock Exchange is because part of the strategy I use involves having a special order routing system. It's only available at the moment on the New York Stock Exchange.

PM: You talked about a special order route there. What does that involve?

BT: On a standard retail account, generally speaking, you would be routing to exchanges and ECNs for example, ARCA or BATS or NSDQ or any of those standard exchanges or ECNs. If you were to bid or offer, i.e. passively take a trade, wait for someone else to take your order out of the book - we call that adding liquidity to the market. The ECNs would pay you to do that. If you take liquidity out of the market, i.e. you hit a market order or you hit what we call an inside limit order, the ECNs charge you for that.

With the order route I've got, even though I'm adding liquidity, I don't get a rebate back. I still have to pay because my route allows me to bypass the thickness in the book and I route it straight out into the NYSE floor where there is a specialist who tries to match my shares. For the privilege of doing that, even though I'm adding liquidity, I have to still pay.

PM: It's an interesting concept you talked about there. You said you can actually bypass the order book queue so by that, and correct me if I'm wrong here, but you're saying that if you've got six or seven levels of orders being shown on a level two screen, and you're at the seventh or eighth level, you could get filled quicker than the people above you.

BT: Yes

PM: How do you actually go about that then? Most retail traders don't have access to that so presumably you're linked to something else?

BT: That's the advantage of being part of a group like Affinity Trading Group where I'm a coach there for scalping and also a trader there. You simply could not do it without these tools and you need the route. There is also another route we use called "managed" which allows us to hit a market or inside limit order and we hit a dark pool of liquidity, and that quite often allows us, even on a one cent spread, on a $3.5 dollar stock you can still get an average fill of in between the one cent. When you're using big size, even one tenth in your favor on 10,000 shares is $10.

PM: Just to clarify what you're saying there, is that for the price that's being shown, you could actually get a better price by half a cent sometimes or even a tenth of a cent?

BT: Exactly and the other big side to it is it's also free. That’s very good because the idea of this style is that you get filled using our special route onto the NYSE floor, when there is plenty of thickness in the book and then if you think that thickness is going to deplete and it's going to go against you, then you try to punch out using our managed route, which is free, for a flat trade. The idea of this style is you never see red gross P&L, in theory.

PM: That's in theory. You talked about "dark pool liquidity". Can you say a bit about what dark pool liquidity is?

BT: Basically it is where orders are matched that are not shown on the order book and that could be through a broker who may have clients who they can match to each other.

PM: How did you get started in the industry?

BT: I was in the car trade for just under ten years, with my father. It was around the other side of London and we had some really good years but it was getting harder and harder as we approached the recession we're now in. We didn't know it was coming, but we felt it way before in the fact that the car sales were dropping off and it was becoming harder and harder. Also the manufacturers were obviously feeling it without knowing it was coming either, because they were getting tighter and tighter in the margins they were giving us. The whole business wasn't looking as viable as it used to be so my father and I decided it would be better if we sold the business.

In the last few months of that I was looking for something else to do and I started getting interested in trading from the radio adverts that I used to listen to every day. I'd go into work in the car trade and I'd listen to these interviews. I looked into it and found out that these adverts were obviously not being honest so that wasn't a route for me to go down but it did get me interested in the industry. I ended up opening a retail account. I had a few lessons, I won't name the people they were with, but they were all well known coaches.

I just couldn't get their styles to really work for me. I really did give it my all and I tried. I also met a few people off Trade2Win on the meetups and one of them joined a trading group called Nostrum, which is now The Affinity Trading Group. Having spoken to him and the CEO, I came to the conclusion it was a genuine company and if I was going to have any hope, this was going to be my final chance at it. I already discovered that I didn't have what it took to do it on my own, with a retail account, so I joined them and I was initially trying to do P&L trading which is not scalping but looking for bigger moves, smaller size, what a standard retail trader would try and aim for.

PM: Still on the U.S. stocks I presume?

BT: Still on U.S. stocks, yes, and although I had a great deal from them, I just couldn't get it to fit my personality and I found that I suffered a lot from over trading. I couldn't stop trading. I always saw what I thought were good patterns and good setups but I just never had the skill to be able to really notice a good setup and go for just those trades. In the end, I decided to go to New York and spend a week with the CEO for further training. Whilst I was there, he took me down to a sister company and I watched them all trade down there. Mark was a trader there as well and I just was shocked about the amount of money they were making, so consistently, whilst I was there. One of the things that interested me was the fact that they all traded exactly the same, or very similar. They all were focusing mainly on level two. The only charts I saw were daily charts and some of the best traders there didn't even have charts up at all. They were just looking at levels in the level two. They were very consistent and were doing very well and they were all making four figures, every day, whilst I was there.

PM: Four figures would be over $1000?

BT: Yes I think the biggest was just under five figures where someone made $9,000 one of the days I was there, but they were all four figures, every day. I was very impressed by it and thought, "That's what I'm going to focus on now," and when I started focusing on it, I started realizing that I was getting back of the queue every time I got an order filled, no matter how long I left it in the book. It was better in the NASDAQ stocks but certainly on the NYSE stocks I was leaving my orders half an hour before the market opened at what I thought was a key level, and then half an hour after the market opened it would get to that level so my order had been sitting there for an hour and I still got filled at the back of the queue.

I was saying to the Mike Di Gioia who is CEO, "Why am I always getting back of the queue?" Mike looked into it and found these routes and came up with the tools and set it all up. Since then I've done very well with it.

PM: So the new order routes are a relatively new activity then?

BT: It's all new and actually allowed me to become consistently profiable