Mechanics of Scalping?

[cz4802]

I have been reading "Day Trade Online" by Christopher A. Farrell
in which he describes 'scalping'. Although he goes into the theory in great detail he doesn't talk too much about the mechanics. Can anybody here tell me how I can do that with UK stocks? Do I need to sign up with a specific broker, do I need a lot of money to even think about doing this? Is it a good idea for a relative novice to get into this?

Thanks.

 

[TheBramble]

It's shaving points.

UK stocks don't (generally) have that sort of volatility to make it a possibility.

Unless you're a professional, the commissions/spreads will prevent this sort of trading - even with Direct Access.

 

[DaxTrader]

It is possible in UK stocks, using something like GNI Touch CFDs, where you can work the bid offer.

The com charges are low and you can certainly get them cut further if you are a regular trader.

The first hour is when the spreads are widest, particulary in less liquid stocks.

 

[TWI]

Scalping

This is the most common form of trading performed in the arcade environments. I have used this method to great success in the short term interest rates but I know people who also use GNI touch to perform a similar exercise in the equity markets.
The method is simple enough. In equity markets orders are filled on a first in, first filled basis. Lets say you get in early in the morning and stack buy and sell orders in the bid or offer depth of a liquid stock. Quite often the current traded bid/offer will be hundreds of thousands on each side. If you got your order in early you will get filled before much of the volume has disappeared. When for example you get filled on the bid you then put volume on the offer if you do not alrady have offers in at that price and wait to see if you get filled, so taking a tick. If the bid you are leaning on starts to disappear then you just cover your trade, so losing transaction costs but nothing more. If you make the tick then you make money. Some people make this more complex by for example spreading against other equities in the same sector but the basic principle is the same.

 

[TWI]

Oh yeah, and you are right, this is only for the professional who can get good com rates and is right on the market.

 

[cz4802]

Thanks for taking the time to reply to my post

 

[LevII]

cz4802,

I understand scalping to be capturing the spread by, say, buying on the bid then immediately offering out on the ask. Often pre market.

It takes considerable skill and experience, a first class Level II platform to trade from and b*lls of titanium. If you do not possess all 3 then leave it to those who do. If you don't they will have you for breakfast.

LII

 

[Salty Gibbon]

Is it a good idea for a relative novice to get into this?

No

 

[JTrader]

In my opinion any type of day trading requires considerable skill, in time and through practice you gain the experience, and you also need the proverbial balls of titanium as it's a risky and sometimes very frustrating business.
It is possible to scalp UK stocks using D4F spreadbet (where the spreads usually always match level 2 on FTSE100 stocks) or you could try the CFD platform. These are not direct access platforms of course.

 

[marky]

I maybe incorrect but traditionally scalping was buying and selling between the bid and ask when the spread was wider, now that everyone is direct access and the markets getting more liquid, the spread has got very narrow so its a harder game than ever, so scalping these days is regarded as taking small move out the market like 5 or 10 point hits.

Regards mark

 

[Naz]

You can capture the spread in pre and post market trading on the Nasdaq level 2 screen.This is because the liquidity is a lot less so the spreads open up.You can buy from one ecn on the bid and offer out on the others to capture the larger widened spread.

Never mind about any queue, you just use your direct access skills to jump in front of anyone who's there on both sides of the market.

Of course there is no spread to pay because you've captured it.Its easier doing it with smaller amounts of shares because of the liquidity.So with a discount broker your costs would probably be somewhere under $10 for the round trip.

Spreads can be anything.I like 20c to 50c spreads to do this .Trading 500 shares and capturing 30c would make $150 profit.

The downside is if the price moves to much when the liquidity isn't there it makes it harder to get out at the price you want.

There are various tricks a trader can use by taking an open position during market hours into post market trading and use the widened spread to capture larger profits.

 

[cz4802]

LevII

"It takes considerable experience, a first class Level II platform to trade from and b*lls of titanium. If you do not possess all 3...."

LevII surely you mean "all 4 ..."

 

[options]

No. It's 3. when he was new to this and had wooden ones, the market took one off him.

Now that's what you call a steep learning curve!

Now he only walks with a slight limp.

 

[BBB]

Would anyone recommend a better connection than DSL if capturing spreads?

I would imagine speed is of the essence here.

 

[TWI]

DSL is not as good as fixed line but there again dsl can be of many different qualities. Usual is 576k with 50:1 contention but if you up to 2mb at 20:1 then it improves a lot and in London 2mb at 1:1 is also available. Prefer fixed line however (apart from cost) since this is most reliable BT, C&W and Colt supply these at rip-off prices but a 128 or 256k fixed is adequate.

 

[rog1111]

I have been reading "Day Trade Online" by Christopher A. Farrell

1. "do I need a lot of money to even think about doing this?"
&
2. "Is it a good idea for a relative novice to get into this?"

Thanks.

Christopher

1. Before you go for Nasdaq stocks via a platform good enough to scalp successfully, bear in mind that if you do more than 4 round trip trades in 5 business days, which you'll obviously have to, to make enough money from the tiny scalps, then you will classifed as a "pattern day trader", and you'll be required to have more than $25,000 in your account at all times before you can resume trading. See this link :

http://www.nasd.com/Investor/Trading/Daytrading/day_trade_margin.asp

2. NO

GL
rog1111

 

[rog1111]

cz4082, sorry, I should have addressed that to you, not Christopher, the author of the book ! Silly me....

rog1111