Scalping is a high energy type of day trading. "Scalpers", as they are known, seek the quick kill in the stock trading world. Scalpers will often trade dozens, if not hundreds of times in a single trading day. They trade in a real-time trading time frame.
They are constantly looking for small indescretions between the bid and ask prices - if they find an unusually high "spread" on a stock on the move, they buy and wait to make up the difference, then they quickly sell after the market has picked the stock up.
Why would they go to such an extreme? This is very low risk type of trading. They make very small amounts on each trade, but can add up to a significant amount of money at the end of the trading day.
Not everyone is cut out to be a scalper - You need the right tools:
- Time - This type of stock market trading metholodogy requires an enormous amount of time. The trader is literally glued to screen, looking for the latest trade. This can take a toll on a person over time.
- Access to Level II quotes - These are near-real time stock quotes of bid and ask prices, as well as block sizes of buys and sells.
- Often specialized programs are needed to scan large numbers of stocks for the desired spreads that the scalpers need to make a profit.
- A large bankroll - Since nowadays stocks trade in pennies, scalping can be difficult because to make enough on each trade, and to cover commisions, risk is spread out over different numbers of stocks, which can take a significant amount of money to fund.
It takes a truly unique individual to succeed by trading in a "Scalper's World". That person has to have a seasoned knowledge of that style of trading, years of experience in the stock market in general, as well as the endurance and temperment to match the high paced action - Not for the weak trader at heart.