TheTaxHeaven Dictionary - Know the meaning of tax


What is Scalping?

Scalping is a trading method that seeks minor profits from small price changes in financial instruments. Scalpers utilise high leverage and make large trades to benefit from these minor fluctuations. This strategy is usually short-lived, lasting for seconds or minutes. 

Scalping also refers to the buying of large quantities of popular items at their regular prices and then reselling them at increased prices when demand is high. This form of scalping, often illegal, typically takes place on the black market. An example would be buying multiple IPL match tickets and reselling them at inflated prices close to the match date.  

Understanding Scalping

Scalping trading involves traders profiting from small price changes in markets like foreign exchange, securities, and commodities. Scalpers aim to gain from the bid-ask spread and exploit short-term price shifts. Trading can be manual or automated using trading software. 

Scalping has become difficult with the advent of high-frequency trading (HFT), which uses complex algorithms and technology to complete numerous trades within milliseconds. HFT can identify and exploit price and liquidity discrepancies in thousands of securities at once, also monitoring Level 2 data. 

Scalpers usually use short-term charts and intraday scanning software to find trading opportunities. They trade with high volume, often through online brokers with low commissions to minimise trading costs. They buy low and sell high, or buy high and sell higher. Scalping requires a margin for short-sale trades and is largely based on technical analysis and temporary price fluctuations. It is considered a high-risk trading style due to the extensive use of leverage.