Scalp trading is a very fast method of trading where you buy and sell a stock within a time frame of seconds to minutes executing a lot of trades within a day. Even though you will be looking for profits of only 1 or 2 cents per transaction/trade, when you take into consideration the amount of trades you will be executing, your results can be substantial. In addition, you can still make a profit even when your trade breaks even. how come Because when you add liquidity to the market, the ECN will rebate back to you a portion of the trade. Exercising just this simple strategy could generate a nice daily return. In short, scalp traders work at exploiting the bid-ask spread. They purchase a stock at the bidding price then quickly sell the same position at the asking price. Since this method of quick investing does best with equities that are priced low that are slow moving, scalp traders generate revenue by making hundreds of trades. Scalp trading has no big one time profits, but at the same time there are lesser not being profitable thus it is a safer method of trading the stock market. But wait, not just anybody can scalp trade.
There are tools that are necessary and you must have discounted commission rates. It requires deeply discounted scalp trading commissions and direct access to NYSE floor routes. Both of which you would have a hard time finding at your E*trade or Scottrade broker. So how can you do this? There are proprietary trading firms that accept you as an experienced trader. And if you are not, there are some proprietary trading firms that will school you.
Looking for the right proprietary trading firm is about finding a company that will let you to trade their money and provide attractive trading fees. Most prop trading firms will allow you join their firm with deposits as low as $5,000. For that, they will let you trade with $100,000 or more depending on your experience. It’s not unheard of for a proprietary trading firm to take a $10,000 deposit and provide you with the ability to trade with $300,000 but you must know that Prop firms are paid a percentage of your profits. The profit sharing scale can range from you getting 50 to 95% but that will depend on your experience. The more profitable you are, the less they will ask for.
The most important decision when finding a prop trading firm for your scalp trading method will be transaction cost and order routing advantages offered. Inquire as to what floor routes they offer and if they can assign personal access to a floor specialist. Any good proprietary trading firms will do this if you are consistent in trading good volume. Next, see what their commission rates are. You will want to find a firm that will charge .0005 to .0007 per share. On a 2,000 share trade, that would be 1.00 to 1.70 dollars in and out; much better than your $8.95 per trade rate at Scottrade. Be sure to also confirm that they pass the rebates back to you because as you will learn, the rebate is just as important to your scalp trading.
There are many courses available that teach the art of scalp trading. Get educated so you can improve your chances for success. In addition, if you are looking for a place to trade, the proprietary trading firm below offers the above rates, direct access to the floor and scalp trading seminars. Happy trading.