What Is Scalping?
By Adam Todd
A scalper is a person who holds a position for a very short period of time, attempting to make money off of the bid-ask spread. The scalper aims to make lots of very small profits with the idea that lots of small profits can add up.
And it is a lot easier and quicker to make a 1 tick profit than it is to make a 10 tick profit. The best markets for scalping on Betfair are the UK horseracing markets just before the start of the race.
A strict exit strategy must be implemented because one large loss could eliminate the many small gains that you have worked to obtain. Needless to say, discipline to get out of bad trades and risk management is extremely important and if implemented properly it is possible for a scalper to make consistent profits.
Another defining characteristic of scalpers is that they usually don’t know anything about what it is they are buying and selling. They don’t use fundamentals to base their trading decisions on but rather rely on familiar and predictable short term price patterns that they have learnt to recognize and exploit. A scalper doesn’t need to know anything about what he is buying and selling because often the fundamentals don’t apply to such a short term view.
This is true whether the scalper is buying and selling stocks, oil futures or horse racing prices. And the key to success is speed: the faster you take your profits the less risk you are taking, and the scalper avoids risk at all costs. Risk must be minimized as much as possible which means holding positions for the shortest possible amount of time.