What is a 'Scalper'

A scalper is a person who holds a position in a security for a short period of time in an attempt to make a profit. Scalpers buy and sell many times in a day with the objective of taking small consistent profits out of the market. They may trade manually or automate their strategies using trading software. A scalper attempts to profit from the bid-ask spread as well as exploit short-term price moves.

A scalper also refers to a person who buys large quantities of in-demand items, such as new electronics or event tickets, at regular price, hoping that the items sell out. The scalper then resells the items at a higher price. For example, a scalper may buy 10 tickets to the Super Bowl and attempt to sell them on eBay several days before the game at an inflated price. Such transactions often occur on the black market. This type of scalping is illegal under certain conditions.

BREAKING DOWN 'Scalper'

High-frequency trading has made a scalper’s job more competitive. Programs can scour thousands of securities at once and take advantage of discrepancies between the bid and ask in milliseconds.  Black box algorithms also monitor level 2 data, analyzing price and liquidity information to make short-term trades.

Scalpers typically use the one- and five-minute charts to make their trading decisions. They may also purchase intraday scanning software to find new opportunities. Most scalpers trade a large number of shares a day and use online brokers that offer competitive commissions to keep their trading costs to a minimum. (To learn more, see: How can I Prevent Commissions and Fees from Eating up my Trading Profits?)

Traits of a Scalper

  • Disciplined: Scalpers must be highly disciplined. They must strictly follow their trading plan if they are to succeed. Most scalpers set a daily loss limit and stop trading if that amount in breached. A daily loss limit prevents scalpers from chasing their losses.                                                                                                                                                                                       
  • Combative: Scalpers are often combative by nature. They view the market as a battle zone and see other traders as the enemy. Many scalpers who trade manually have an “us versus them” mentality toward black box trading programs. They look for repetitive patterns and try and exploit them for a profit.                                                                                                                                                                 
  • Decision Maker: There is often little time to react when making short-term trades. Scalpers often have to make trading decisions in a matter of seconds, or they miss the opportunity. They also need to make quick decisions if an error is made. For example, do they close an erroneous trade immediately, or do they close half now and half on the market close? Being a good decision maker helps prevent a scalper from panicking.

            (For further reading, see: Scalping: Small Quick Profits Can Add Up.)

RELATED TERMS
  1. Forex Scalping

    Short-term buying and selling of forex to make profits is known ...
  2. Open Position

    An open position is any trade that has been established, or entered, ...
  3. Black Box Model

    A black box model is a system using inputs and outputs to create ...
  4. Manual Trader

    A trader who manually enters trades into a trading system without ...
  5. Black

    The term 'black' is used to refer to a company's profitability. ...
  6. Intraday

    Intraday is the high and low price of a security that occur in ...
Related Articles
  1. Trading

    Introduction to Trading: Scalpers

    This type of trader makes many trades per day to 'scalp' a small profit from each trade.
  2. Trading

    Scalping: Small quick profits can add up

    Scalping can be very profitable for traders who decide to use it as a primary strategy, or even those who use it to supplement other types of trading.
  3. Insights

    “Hamilton” Ticket Prices: An Economics Case Study

    It's not about greed, it's about simple economics.
  4. Trading

    Use Monthly Charts, Get Better Investment Results (AAPL, PEP)

    Investors can increase profits with monthly charts that gauge the progress of open positions.
  5. Trading

    The Evolution Of A Retail Trader

    How do you evolve as a trader? If you are new to forex trading, do yourself a favor and find an education that fits your personality.
  6. Trading

    Are You Under or Overtrading?

    Under and overtrading can reduce an investor's profits. Find out how to fix these issues.
  7. Trading

    Trend-Range Alternation Spawns Trading Styles

    Markets cycle continuously between directional trends and compressed ranges in all time frames.
  8. Trading

    Day trading strategies for beginners

    This day trading tutorial covers general principles, deciding when to buy and sell, common day trading strategies and how to limit losses.
RELATED FAQS
  1. What are some examples of the law of demand in real markets?

    Find out how the price of a good or service affects the quantity demanded, and explore instances of consumption reflecting ... Read Answer >>
  2. What is the difference between a broker and a market maker?

    A broker is an intermediary who has a license to buy and sell securities on a client's behalf. Stockbrokers coordinate contracts ... Read Answer >>
Hot Definitions
  1. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  2. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  3. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  4. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  5. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  6. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
Trading Center