A scalper refers to an individual or entity that engages in short-term trading strategies to profit from small price fluctuations in financial markets. Scalpers aim to make quick trades, often taking advantage of high-frequency trading technology and leveraging high trading volumes.
Scalping strategies typically involve a high volume of trades throughout a trading session. Scalpers often enter and exit positions within minutes or even seconds. Scalping relies on capturing small price differentials, often referred to as "ticks" or "pips," and frequently executing trades to accumulate profits over time. The high turnover of trades requires careful attention to transaction costs, such as commissions and fees, as they can significantly impact overall profitability.
Scalpers may use automated trading systems, algorithms, or computerized trading strategies to capitalize on fleeting market opportunities. They closely monitor market data, order flow, and technical indicators to make rapid trading decisions, as well as market conditions and price movements. Their trading decisions are often driven by technical analysis and short-term market patterns rather than long-term fundamental analysis. Scalpers need to maintain focus, discipline, and adaptability to swiftly respond to changing market dynamics.
Scalping involves inherent risks, including market volatility, rapid price fluctuations, and execution risks. The fast-paced nature of scalping can amplify potential losses if trades move against the scalper's position. Effective risk management, including setting stop-loss orders and managing position sizes, is crucial for scalpers to control potential losses and protect capital.