What does a scalper trader do?

What is a Scalper Trader?

A scalper trader is a type of stock market trader who uses a scalping strategy to profit from small price changes in financial instruments over very short time frames. The goal of scalping is to accumulate many small profits from a high volume of trades rather than holding positions for larger price movements.

Scalpers hold positions for seconds to minutes, focusing on highly liquid assets like stocks, forex, or futures to ensure quick entry and exit. They rely heavily on technical analysis, market trends, and precise timing to capture minimal gains repeatedly.

Scalping is similar to high-frequency trading (HFT) in that both are a form of short-term trading, but they are not the same. Here’s a comparison to clarify the difference:

Scalper Trader

• Execution Speed – Seconds to minutes
• Trading Volume – Moderate
• Technology – May use standard platforms or tools
• Human Involvement – High
• Capital Requirements – Relatively low

High-Frequency Trader

• Execution Speed – Microseconds to milliseconds
• Trading Volume – Extremely high
• Technology – Relies on advanced algorithms and servers
• Human Involvement – Minimal (full automated)
• Capital Requirements – Very high (institutional level)

In essence, a scalper trader could be considered a smaller-scale, slower version of a high-frequency trader.

What does a Scalper Trader do?

The following tasks and responsibilities of the scalper trader highlight the fast-paced, detail-oriented nature of scalping, requiring technical skills, mental discipline, and a strong understanding of the markets:

Tasks of a Scalper Trader

• Market Analysis – Use technical analysis tools to identify potential trading opportunities; monitor charts, indicators (e.g., moving averages, Bollinger Bands), and candlestick patterns; track real-time market trends and news that might affect short-term price movements.
• Trade Execution – Place multiple trades within seconds or minutes using fast, reliable trading platforms; utilize various order types, such as limit and stop-loss orders, for precise entry and exit.
• Risk Management – Set strict stop-loss limits to minimize potential losses; ensure position sizes align with overall risk tolerance.
• Monitoring Liquidity and Volatility – Trade highly liquid assets to ensure quick execution without slippage; exploit volatility to profit from frequent price fluctuations.
• System Optimization – Use advanced trading software and algorithms (if applicable) to improve speed and accuracy; maintain an efficient trading setup with low latency and minimal downtime.
• Record Keeping – Log all trades to analyze performance and identify patterns or areas for improvement.
• Adaptation and Learning – Adjust strategies based on market conditions and personal performance; stay updated on market developments and emerging trading tools or techniques.

Responsibilities of a Scalper Trader

• Maintain Discipline – Stick to a well-defined trading plan and avoid impulsive decisions.
• Monitor Costs – Manage transaction fees and commissions, ensuring they do not erode profits.
• Handle Stress – Maintain composure in fast-paced, high-pressure trading environments.
• Comply with Regulations – Follow all legal and ethical trading standards, including market-specific rules.
• Continuous Improvement – Evaluate and refine strategies to improve efficiency and profitability over time.

Types of Scalper Traders
Now that we have a sense of the scalper trader’s work, let’s look at some different types of these traders, each using distinct approaches based on their preferred markets, strategies, tools, and risk appetite:

Market Making Scalpers

• Focus on profiting from the difference between the bid and ask prices (bid-ask spread)
• Frequently buy at the bid price and sell at the ask price to capture small, consistent profits
• Often use automated systems in highly liquid markets like stocks, forex, or futures
• Require high trade volumes and precision to generate meaningful profits

Momentum Scalpers

• Trade in the direction of short-term price momentum, entering when the market shows strong movement in one direction; exit quickly before momentum reverses
• Rely heavily on technical indicators like moving averages or relative strength index (RSI), a momentum indicator that measures the magnitude of recent price changes to analyze overbought or oversold conditions
• Thrive in volatile markets and require fast reflexes for entry and exit

Range Scalpers

• Identify a price range within which a stock or asset moves and repeatedly trade within that range
• Buy near the support level (low end of the range) and sell near the resistance level (high end)
• Use support / resistance levels, pivot points, or Bollinger Bands (a type of statistical chart characterizing the prices and volatility over time of a financial instrument or commodity, using a formulaic method developed by John Bollinger in the 1980s)
• Focus on sideways-moving (non-trending) markets

News-Based Scalpers

• Trade on sudden price movements triggered by breaking news or economic reports
• Enter and exit positions rapidly to capture immediate price reactions
• Monitor news feeds, earnings releases, and economic announcements
• Highly time-sensitive and dependent on quick market reactions

Algorithmic Scalpers

• Use algorithms and automated systems to execute high-speed trades
• Exploit inefficiencies or arbitrage opportunities across markets
• Require advanced trading software and often operate in high-frequency trading (HFT) environments
• Typically, institutional traders with access to significant resources

Pattern-Based Scalpers

• Trade based on recurring chart patterns, such as flags, pennants, or head-and-shoulders formations
• Rely on the predictability of short-term patterns for profit
• Heavily reliant on technical analysis and charting tools
• Work well in markets with regular, visible price patterns

Arbitrage Scalpers

• Take advantage of price discrepancies between markets or instruments
• Example: buying a stock in one market and simultaneously selling it in another where the price is higher
• Often automated and operates in highly efficient markets
• Require speed and precision to exploit fleeting price differences

Index or ETF Scalpers

• Focus on scalping index funds or ETFs (exchange-traded funds: funds that trade on exchanges, generally tracking a specific index), which are highly liquid and often exhibit predictable patterns
• Utilize futures or leveraged ETFs to capitalize on minor market-wide movements
• Work best in markets with high liquidity and clear correlations

What is the workplace of a Scalper Trader like?

Scalper traders are typically employed or work in the following settings, depending on the type of market and trading environment:

Proprietary Trading Firms (Prop Firms)

• Who They Are – These firms use their own capital to trade in the markets, and they often employ traders who specialize in scalping.
• How They Operate – Prop firms provide scalper traders with capital, advanced technology, and infrastructure (like low-latency trading systems and direct market access) to engage in high-frequency, short-term trading.
• Examples – Jane Street, Virtu Financial, DRW

Hedge Funds

• Who They Are – Hedge funds may employ scalpers as part of a diversified trading strategy. These funds can use scalping as a technique to profit from market inefficiencies or to hedge larger positions.
• How They Operate – Some hedge funds specialize in quantitative trading, including high-frequency trading (HFT) and arbitrage strategies, where scalping may be a core component of their approach.
• Examples – Renaissance Technologies, Two Sigma

Market Making Firms

• Who They Are – Market making firms provide liquidity to the market by continuously quoting both buy and sell prices for financial instruments.
• How They Operate – Scalpers working for market makers typically execute trades to capture small profits from price differences while maintaining tight spreads.
• Examples – Citadel Securities, IMC Trading

Banks and Investment Banks

• Who They Are – Large financial institutions operate in various financial markets, including equities, foreign exchange, and fixed income.
• How They Operate – Some banks employ scalper traders in their proprietary trading desks or quantitative research teams. Banks may also use scalpers in high-frequency or algorithmic trading scenarios to handle large amounts of trades in markets like forex.
• Examples – Goldman Sachs, JPMorgan Chase, Morgan Stanley

High-Frequency Trading (HFT) Firms

• Who They Are – HFTs are specialized firms that engage in algorithmic and quantitative trading, focusing on executing thousands of trades per second.
• How They Operate – Scalping is often an integral part of high-frequency trading firms' strategies. These firms use co-located servers near exchanges to gain a speed advantage.
• Examples – Two Sigma, Jump Trading, Tower Research Capital

Retail Traders (Independent Traders)

• Who They Are – Individual, independent traders operate on their own, using personal capital to engage in short-term scalping.
• How They Operate – They typically trade through online brokerage platforms that provide access to markets like stocks, forex, and options. They might also employ automated trading systems or algorithms to assist with high-frequency trading.
• Examples – Interactive Brokers, TD Ameritrade, MetaTrader

Trading Desks in Large Corporations

• Who They Are – Trading desk in corporations engage in financial transactions to hedge risks or make profits on their capital reserves.
• How They Operate – Some large companies, particularly those with substantial capital reserves, may have internal trading desks where they employ scalper traders to execute short-term trades on their behalf, especially in volatile or high-liquidity markets.

Crypto Trading Firms

• Who They Are – Crypto trading firms or platforms specialize in trading cryptocurrencies.
• How They Operate – They may employ scalpers to take advantage of the frequent price swings in digital currencies like Bitcoin, Ethereum, or smaller altcoins. Scalping in crypto markets is popular due to their high volatility and 24/7 nature.
• Examples – Alameda Research, Three Arrows Capital

Here are some key features common across most scalper traders’ workplaces:

Physical Environment

• In firms like proprietary trading companies or investment banks, scalpers often work in an open or semi-open trading floor. These floors are filled with rows of traders at multiple desks, each equipped with multiple monitors, quick access to market data, and communication systems.
• Traders often sit close to one other, working in a high-energy, competitive environment.
• Many retail scalpers set up their own home offices or work remotely. They typically have multiple high-resolution monitors, specialized trading software, and a fast, stable internet connection. The work environment can be quieter and more controlled, but still requires focus and discipline.

Technology and Equipment

• Scalper traders often have three to six monitors or more, depending on their needs. These monitors display live market data, charts, order books, technical indicators, and news feeds. The ability to track multiple assets or timeframes simultaneously is critical for success.
• Scalpers use sophisticated trading platforms with low latency, such as MetaTrader (for forex), Interactive Brokers or ThinkOrSwim (for equities), or proprietary platforms built for high-frequency trading. These platforms allow for quick order execution and real-time analysis.
• For algorithmic or automated scalping, scalpers rely on custom-built algorithms or trading bots that execute trades based on predefined criteria without manual intervention. These tools can run 24/7 and are crucial for handling high-frequency trades.
• Scalpers use risk management software to set and manage stop-loss orders, track portfolio risk, and adjust their strategy in real time.

Market Data and Information

• Scalpers rely on live market feeds to get accurate, up-to-the-second price quotes.
• A scalper’s workplace will typically include access to news services like Bloomberg or Reuters for real-time economic updates, corporate earnings reports, and breaking news events, allowing them to react to news-driven price changes within seconds.
• For scalpers trading stocks or forex, Level 2 market data (which shows order book depth, referring to the number of buy and sell orders at different price levels) is crucial for understanding market sentiment and determining the best entry and exit points.

Atmosphere

• Scalping requires constant attention and quick decision-making. The atmosphere is intense, and there is pressure to execute trades flawlessly while managing risk.
• Whether on a trading floor or working remotely, a scalper’s workplace requires a high level of concentration. Distractions can lead to missed opportunities or costly mistakes.
• In a professional setting, scalpers may collaborate with other traders, analysts, and quants to discuss strategies, market conditions, or share tips for improvement. However, scalping is still an individual-driven strategy that requires independent decision-making.

Physical Wellbeing

• Given the long hours spent in front of screens, scalpers often invest in ergonomic office chairs, adjustable desks, and keyboard / mouse setups to minimize physical strain.
• Scalpers need to manage stress levels and avoid burnout. They may take regular breaks, use meditation techniques, or engage in physical exercise to maintain focus and avoid mental fatigue.

Work Hours

• Scalping requires the trader to be active during market hours. For forex scalpers, this may mean trading around the clock as the forex market operates 24 hours a day. For stock scalpers, they work during market hours (typically 9:30 AM to 4:00 PM in the US stock market).
• Scalping is all about timing, so traders must be on their toes and able to react quickly to market movements, often managing multiple trades in parallel.