It don't get any greener than a newbie to be. I'm used to buying the ask & selling the bid with stocks & options.. It's the opposite with scalping/Level II. Very cool. Does that mean that my trade can go against me up to whatever the spread is until I break even?(assuming I can sell the ask & ignoring commision). Ie if the spread is 1/4 , I buy at $40 even, is my break even 39 3/4? Conversley, can scalpers go short? If so how does that work? Is that the buying only the uptick (or whatever)rule I remember hearing somewhere? Also, when working from a level II type trading account, do you get a different margin than 2:1 that I'm used to? I usually never trade on margin anyhow, but would be important to know. Sorry for the obtuse level of my question. Don't mean to drag you down..... Regards, Patrick
For the most part, daytraders have 2:1 margin. There are some firms which allow you to trade with the firms' captital, where you might get up to 10:1 margin. But there are only a handful of those, and I think you have to have a Series 7 license, so in all likelihood you'll have 2:1 margin. You're able to short, but there are some stipulations. On the Nasdaq, if the stock is on a downtick, you cannot short sell by hitting the best bid. You have to offer the stock above the best bid (I think with decimalization, you have to offer a penny higher.) They were talking about getting rid of this rule, but I haven't heard anything. And, or course, the stock you want to short has to be borrowable through your broker. Daytraders sometimes buy at the offer, sometimes at the bid. You can be a price taker or a price maker. The price taker agrees to someone else's price. So if the best offer is 40, the price taker can pay that offer. A price maker, on the other hand, sets the price and waits for someone else to take their price. So if the best offer is 40 and you want to buy at 39 3/4, you put a limit order to buy at 39 3/4 and wait for someone else to be a price taker by selling to you at that price. (You would have to do that through an ECN like ISLD of course, and not through a market maker.) There are people who will tell you that you should never be a price taker because you're already behind by the spread, but I think that's pretty unrealistic in volatile markets, especially as small as spreads are becoming. If you buy at 40, you break even by selling at 40. (Disregarding commissions of course.)
In all honesty, you don't want to be a scalper. Only your broker will profit. I know people who are profitable at it by using the futures, and I'm sure that you'd pick me off if you're good. I look for 1-3 pts usually, and I don't mind paying the spread if it's not more than 1/4. I usually want 1-3k shares, and it's impossible to get that many on hte bid. Especially b/c when I buy, I expect the price to be at least 1/2 higher in 15 mins anyway. I usually move the stock some cause I trade very illiquid names. I will often be .5-3% of the daily volume in that stock. Threfore, I can't buy on the bid, if they see 2500 bid, they'll just lean on me. It's easier to snet whatever mm seems to be selling the most and hope that he gives me what I want in the hope that he can cover for some profit. That's why I much prefer Nyse. Even if the stock only trades 300k a day, I can take 3-5k in a market order and i'll just get filled at the offer or maybe .25 over the offer. As for scalping intc or whatever, don't bother. Decimals made it worthless. I hope decimals honestly get rid of scalpers. I like the added liquidity, but you people always get in the way, especially on the nyse. I suggest that you familiarize yourself with l2, and then just try swinging. Look at my "great new pattern" postings. I think you'll see what i've been trading, cause I've had a ton of success on those. Also learn to fade large moves (especially news motivated news). I became the calpine mutual fund on friday. I just kept buying it, mbi and rei. As long as you pyramid, you'll be fine. take 500, then 1/2 lower take a k, then 1/2 lower 2k etc, you only need a 3/4 bounce to get out with a nice gain. I took 2 and 2.5 avg gains on both, but that's cause I read the specialist and got a great basis. But the specialist was fading the move buying on the way down. When you see the selling abate, you know he's gonna move it up fast cause there are no offers. That's what mm's and specialists do anyway. They fade the moves, and then force the stock down or up to cover for a gain.