What is jobbing/scalping ?
In the financial marketplaces of the world, there are numerous different styles and trading methodologies employed with the goal of achieving profitability. One of the most prominent forms of trading used by both retail and institutional traders alike is known as “scalping/jobbing.” Scalping is a
trade management strategy in which the trader elects to take small profits quickly as they become available within the marketplace. Essentially, this trading philosophy is based on the idea that taking small profits repeatedly limits risk and creates an advantage for the trader. The viability of jobbing/scalping as a trading approach depends on several contributing factors and inputs -
- Low transaction costs: Commissions and fees need to be minimized in order to facilitate a high-volume approach to trading in a given financial market.
- Efficient market entry and exit: Adequate computer hardware and software technology is required to minimize latency-related slippage and interact within the marketplace efficiently. Slippage on entry and exit can play a major role in the overall profitability of a scalping approach and is magnified when the realized profit per trade is small.
- High volume trade identification: A major part of the scalping methodology is to repeat small profits over and over. It is crucial that the adopted trade recognition philosophy is able to produce a high volume of possible trades.
- High market liquidity: The ability to enter and exit the market quickly and efficiently is dependent upon the number of potential buyers and sellers available at the trader’s desired price. Markets that exhibit a high degree of liquidity, in addition to tight bid/ask spreads, are prime candidates for scalping.
Perhaps the single largest advantage attributed to a trading approach based on jobbing/scalping methodology is the limited market exposure afforded to the trader. At its core, scalping is an ultra-short-term trading strategy, therefore, the trader (and the equity in the trading account) is only vulnerable to short-term market volatility. Another upside is the ability for a trader to profit from rotational or slow markets. While it is true that the most liquid and volatile markets are the primary target of many scalping operations, trading with the goal of capitalizing on small market moves can prove to be profitable in stationary markets. Often, trend or momentum-based trading methodologies struggle when faced with markets stuck in a consolidation or rotational phase. Jobbing/Scalping eliminates the need for a directional market move to realize a profit, because small fluctuations in price are enough to achieve profitability and sustain a scalping approach.
Drawbacks to employing a trading approach based on jobbing/scalping are numerous and closely related to trader discipline and psychology. The very nature of scalping is to take small profits quickly in order to limit risk and create a consistent flow of revenue. However, in the pursuit of small profits, the scalper foregoes potentially lucrative trending markets in addition to large and directional pricing moves. In turn, it is possible for a trader to repeatedly “miss out” on trends and generous profits while adhering to the scalping trading plan. Over time,
the fear of missing out on these moves can test
trader discipline, lead to over trading, and take a psychological toll on the trader thereby inhibiting performance.
