Scalping (pipsing) relates to one of the strategies used in intraday speculative trading of stocks, currency and commodities. Essentially it involves the closing of a transaction when there a small profit is derived froma few points (pips).
The necessary conditions for implementation of this strategy pertain to high liquidity traded instruments with reasonable volatility, small spread, low fees and the ability to continuously monitor the current quote.
Given these criteria and features concerning the formation of fees and additional costs, scalping is most common in the terminal markets (derivatives markets).
The consequence of scalping is the conclusion of a large number of transactions, each of which brings a little profit or loss. The investor makes use of small fluctuations in value, the value is purchased or sold after closing out a few ticks.
To succeed with this method of trading in the stock market large movements of capital are needed. Hence, this approach is often employed on CFDs and forex trading.
To improve the profitability of operations with little difference, price margin trading is often applied. However, the credit lever is capable of increasing not only revenue but also the rate of losses. In addition, there is a fee for the use of credit, which does not depend on the impact of trade.
In some instances, scalping is considered an illegal market manipulation strategy under the Securities Trading Act. The act of manipulation (scalping) may be only suitable on stock exchanges or if it actually comes to legal action, the offence is a misdemeanor.
The prosecution of the offense is considerably complicated by the fact that the actions of a perpetrator charged with the intent to institute price manipulation usually can not be substantiated.
And certain securities are covered by the constitutionally guaranteed freedoms. In the United States, significantly more stringent laws exist against the practise of scalping, where several years of imprisonment for convicted offenders can be imposed.
The U.S. Securities and Exchange Commission (SEC), is entitled to more drastic action compared to the German BaFin. In the U.S, the principle of disclose or abstain is also in effect.
Other deceptions covered by the Securities Act, include acts or omissions that are capable of misinforming investors about the true economic conditions, particularly in relation to supply and demand factors of an financial instrument in a stock market. The same goes for the manipulative or misleading methods relating to the market price of a financial instrument in an organized market.