Page 341 - THE MARKET WHISPERER

THE MARKET WHISPERER 33 7

trading platform you notice thousands of shares being sold at $8.019. In
other words, someone has “overtaken” you at a better price of just one

tenth of a cent. This is one of the market makers’ advantages, and you will
simply have to wait your turn patiently. On the other hand, since they’re
playing in the gap, they will most likely be the ones who will buy from you

and sell to someone else. At some point, they could very well buy your
stock at $8.02 and sell it to other market makers in the gap for $8.019,
aiming to profit from a little less than a cent, but in gargantuan quantities.

One Cent Scalp Trading is Toxic

As noted above, scalping at one cent profit is not a standard trading practice.
It is doing no more, in fact, than taking advantage of market inefficiency. Up
to the end of 1999, scalp traders benefitted from a different structure of the
market, since stock prices were not traded in increments of one cent but in
eighths of a dollar: $8, $8 1/8, 8 2/8, and so on. In those times, locking the
price of a stock between the bid and ask yielded a profit of 1/8 of a dollar,
which is 12.5 cents in either direction. Intraday scalpers flourished, but
since then the method is in decline, since the stock exchanges are looking to

be rid of anyone specializing in this method. Professionally, the supply and
demand that such traders add to the market is defined as toxic liquidity.

Market makers who identify you as providing toxic supply will block

access to your broker, who in turn, fearing what may happen, will block

your account. This is usually why retail traders cannot operate alone using

this method. The retail trader needs to join a trading room operated by

companies specializing in trade of this kind. These companies are actually
brokers themselves, and hold private ECNs in order to overcome the
limitations. This is not trading you can do from home in your spare time.

It is an office job. You need to work with the platform and services of a

specific company, and you actually become a kind of salaried robot living

from the boring fluctuations of one cent per share. If you shut down the

air conditioners in these trading rooms, you’ll probably discover they’re
more like a third-world sweatshop than pleasant stock trading centers.
Nonetheless, if your financial situation does not allow investing in studies

and making an initial reasonable deposit in your trading account, these

companies offer you a work environment, studies, and capital that can

help you start out as traders. While still young, within certain financial

constraints, and despite other kinds of disadvantages, this may be a good
starting-point choice.