What Is Scalping in Futures Trading?

Scalping in futures means opening and closing a position within seconds or minutes, many times in a session, for a gain of a tick or two on each round turn. The CFTC's futures glossary files it under scalper, and its definition is worth reading closely before anyone copies the style: the trader it describes quotes a price below the last print and another above it, and earns the difference between the two.

That is a quoting business, and it is the opposite side of the trade from a retail trader clicking a ladder. One side collects the bid-ask spread; the other side pays it on every entry and every exit. Everything expensive about scalping from a screen follows from which side of that you are on.

What is scalping in futures trading?

Scalping is rapid, repeated buying and selling for small gains, with positions held only briefly inside a single trading session. The CFTC glossary's scalper entry puts a speculator at the centre of it — traditionally a local, holding privileges to trade on the exchange — and says the profits and the losses are both small and the holding period short. It then describes the method, which is a quoting business: the buy order sits under the last traded price, the sell order sits over it, and the gap between the two is the pay. Liquidity for everyone else is the side effect.

The glossary's neighbouring local entry fills in who that historically was — someone holding privileges to trade on an exchange, dealing for their own account, traditionally on the floor, whose activity supplied liquidity to the rest of the market.

A formal study of the practice describes the same behaviour in economic terms. Liu, Williams and Jordà, in a 2001 conference paper on market-making behaviour, note that futures exchanges usually identify a scalper by two things: frequent buying and selling through the day, and no position left open at the end of it. They call the activity voluntary market making: behaviour that emerged on its own, with no exchange rule requiring it.

What is the difference between scalping and day trading?

Scalping and day trading differ in what the definition pins down. The CFTC glossary's day trader entry fixes only the timing: a position taken and offset inside the same session, before the close. Its scalper entry fixes a method instead. Its position trader entry sits at the other end of the holding period, someone who buys or sells and holds for an extended time, defined in the glossary against the day trader's single-session round trip.

Liu, Williams and Jordà had to draw that line numerically to count scalpers at all. Their screen took at least one trade every fifteen minutes on average — which came to at least ten orders a day in a session that then opened at 9:00am and closed at 11:30 — plus a book held flat at the end of it, on six or seven days of the month. Traders who built a one-sided position and unwound it half an hour to an hour later were moved out of the group and counted as day traders. The scalpers were usually out within minutes.

The bottom row carries the rest of this post: a cost charged on each trade adds up to two different businesses at two round turns a session and at sixty.

How does a scalper make money on a one-tick move?

By being the resting order rather than the one that crosses. The CFTC glossary defines a bid as a stated price and quantity to buy and an offer as a willingness to sell, with that level called the ask; the bid-ask spread is the gap between them. A trader quoting both sides and getting filled on each collects that gap, which is the entire mechanism the glossary's scalper entry describes. Wang, Garcia and Irwin, in a 2012 study of corn futures spreads, trace that reading of the spread to Working in 1967: the long and short sides of a market do not arrive at the same moment, and the trader who bridges the gap is paid for supplying immediate execution.

Compare that with how a market order behaves. The glossary says it executes at whatever price is available when it reaches the book, ring, pit or platform — so a trader buying with a market order buys at the ask, and sells at the bid when the exit is also a market order. In a market one tick wide, that round trip surrenders a tick before the position has done anything at all. At scalping frequency, the choice between a market order and a limit order decides whether you collect the spread or pay it.

What does crossing the spread cost per round turn?

One tick per contract, whenever the market is one tick wide and both the entry and the exit take liquidity. The glossary calls that complete purchase-and-sale a round turn, and our instruments page carries what one tick is worth: $12.50 on the E-mini S&P 500, $1.25 on the micro, $5 on the E-mini Nasdaq 100 and $0.50 on the micro.

Put the two together and the arithmetic is unforgiving. Run sixty round turns in a session on a single E-mini S&P contract, with every entry and every exit crossing, and the spread given up is $750 before commissions. The same sixty on the micro give up $75. That figure is the tick value multiplied by the trade count.

The second piece of arithmetic catches people out on targets. Buy the ask in a one-tick market and the bid has to climb three ticks before an exit at the bid shows two ticks of net gain, because one tick of the move repays the spread you already paid. A two-tick target is really a three-tick requirement. Resting the exit at the offer instead avoids that, and costs the certainty: the glossary's limit order entry sets a minimum sale price rather than a fill as soon as possible, and its order book entry says bids and offers are matched on price and on the time they arrived, so the fill waits on the queue.

Commissions sit on top. The glossary's commission entry covers both an FCM's charge for buying and selling contracts and a broker's fee for executing an order — a charge attached to the trade rather than to the holding period. It therefore scales with trade count the way the spread does: double the round turns and you double both, whatever the market does.

How wide is the bid-ask spread in futures?

In electronically traded corn futures — the CME's busiest agricultural market, on Wang, Garcia and Irwin's account — it averaged a little over one tick. They measured it from CME Group top-of-book data covering 14 January 2008 to 29 January 2010 — 516 daily averages from the daytime session, with the maturity month left out — and report 0.314 cents per bushel in the nearby contract and 0.376 in the next nearby, against a tick of 0.25 cents and two ticks of 0.50. Their paper describes itself as the first commodity-futures study to use observed spreads rather than statistical estimators.

Converted into money per contract, the cost becomes visible. A corn contract covers 5,000 bushels, so 0.314 cents a bushel is $15.70 of spread per contract per round turn, and the next-nearby figure is $18.80. Those are averages for one grain market across one two-year window, and they say nothing about index futures.

The more useful finding for a short-horizon trader is when the number moves. Across a contract's life the spread traced a U: wide and erratic while the contract was young and barely traded, falling to a little over one tick between roughly ninety and fifty trading days before the maturity month, then flat, then rising sharply inside the maturity month and worst in its final week. Volume and volatility both mattered in the nearby contract, with elasticities of −0.18 and +0.06. USDA Grain Stocks and Production-WASDE release days widened it significantly; the commodity index fund roll had no significant effect, and day-of-week effects were weak or absent.

What does research on actual scalpers show?

That they are few in number, concentrated in the busiest contracts, and drawn in by liquidity and by the spread they can realise. Liu, Williams and Jordà worked from every soybean futures transaction record at the Dalian Futures Exchange in China, covering June through December 1999, plus April 2000, each one stamped to the second and identified by broker and customer. Among more than five thousand customers across 130 brokerage firms, their screen found about ten scalper candidates in each month of 1999 that it covered, and seven traders qualified once the exchange added an afternoon session in April 2000.

Scalper volume ran at about 6% to 13% of each contract's total, varying with the contract's activity and its time to maturity, and they clustered in the two busiest contracts — an hour or two on one, then a switch.

Liquidity attracted scalpers, and so did their own realised spread — volume-weighted average sale price minus average purchase price — with both coefficients positive and significant. Scalper and non-scalper volume both raised the paper's liquidity statistic, volume divided by the standard deviation of price. The third hypothesis, that scalping damps volatility, was not supported: in a GARCH model the scalper-volume coefficient came out negative and insignificant while non-scalper volume was positive and significant, which the authors read as volatility originating with the non-scalpers.

Intraday, they plot a U they call a "liquidity smile", peaking after the open and before the session's close, with a dip at the exchange's mid-morning break. All of this is one soybean market a quarter of a century ago, trading a morning-only session that closed at 11:30 for most of the sample, and four hours in total once an afternoon session was added, so none of the figures carry over to another market. The incentive does: the scalpers went where the trading already was.

Do you need depth of market data to scalp?

Depth of market is the rest of the book beyond the best quotes, and on a Lumen account it is not part of the feed. Our fees and data article says the account comes with Level 1 data on all four of the exchanges it lets you trade — CME, CBOT, COMEX and NYMEX — meaning the best bid and best ask only, which it names as what a chart or a ladder actually runs on. Depth of market is not part of that, and we do not sell it; the page lists the displays that go blank as a result: depth histograms, Level 2 ladders, Market by Order.

That rules out the styles built on watching size stack up and pull away behind the top of book. It leaves trading the top of book itself, which is where the spread costed out above actually lives: the bid, the ask, and whether your order rests or crosses. For the mechanics of the ladder, what the DOM is and what it shows covers the display column by column.

What does scalping mean on a funded account?

The frequency itself is subject to a rule, because very short trades interact with how a simulated account fills orders. Our prohibited conduct page permits ordinary scalping and draws a measurable line underneath it: trades lasting over ten seconds have to account for over half of your trade count and over half of your profit, on evaluation and funded accounts alike. The reason given is that profit taken in volume from momentary trades is extracted from the simulator rather than the market, and the same page separately prohibits high-frequency and mass order entry aimed at the platform, along with resting an order off the best quote, where only a simulator would ever fill it.

The honest part sits in our own comparison of the live and simulated sides, a page about a programme it says is still being built. Fills on the live side are real, and worse. The example the page reaches for is this one: scalp a tick or two, and the same strategy can make money in a simulator and lose it against real liquidity, because the simulator never left you unfilled.

Costs land the way they would elsewhere. Our fees article says commissions and exchange fees hit the account as they would a live one, and are deducted before profit counts toward either a payout or a winning day. Commission on sixty round turns is charged whether the session ends green or red, and a strategy whose gross edge is a tick is one whose net edge is decided by the fee schedule and the spread.

FAQ

Is scalping allowed on a prop firm evaluation?

On a Lumen account, ordinary scalping is allowed and microscalping is not. Our prohibited conduct page sets the test numerically: trades held longer than ten seconds have to make up over half of your trade count and over half of your profit, on evaluation and funded accounts equally, so the rule does not change when you pass. The reasoning given is that momentary trades taken repeatedly exploit simulated fills rather than the market.

How many ticks does a scalp need to cover its costs?

At minimum the spread plus commissions, and the spread alone is a tick per round turn whenever the market is one tick wide and both legs cross. Our instruments page puts that at $12.50 per E-mini S&P 500 contract and $1.25 per micro. Commission and exchange fees are charged on the trades themselves on top of that, and our fees article says they are deducted before profit counts toward a payout or a winning day.

Is a scalper the same thing as a market maker?

No. The CFTC glossary's market maker entry describes an obligation — buying when sell orders dominate and selling when buy orders dominate — with the gap between the quotes standing as compensation for carrying inventory, and notes that exchanges sometimes pay someone to take those obligations in a thin contract. A scalper quotes both sides voluntarily and can stop at any moment. Liu, Williams and Jordà describe the behaviour as market making arrived at by choice.

Does scalping add volatility to a futures market?

In the one market tested in the papers cited here, no. Liu, Williams and Jordà modelled soybean futures price volatility at the Dalian exchange and found the scalper-volume coefficient negative and statistically insignificant, while non-scalper volume was positive and significant — which they read as volatility originating with the non-scalpers. That is one commodity market in 1999 and 2000, so it is evidence about that market rather than about futures generally.