How to make money out of bid ask spread?

General
2

Snehil, what you are asking for is also called as scalping. You can google for scalping strategies, bunch of interesting ones out there.

Basically this involves you putting your orders at both bid and asks, and hence making the bid ask spread as your profit. Some of the things that you need to consider are

The contracts on which you decide to trade, the more liquid the contract the tighter the spread, hence smaller the opportunity. The more illiquid, bigger spreads but it will be tough to move in and out with big quantity. You will need to decide based on what type suits you better.

Single most important thing with such trades is risk management/discipline, Since you are playing for very small profits, you need to ensure that your losses are also limited to very small ones. A small mistake, could mean you giving on profits made over a month.

You will have hundreds of trades, so you need to know if you can handle such kind of emotional roller coaster.

As a bid-ask scalper, volatility is not good for you. So you need to ensure, there is way for your strategy to pick up when the volatility is going higher. In such times, it is best to stay away from scalping.

4 Likes
3

Such trades are called scalping, and there’s no efficient way in India to do scalp trades all by yourself since it is a very high frequency trading and unless you’ve got DMA or advanced softwares it won’t be of much use to you. However, algo trades generates millions per day just from scalping on Wall Street.

4

I have tried this manually few times and found that I am not as fast the change in the prices. Sometimes, both orders get executed successfully. but most of the time one leg executes and other waits for execution, in such a case the price could drift away and may result in huge loss, swiping out your previous ‘n’ set of successful executions.

So doing this by placing manual orders is very risky and may not be viable.

I am not sure, if Algoz will help to achieve maximum successes. Haven’t tried it.

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I think this is so old days. Today algos are already competing among themselves to make profits out of this, leave alone us. If it was possible, everyone would be doing this.