Is scalping trading illegal?

No. Trading in the form of stocks is completely legal. The only thing that’s illegal is selling securities for a profit. However, it’s generally not considered a form of financial trading, since it’s not an exchange of assets for cash, and because the company is technically a broker-dealer and must comply with the Financial Conduct Authority’s regulatory requirements.

The biggest problem with scalping though, is it’s pretty much impossible to avoid getting caught, especially when you’re using a broker. Most major banks don’t allow it to trade on their networks, so it’s not even feasible for a stranger, like you, to pull that off.

How are stocks regulated, anyway?

Stocks are sold using a “market maker,” basically an unregulated person who takes large orders on the stock market and sells them to other markets around the globe. When the stocks become more popular, the market maker makes a fee of 1 to 2% to cover its costs. The broker who puts the order in front of the market maker will get paid 1% on the order, and if the order exceeds the market maker’s market maker limit, the new market maker will take more and more money out of your account. These fees are paid by the buyer, too, or else the buyer wouldn’t even have to trade at all. Swing Trading: A Beginner's Guide to Highly Profitable ...
This allows the market maker to maintain the market price, but also ensures that the stock will not drop so quickly that you lose anything. And if stocks do indeed drop quickly, the person who buys them at the lower price will be able to buy back the shares on the other side of the market maker price, which is what happened recently when Amazon shares traded much lower than the bid-ask spread. (Amazon’s price drop was caused by a short seller taking advantage of the market maker’s short position.)

Does this make the broker-dealers who profit from the trade illegal?

Yes, basically. If you’re trying to get around the limitations on how many markets a broker-dealer can deal in, like the limit you have to own in one deal, then the problem isn’t getting caught. It’s getting caught doing the same thing multiple times without paying the same price.

A key rule of securities law is that if you can buy and sell securities for just 1%, then the only thing you’re breaking is your own leg. It’s one thing to buy and sell stocks for $20 a share, it’s quite another to buy and sell a