A more thorough explanation:
Definition: Scalping is a term used in different contexts:
- The act of selling something, like a ticket, at a higher price than its face value when it becomes scarce, usually just before a high-demand event begins. For example, selling a ticket to a sold-out concert for a much higher price than its original cost.
- The unethical practice of an investment adviser buying a security before recommending it to a customer, which increases the security's price, allowing the adviser to sell it at a profit. This practice is considered unethical because it takes advantage of the customer's trust.
- The excessive markup or markdown on a transaction by a market-maker, which violates National Association of Securities Dealers guidelines.
Examples:
- Example 1: John bought a ticket to a basketball game for $50, but when the game became sold out, he sold it to his friend for $150. This is an example of scalping.
- Example 2: An investment adviser buys shares of a company before recommending them to their clients. The adviser's recommendation causes the stock price to rise, and the adviser sells their shares at a profit. This is an example of unethical scalping.
- Example 3: A market-maker buys a stock at a low price and sells it to a customer at a much higher price, making a large profit. This is an example of excessive scalping.
These examples illustrate how scalping involves taking advantage of a situation to make a profit, often at the expense of others. It is important to be aware of these practices and to avoid participating in them.