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Are You Feeling Lucky, Punk? Contra Trading

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bowedhead-1 Yesterday, we look at trading odds when you do it on a per second, per minute, per hour and per day basis. The odds weren’t too good. Slightly more than 50%.

So when I heard a colleague mentioned that his relative lost $10,000 trading on contra, I immediately thought about the article yesterday on How Often You Watch Stock Prices.

Since the odds of success is 54% for a day to 67% for a month and you can contra in Singapore for three market days so that gives you odds of less than 60%.

Contra trading is basically using the time the brokerages allow you to make payment for any shares you purchase to sell it within the time frame. Different markets have different days for payment so be sure to check if you feel very lucky.

So in Singapore, the rule is to pay for purchase within 3 days, thus if you buy say 5 lots of SIA at $11.30 on Day 1 (Thursday), you will have to pay for the purchase on Tuesday, Day 3 of a business day.

If SIA rises up to $11.50, and you contra it on Day 3, you pocket $1000 less transaction charges. However, if the market goes against you and goes down to $11.10, you lose $1000 plus transaction costs.

In case you aren’t convinced of the danger of contra trading, there is an article about a graduate who earns $80,000 a year but lost $700,000 on contra trading.

The only way you are likely to make guaranteed profits is if you have insider news. And if you trade on that, the people from the SGX and the authorities will be very interested to interview you, slap you with a massive fine and jail you.

For me, I rather read company news, analyze potential companies and buy them at discounted prices (like a big “For Sale- 70% Off”).

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1 comments:
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Musicwhiz said...
October 7, 2009 at 2:08 PM  

Hi Lemizeraq,

Contra is one of the best and most effective methods - of losing money. Only Singapore and Malaysia have this T+3 settlement thing, whereas all other international bourses go strictly on T+0. So pay up on the day itself or get forced sold.

This is why about 99% of SGX is made up of speculators and punters. Their brokers are laughing all the way to the bank.

Cheers,
Musicwhiz

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