11/11/2013

The myth of contra trading

Contra trading is the field where small retail players play and try to make money in a quickie. The truth is far from it. With a daily trading volume of 2b to 5b shares traded, how many of these could be attributed to small retail traders? Given the absence of phone calls and the pittance that remisiers are getting as commission, (some are earning less than a cleaner), contra trading by small retail traders cannot be more than 5% of the daily volume.
 

This leaves 95% of the trades to be accounted for. House traders and day traders could at most contribute to 10 or 20% of the total trade. I would like to clarify that the numbers are ballpark figures, guesstimates. Only the SGX would know the truth. Who contributed to the 65-70% of daily trades? And are these trades contra or long term? My bet is that they are contra trades by the algo traders trading with their computers. And they are trading in and out daily, yes they are big contra traders.
 

The small retail traders hardly contribute much to the daily trading volumes. Killing contra trading would kill the small retail traders for sure, but most of all will also kill those big contra players trading with their machines. High Frequency trading is also contra trading. Without contra trading and a daily value of around $1b in trades, who would have the money to pick up these trades daily if not contra? Maybe the big players have the cash to do so, buying and paying several hundred millions daily for their trades.
 

The most important point raised by Goh Eng Yeow in his article today in the ST is this. ‘It is time the SGX planned for better system rather than spend money on purchasing faster engines. In the information technology trade, there is a saying: if the system is bad, a faster machine will only accentuate this fault.’ Goh Eng Yeow did not elaborate on what is bad in the system and how the system has to be changed to be better. Does he know something but politely refuse to say it out loud?

7 comments:

Matilah_Singapura said...

If I'm not mistaken, Singapore is one of the few cuntree left where you can still contra trade.

Why not? Who doesn't want to make "instant money" without forking out one lousy cent?

I'm surprised it is not more widespread.

Been toying with the idea of allowing more dark pools to operate. Dark pools tend to move large volume blocks of shares, and the price is agreed upon by buyer and seller, announcing the sale only AFTER the deal has transacted. i.e. it is SLOWER.

This has the effect of SLOWING DOWN the price signals -- since dark pools volumes can be substantial, their activity could have some effect in counter-acting the "noisy false price signals" generated by HFT and uncle-auntie/ institutional algo traders.

Anonymous said...

I am sure sgx will go ahead with HFT regardless of whatever feedback. Why else would they have gone ahead with the purchase and installation of the high speed purchasing engines. With the purchase the intention gotta be pretty obvious.

Anonymous said...

If MAS and MOF let SGX go ahead with HFT and another major fiasco like Lehman bonds hit, they are to be blamed and cannot plead innocent, 'I don't know.'

HFT is very dangerous.

Anonymous said...

All systems are designed to favour the rich and well connected. In fact, they are the ones who came up with those ideas.

Some small players may follow the predators and fed on the scrums. Just like the vultures cleaning up the bits on the bones after the lions have their fill.

jjgg said...

If hft is implemented, where do you think their main focus will be....trading in blue chips? Hehe..or perhaps join the penny stocks brigade..where is the volume to justify the implementation of hft..can hft create volume for no rhyme or reason? As rb points out..there are hardly any contra play amongst the small timers..the volumes have been generated by in house dealers who needs to trade or remain thumb twiddlers..who can access these hft programmes? Let's pit one brooking house against the other...n the winner is...SGX!!....who'll collect more clearing fees...hosay!!

Anonymous said...

aiyoh .... u in this industry so long u telling us u nonok;

that nearly 80% of daily volume across major exchanges are the works of the syndicates and their cronies?

knnccb ... is sad

Anonymous said...

@11.58

"I am sure sgx will go ahead with HFT regardless of whatever feedback"

hft was adopted by sgx years ago, likely during the hsieh period .. unfortunately or fortunately, they were scrapping the bottom of the barrels

knnccb .... fuck those financial mobsters