Contra trading

Recently I told someone that I contra off a position. That person seemed very shock that I do such risky things. Maybe that person had read many newspaper reports of students contra-ing and making big gains and eventually bigger losses.

Contra need not be risky. I put it in my newbie's faq a long long time ago about the topic on contra. Basically contra means doing a round trip of buy and sell before T+3. This means that you can buy a stock without putting in any money, then proceed to sell it off by the settlement date of T+3, thereby profiting from the proceeds.




Sounds good right? It's hard enough to get into a counter before it moves up, let alone restrict it to a time limit of 3 days. This foolish game will be made even more deadly if you buy more than what you can afford. For example, if you own $5000 but you bought $10,000 worth of shares with the hope of contra-ing within the next 3 days, you better be a very sharp trader. Otherwise, you have to sell $5000 worth of shares because you can only afford half of what you bought.

Usually contra players are also breakout traders. The explosive moves associated with breakouts is suitable for the very tight time limit for contra trading. Please don't try this if you're not up to it - it's a quick way to lose your pants. How do I know? I've contra-ed HSI warrants before, to the tune of 20-30 lots each time. I won't do it again, it's too stressful and exciting for me now. But I've NEVER bought something with money that I did not have. If I've 5k in my account, I would buy at most 5k worth of shares, never more.

So is contra risky? Yes of course. But for my recent trade, I happened to buy and sell something within 3 days. I didn't plan to sell it in that short period of time and most importantly, I've the means to hold it longer than the contra period.