Where do you see this?
In discussions about the local stock market.
What does it mean?
Contra trading is the trading of stocks without paying for
them.
In Singapore, most brokerages do not require you to
deposit cash with them before buying a stock.
Rather, after the date of a transaction, investors
are given three days – known as the contra period – to transfer the
cash to the brokerage as payment for the stock.
If an investor sells the shares before the end of
the contra period, the trades will be offset by the brokerage. The
investor will be paid any profits he made from the trades; If
he incurred losses, he will have to pay the brokerage.
This buying and selling of the stock within the
three-day period is known as contra trading.
Contra trading is unique to Singapore and
Malaysia.
In most other countries, stock buyers have to have
cash deposited upfront with their brokers. Or they would need to
settle the full payment within a shorter period after the
purchase.
Why is it important?
Many traders use contra trading to take punts on shares without
putting money upfront. But this can be a risky enterprise.
Investors must be careful they do not buy more
stocks than they can afford, as losses can be heavy if the market
moves against them.
So you want to use the term, just say…
I want to do a short-term punt on this stock, using contra
trading.
Invest, The Sunday Times, April 29, 2012, Pg 39