What is Contra Trading

Quote from internet about Contra Trading

Contra trading as it is popularly known, is the act of buying and selling something without actually paying for it. Contra trading is apparently unique only to the Singapore and Malaysian stock markets. (Drop me a note if you know of other countries with contra trading)

In Singapore, when you buy a stock, there is no requirement to put up a form of deposit with the brokerage firm. In fact, from the date of the transaction, you are given a grace period of 3 days, known as the contra period, in order to transfer the money to the brokerage firm. It is because of this contra period, that a loophole is formed. It was found that if you sold the stock that you bought before the contra period is up, the brokerage firm would offset the trades, and the net effect was that you will be paid any profits or losses you obtained from that 2 trades.

Assuming you bought $10,000 worth of stocks at $1 on a Monday. On the Wednesday, the price went up to $1.05 and you decide to sell it off. Based on this, you do not have to pay up for the $10,000 because you have already sold the stocks. In fact, the firm would credit to you 5cents of profit per share, all without you putting up a single dollar. Literally making money out of thin air.

The dangers of this is that most investors would not be able to understand the risks involved, and would end up buying more than they can afford. Do note, that most contra traders actually lose money.

Source: kampungtalk.net