Mon, Jun 01 2015. 08 21 PM IST
Indian Trading League: a high-risk contest
Such contests, where real money is at stake, are best left to professional investors and traders
Shyamal Banerjee/Mint
It’s not the first time that a brokerage has staged a trading competition. Normally, these happen with virtual money, but discount broker Samco Securities Ltd (Samco) has gone a step further and launched a competition that requires participants to use real money. The competition is soliciting participation from the public at large for an equity and commodities trading challenge. The carrot riding on a high decibel celebrity-driven television advertisement campaign on business channels is a jackpot prize worth `1 crore. In the advertisements, cricket icon Kapil Dev asks you to come play in the Indian Trading League, a take-off on the cricket Indian Premier League (IPL).
Mint decodes the event and drills down to its basics.
The product
The competition is simply about buying and selling equity shares, equity derivatives and currency derivatives, and one of the leagues is meant for competing trades in commodity derivatives. The person who makes the highest return on capital (percentage) till 31 March 2016, wins the grand prize. The winner also gets an opportunity to become a fund manager to manage up to $1 million of Samco’s proprietary funds.
You need a minimum capital of `25,000 to participate. Winners will also be declared every week, month and quarter (the competition started on 19 May 2015 and ends on 31 March 2016). There are four leagues to choose from—investor league, traders league, commodities league and women’s league.
Participants in the investor league can’t invest in derivatives of any kind, and commodity league participants can only invest in commodity derivatives. You can participate in more than one league, separately. For each, you will need a minimum capital of `25,000. Participants in the investor’s league automatically qualify for the trader’s league, and all women participants will qualify for the women’s league.
Prizes for each league differ. While the final winner of the trader’s league gets `1 crore (before tax), the final winner for the women’s league will get 100 gm of gold. To take part, you will have to register and open a trading cum demat account with Samco, the broker organizing the contest.
You can link your existing demat account as well, but operationally, it won’t be as efficient. There are regular costs attached—a flat `20 brokerage per transaction regardless of value; account-opening charges have currently been waived off.
“The objective is to reach out to as many people as possible, to familiarize them with markets and get them on board. When people are faced with a competitive challenge, they are more driven, and learn to keep emotions aside. This will help them make money,” said Jimeet Modi, chief executive officer, Samco.
You can check your ranking in the contest on their website. Winners are announced on periodically on the website.
Unpacking the layers
There are various points that need to be understood before participating in the contest.
Lure of prize money: While a jackpot of `1 crore is enticing, unlike most other public competitions, there is a lot more at stake here. You need to put in a capital of `25,000, for each category that you participate in. If you perform badly, you stand to lose this money, and much more if you are trading in derivatives. Of course, if you win, you make a profit, and get the prize money over and above that.
In this contest, real risk is taken with real money. Some argue that this is more about gaming than trading. Raghu Kumar, co-founder, RKSV Securities, a Mumbai-based discount broker, said, “Some brokers in the US offer virtual money contests to encourage investor participation. But with live accounts and real money, it almost amounts to gambling.” A contest that induces you to risk money with a potential to lose more than you win, can be looked at as a wager.
Over-trading: The prize money seems skewed towards making participants trade for a longer period. The biggest prize is of `1 crore, which is there for only one category—traders league—and can be won after being in the contest for a year. All other prizes are of much lower amounts; the next highest is `10 lakh. Some are 99% lower. For example, winner of the quarterly league contest gets only `25,000. “The focus on winning the competition can lead participants to take higher risks which can increase the odds of making losses.” said Nitin Kamath, founder and chief executive officer, Zerodha.com, an online discount brokerage, which runs a 60-day contest for its users—if you profit from your trades, brokerage is returned. The challenge is a constant reminder that a trader is in the business to profit and not just to trade.
What could be looked at as a conflict of interest is that higher trading frequency from participants will benefit Samco given its discount broking structure where there is a flat fee per trade, as opposed to brokerage that’s paid as a proportion of the investment amount. So, the organiser gains regardless of participants gaining or losing money. The company’s management, however, said the intention is to familiarize more people with equity trading, while keeping costs low for traders. “The discount broking model is more beneficial for traders because regardless of the size of the trade, the brokerage remains flat. We aren’t concerned with the volume of trades; what matters for us is that more people participate,” said Modi.
Uneven competition: The competition doesn’t distinguish between a professional trader and a first-timer. It doesn’t matter if you are a professional equity trader or a homemaker, all participants have to compete together. However, one must be clear that trading is not a game; it requires knowledge of price movements in equity or commodity markets, how earnings and corporate announcements impact market prices of stocks, and many other factors.
“Trading requires not only basic knowledge of equity markets along with technical and fundamental knowledge regarding securities trading, it is also important to know how to hedge risks with derivatives,” said Gaurang Shah, vice-president, Geojit BNP Paribas Financial Services Pvt Ltd. This isn’t something that one can ‘learn’ in less than a year.
The amount invested also matters. “This competition isn’t between people with equal balances and that can tilt the scales. The person with lesser capital will always have greater chances of making higher percentage return,” said Kamath.
Samco representatives, however, said that investor awareness programmes will be conducted to educate participants about “good” trading practices. This, said Modi, will help people reduce the number of mistakes they make and have a higher chance of winning. “Guidelines” of how to trade and invest in the markets have been put up on the contest website. These tell people to be disciplined, follow a plan, have risk management tools and exit strategies in place. There is also a negative list of stocks that are prone to manipulation, and trading in those will lead to disqualification.
But are these steps enough? Who will check how well participants understand this literature?
Attempts to contact the market regulator, Securities and Exchange Board of India (Sebi), through e-mails and SMSs elicited no response.
Mind the markets: Trading gains and losses to a great extent depend on the market conditions and corporate announcements; sudden, sharp moves in the market in either direction can wipe out all gains, or even exaggerate losses. Plus, in most part, trading in markets is a zero sum game, which means if someone is winning then someone else is losing. Both the buyer and seller of a stock or derivative cannot be right all the time.
Mint Money take
Anyone participating in this or other such contests should be well versed with the nuances of trading in equity and commodity markets.
You must also consider the fact that any profits you make will attract short-term capital gains tax. If you are a first-timer in equity, or primarily a long-term investor in mutual funds and stocks, it’s better to stay away. This is essentially a contest for professional traders; others enter at their own risk.
No comments:
Post a Comment