Use A Contra Account To Trade Stocks On Listing Day

The local IPO market was hot in 2024 with over 50 listings! And this year, it will not be slowing down. Many IPOs have seen tremendous hype, high trading volume on listing day, and continued interest. A higher volume brings increased volatility, presenting investors with lucrative trading opportunities.

Rakuten Trade’s Contra account is a powerful tool that increases short-term trading limits, so you can take advantage of intraday price swings. However, many investors find Contra trading intimidating because, at first glance, it looks complicated. Like any tool, knowing the right time and place to use it will be key, especially if you like seizing opportunities.

Pro tips for Contra trading:

• Relatively short-term and more aggressive trading strategy
• Set your risk-reward ratio first before you trade.
• Get algo calls on trading ideas
• Determine your exit price before trading.

 Trading On Listing Day

Trading stocks with Rakuten Trade is brokerage-free on listing day but exclusively for Contra traders, this period is extended for 3 trading days post-listing day. Since we know IPOs can be exciting on listing day, with share prices going up and down, Rakuten Trade is giving you the added adrenaline rush by leveraging its Contra account to maximize your profits.

No matter how many trades you make on listing day, we will rebate your brokerage. This allows you to take advantage of the stock's volatility without the extra brokerage fees. Here's an example:

Contra Trading Simulation

Simulating Contra trading on listing day, Kenji is a trader looking to capitalize on his available funds. Let’s say Kenji has RM5,000 available cash to trade in his Contra Account.

Armed with this collateral of RM5,000, he is keen to trade 99 Speed Mart (99SMART) and/or Public Bank (PBBANK). Based on their respective multipliers, these are his trading limits for the respective stocks.

If Kenji chooses to buy 99SMART on listing day, he can buy up to RM15,000 worth of 99SMART shares. But Kenji wants to diversify his risk, so he makes two trades.

First, he buys RM9,000 worth of 99SMART shares:

Then he buys RM10,000 worth of PBBANK shares with his remaining collateral:

His estimated brokerage cost would be RM10 paid for his PBB Shares and RM9 for 99SMART shares. However, he will later receive 900 RT points (worth RM9) as the 99SMART shares were matched a day after its listing.

Kenji now has two options to consider:

The period set by Bursa to settle all Contra trades is two (2) working days after the initial matched order. That means Kenji can either sell his shares within two (2) days of trading or “pick up” his shares – top up RM14,000 which is equivalent to the extended trading limit he received via the collateral and multiplier received (i.e. RM 19,000 trading value minus RM5,000 cash he had as collateral).

Option 1 (Sell Shares):

Sell 99SMART and PBB shares (before 5 PM on the second trading day) and he will only have to pay the difference in share value. But if the shares increase in value, Kenji keeps the profits from the sale (i.e. his selling price is higher than when he first purchased the shares).

Option 2 (Pick Up Shares): Top up RM14,000 into his Contra Account. Since his initial cash balance is RM5,000, an additional RM14,000 is required to settle his 99SMART & PBB shares.

That way he can perform a “pickup” (before 11 PM on the second trading day after purchase day), so that he can now own 99SMART and PBB shares until he decides to sell them off.

With Great Power Comes Great Responsibility

Now that you’re familiar with the power Contra provides, understand that it also comes with additional risks. As a trader, you must always be careful not to buy more than you can afford. Price volatility is real especially when trading newly listed stocks.

Till next time, happy trading!