Syndicate
One-day Contracts
Those who operate during one day, buy and sell securities along the stock exchange market session with the intention of making fast profits during the seconds or minutes that they own those securities by usually liquidating the positions at the end of the session.
These people usually operates with borrowed money, due that they expect to get greater profits through the leverage, although this sometimes supposes the possibility of greater losses.
Most of the people do not have the money time or temper for this nor are they willing to accept the possibility of major losses, which are a characteristic for this type of operations.
However, each time there are more people attracted for the extension of easy money, which is preoccupying for the markets and authorities. The one-day contracting agencies give their clients the necessary means for negotiating their own accounts and also they promote and facilitate a particular type of negotiation. The clients can make their operations well through the agencies computers or well through their own personal computers by using a special program that the agency provides.
In a report prepared by the North American Securities Administration Association (NASAA) dated in August 19, 1999. This association expressed itself in this way: “We hope that this information is also a call to prudence for those who think that the one-day contracts constitute a feasible mean to make a career or that the frenzied contracting may be considered as an alternative to the prudent diversified and long term contracting.”
The report identifies 62 active agencies for the one day contracting with a total of 287 branches and it quotes the estimate of the electronic traders association that there are from 4,000 to 5,000 people that dedicate their days to buying or selling securities during each market session and that make between150,000 and 200,000 operations a day, which represents almost a 15% of the NASDAQ daily volume. The report keeps on saying that the speculation is very high, circumstance that demands (for contracting agencies to maintain their business) a continuous incorporation of new speculators.
It compares the one-day operations with the games of chance and it says that the contracts of futures and the options may be elements more for the purpose of the speculative stock exchange investors than the shares.
It establishes a more wise analogy with the contracting of futures at a retail where the operations done by the retail client generally end in failures. The agencies that have the leadership of the sector admit that an 80% or 90% of their individual clients lose money.
The concrete problems detected by the NASDAA are the following:
- A deceitful marketing is done: the risks are not clearly explained
- The principles of adaptation among the characteristics of the client and of the type of contracting are violated
- A questionable credit activity is practiced: loans from one client to another and of agencies to clients are promoted
- A bad use of the discretionary stock exchange accounts is done: there are agents that speculate in one-day contracts with the clients funds
- Non authorized advisory activity is fomented as for example clients that manage funds of other people
- There are no adequate registries and sites are not kept
- The operations are not supervised.
In a warning note issued by the SEC, emphasis is made in the following points:
- One-day investors usually suffer important losses in their first months of activity and many of them never free themselves from being in red figures.
- One-day investors do not invest, what they do is to take advantage of the good moment of some securities and free themselves from them before a change of direction. The true day investor never maintains a position from one day to another.
- The one-day investors support ample expenses due that they have to pay great sums to their agencies for receiving information and for using their computers.
- The one-day contracts depend very much in the credit, so those who practice this activity should know how the margin accounts work, how to attend the demands of the complementary coverage and what is the capacity that they have to support large amounts of losses.
- Do not believe in those that promise easy profits. Mistrust the advices that appear in bulletins and web sites.
- Use the common sense and inform yourself about the agency in the pertinent organism of your state.
- 70% of the professional stock investors that operate with one-day contracts lose money. So you have to be able to support your losses without losing your smile.
As with any other system or negotiation method with this one it is also worth researching it first.