Traders Warned Against Same Day Trading on Domestic Stocks
As security regulators are looking for ways to protect retail investors from being manipulated by institutional funds, the People’s Bank of China has warned traders against implementing same day trading system for all domestic stocks. Usually a T+0 trading helps investors in responding to changes in the market in a certain way, it can also prevent losses from widening and locking in profits. For short the move can invigorate the market and help improve revenues, but the risk in this type of trading is usually difficult to ignore.
There were requests in allowing small time investors to purchase and sell stocks on the same day as opposed to the current system wherein investors can only purchase on one day the sell the stocks on the next day.
Last year, there was a problem with the Everbright Securities execution system that sent erroneous purchase orders that reached 68 billion yuan to the Shanghai Stock Exchange in just two minutes which lead to a short lived 6 percent increase for the main index. Everbright quickly reacted to the errant trades by creating a huge short positions in index futures before they released details on the problem which in turn caused the indices to collapse.
And because of this analyst have predicted that China will move to a T+0 trading system in the first half of this year and focus on allowing same day trading in large capital stocks. Furthermore same day trading could increase the risk of market manipulation and might complicate trade settlement and aggravate stocks volatility.