Stock trading pattern in Bangladesh
Ahmadul Ameen | Sunday, 27 July 2008
STOCK trading is no longer confined to the domain of the professional investors. It has become a universal pursuit by amateurs and professionals alike. One of the main reasons for such ubiquity is the ease of trading through brokers or Internet. Gone are the hassles of receiving and delivering paper shares and the waiting period for registration etc. As the shares are kept in the central depositories and the money transferred through banks, share trading has become a hassle-free exercise. Apart from the lure of making money through stock trading, it has become a favourite pastime for many.
Interest in stock trading is relatively new in Bangladesh. It gained momentum in the late eighties, which however, waned in the aftermath of the market crash of 1996. However, in recent years there has been resurgence in public interest in share trading. Some discernible trends related to trading patterns in Bangladesh can be identified and the same have been reviewed below.
l Many of the investors who burnt their fingers way back in 1996, are still wary to get back into the market.
l A large number of younger men have been drawn into the market in recent years. They are seen to be crowding the broker's office - many of them virtually sitting there all day. It is doubtful if their trading activities justify a full time occupation /attention.
l The savvy investors do trade mostly through telephone; many of them use margin facilities offered by most of the merchant banks. They pick up stock selectively based on fundamentals and market trends.
l It appears that some of the big players team up to move the prices of the targeted companies. Often they succeed in manipulating the market resulting in lifting the prices to unrealistically high level. In the wake of their profit taking, generally small and unsophisticated investors lose out. An example is the very recent and overdue price correction in the mutual funds.
l Some retirees are fairly active spending some time in the broker's office for trading as well as interacting with fellow investors. or communicating with the traders through phone. As branches of broking house are being opened in many areas of the city and beyond, it has become very convenient for this group of investors to spend some time there and interact with fellow investors.
l Except professional and knowledgeable amateurs, most other investors, particularly the new entrants, appear to lack in knowledge of fundamentals. They are thus very vulnerable to losses in a market that can be manipulated to a certain extent because of its small size (in terms of capitalisation).
Leaving out the professionals, by and large the amateur investors can be categorised as, a) day traders, who trade very frequently and do not hold stocks too long or b) stock pickers, who usually buy blue chip stocks and hold on to them for a long period. There are investors who fall in between.
In order to grasp the big picture, a brief review of the characteristics and modus operandi of different types of investors, will be relevant.
Day Traders churn their shares frequently with smaller margin. Taking long position is not their cup of tea. As they have to take profit regularly, they prefer to dabble in volatile shares with high 'beta' defined as the index that measures the stock prices sensitivity to fluctuations of the market as a whole. A beta greater than one indicates greater volatility, and a beta of less than one indicates lower volatility, than the market. In most developed countries stock trading can be done through Internet as such the day traders can sit in front of their monitor and trade instantaneously. As their bank accounts are linked with their investment account, trading becomes a breeze.
Of necessity and by temperament they would tend to be extremely focused. With luck and finesse they may make money more often. On the down side as they are not looking actively for other opportunities, they may be losing out in terms of exploring the wider horizon or hidden nuggets. The day traders' intense focus has similarity with the deep concentration of the fruit picker (shown in Figure 1) collecting the plums. No distraction can waver his focus nor any other fruit is prize enough to draw his attention.
Stock Pickers are the ones who are not very active players. They tend to buy periodically and selectively. As they do not tend to monitor stocks constantly, they tend to be more opportunistic and consequently gravitate towards blue chip stocks and hold those for longer periods. The greatest investor of this type is the legendary Warren Buffet who buys into few counters and hangs on for ages.
There are many savvy investors who are seasoned investors and come in all stripes - amateur as well as professionals.
Another big group of players are the movers and shakers of the market that are in a position to control the market to a certain extent. This they can manipulate for the following reasons:
a) When he market capitalisation is small; or,
b) They can work in collusion with other big players to buy or sell in big volumes and thus create a momentum,
c) The na
Interest in stock trading is relatively new in Bangladesh. It gained momentum in the late eighties, which however, waned in the aftermath of the market crash of 1996. However, in recent years there has been resurgence in public interest in share trading. Some discernible trends related to trading patterns in Bangladesh can be identified and the same have been reviewed below.
l Many of the investors who burnt their fingers way back in 1996, are still wary to get back into the market.
l A large number of younger men have been drawn into the market in recent years. They are seen to be crowding the broker's office - many of them virtually sitting there all day. It is doubtful if their trading activities justify a full time occupation /attention.
l The savvy investors do trade mostly through telephone; many of them use margin facilities offered by most of the merchant banks. They pick up stock selectively based on fundamentals and market trends.
l It appears that some of the big players team up to move the prices of the targeted companies. Often they succeed in manipulating the market resulting in lifting the prices to unrealistically high level. In the wake of their profit taking, generally small and unsophisticated investors lose out. An example is the very recent and overdue price correction in the mutual funds.
l Some retirees are fairly active spending some time in the broker's office for trading as well as interacting with fellow investors. or communicating with the traders through phone. As branches of broking house are being opened in many areas of the city and beyond, it has become very convenient for this group of investors to spend some time there and interact with fellow investors.
l Except professional and knowledgeable amateurs, most other investors, particularly the new entrants, appear to lack in knowledge of fundamentals. They are thus very vulnerable to losses in a market that can be manipulated to a certain extent because of its small size (in terms of capitalisation).
Leaving out the professionals, by and large the amateur investors can be categorised as, a) day traders, who trade very frequently and do not hold stocks too long or b) stock pickers, who usually buy blue chip stocks and hold on to them for a long period. There are investors who fall in between.
In order to grasp the big picture, a brief review of the characteristics and modus operandi of different types of investors, will be relevant.
Day Traders churn their shares frequently with smaller margin. Taking long position is not their cup of tea. As they have to take profit regularly, they prefer to dabble in volatile shares with high 'beta' defined as the index that measures the stock prices sensitivity to fluctuations of the market as a whole. A beta greater than one indicates greater volatility, and a beta of less than one indicates lower volatility, than the market. In most developed countries stock trading can be done through Internet as such the day traders can sit in front of their monitor and trade instantaneously. As their bank accounts are linked with their investment account, trading becomes a breeze.
Of necessity and by temperament they would tend to be extremely focused. With luck and finesse they may make money more often. On the down side as they are not looking actively for other opportunities, they may be losing out in terms of exploring the wider horizon or hidden nuggets. The day traders' intense focus has similarity with the deep concentration of the fruit picker (shown in Figure 1) collecting the plums. No distraction can waver his focus nor any other fruit is prize enough to draw his attention.
Stock Pickers are the ones who are not very active players. They tend to buy periodically and selectively. As they do not tend to monitor stocks constantly, they tend to be more opportunistic and consequently gravitate towards blue chip stocks and hold those for longer periods. The greatest investor of this type is the legendary Warren Buffet who buys into few counters and hangs on for ages.
There are many savvy investors who are seasoned investors and come in all stripes - amateur as well as professionals.
Another big group of players are the movers and shakers of the market that are in a position to control the market to a certain extent. This they can manipulate for the following reasons:
a) When he market capitalisation is small; or,
b) They can work in collusion with other big players to buy or sell in big volumes and thus create a momentum,
c) The na