trends
THE NORMAL DEVIATE
Day Trading in China Even in a communist country, people like to make money By Tom Preston
government, but to trade U.S. stocks they need U.S. dollars. Converting renminbi to dollars is where the difficulty lies. So hundreds of millions are turning to the Shanghai Stock Exchange. The renminbi is good to go with the SSE, and technology is enabling people to trade. Day trading stocks, buying and selling shares intraday, can be more
fast-paced than a game of craps. The nearly never-ending stream of changing numbers can become addictive. But for making money, day trading stocks amounts to a 50/50 bet. That’s gambling. But, some might say, the SSE 50 Chinese stock index had a great return in 2019! That surely means there’s a better chance that a stock
Because of commissions, fees and slippage in execution, most Chinese day traders probably leave with less money than when they started. 38
A passerby walks past a panel displaying China stock indexes at the financial Central district in Hong Kong, China, on Aug. 24, 2015
PHOTOGRAPH: REUTERS/BOBBY YIP
T
he Chinese began gambling at least 4,000 years ago, and they’ve made it a tradition ever since. It’s the reason that Macau has some of the busiest casinos in the world. Some might find a penchant for games of chance incongruous with a planned economy that enforces control over its people with hard and soft power. But the pull of gambling is just too great. And believe it or not, that’s relevant to trading. It turns out that even in a communist country, people like to make money. Chinese 30-somethings are using the latest and greatest tricks to squeeze out a little more alpha. Jack Ma’s money market fund and other interest-bearing products were hot until people realized the returns were pitiful. Then, savvy Chinese discovered the capitalist joys of peer-topeer lending and enjoyed returns commensurate with the risk. But that was a little too free-market for the Central Committee, and last year the People’s Bank of China shut most of the P2P lending sites down, probably keeping the few that are open for the benefit of the well-connected. What, then, were the majority of return-hungry Chinese to do? They day-trade stocks. But it’s difficult for Chinese nationals to trade stocks on U.S. exchanges. It’s not forbidden by their
luckbox | march 2020
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1/31/20 1:04 PM