It’s 9:50 am on Friday. Ashok Kumar Jain, a day trader at Geojit Securities’ Zaveri Bazaar branch, is glued to the trading screen. Exactly five minutes later, the Sensex opens 49 points down and doesn’t stop sliding after that.
The scenario across Asia looked bleak as investors shunned risky assets fearing a global liquidity crisis and an abrupt end to the yen carry trade. Investors borrow funds in countries with low interest rates such as Japan to fund purchases of higher-yielding assets abroad, referred to as carry trade.
Volatility in the market increases the risk of those bets and has been a primary reason for investors to repay yen loans, boosting the currency’s value.
At 12:09 pm, there’s more bad news. Hong Kong’s Hang Seng index drops more than 5.5 per cent to hit a day’s low of 19,386 points. Five minutes later, the Sensex follows suit, diving 529 points to hit a day’s low of 13,779. Jain’s worst fears have come true — the Sensex has dropped below the 14,000-point mark.
It’s gloomy on Dalal Street, but Jain is not perturbed. He has short-sold (selling a stock that you don’t own, but buy before the trading session ends) a scrip at the opening, hoping to pick it up at a lower level later. Jain buys the scrip immediately and exits the market, making a profit.
At 12:27 pm, the Hang Seng begins to claw back. The Sensex mirrors it 10 minutes later, and the dealing room brightens up.
It’s all uphill from here. The Sensex recovers smartly to end its roller-coaster ride at 14,141, having lost 216 points.
In the last two weeks, day traders like Jain have been having a tough time, scrambling between monitors to keep track of global indices. Day traders are investors who buy and sell stocks in a single day and don’t carry over their holdings. Volatility hits them the worst, and the week has been anything but calm.
First, there were fears of loan defaults in the US sub-prime market, which offers credit to those who would otherwise not qualify because of poor credit histories. Then came the yen carry trade fear.
Day traders contribute about half of the trading volumes and many are staying away from the market. “But,” says a dealer, “trading is an addiction. They will return despite the losses.”