Day trading refers to the practice of buying and selling financial instruments within the same trading day such that all positions are closed before the market close of the trading day. Investors using this type of trading are called day traders. By buying and selling stock they try to make a profit within a matter of hours and sometimes minutes.
Everything seems just fine, unless you live and work in Bulgaria. Here, unlike the developed capital markets, this type of activity is forbidden.
About a month ago the Financial Supervision Commission (FSC) demanded that the Bulgarian Association of Licensed Investment Intermediaries, the Bulgarian Stock Exchange (BSE) and the Central Depository come up with a stance and concrete proposals as regards to the regulation of the intraday trade. Fines were imposed to those who had dared to use this trading method. Investment intermediaries also became more cautious not to break the law and hurt the market and investors.
Are your brokers and analysts for or against day trading? Here are the opinions our team gathered:
Iliyan Skarlatov, Director Capital Markets, Sofia International Securities
The main problem of the Bulgarian capital market, both for local and foreign investors is the low liquidity. The restrictive policy on intraday trade does not help solving this problem. Shares bought on BSE are getting blocked in the process of settlement and cannot be sold until the third day from the day of purchase, according to the regulatory framework in Bulgaria. Taking into consideration the dynamics of the market, where several events may occur within a single day, as well as its low liquidity, I believe that the regulation of the intraday trade would be a major step towards BSE's development.
Borislav Nikov, Member of the Board of Directors, Status Invest
I am in favor of the day trading as this would allow speculators to use the intraday price fluctuations to pursue profits. It would also improve the liquidity of the market. The problems that would arise from the settlement of the shares also have to be taken into consideration.
Stanimir Sarastov, Member of the Board of Directors, Maccap Brokers
If the trading fees are relatively low, the liquidity of the market (of the respective position) is good and there is a clear trading system, day trading may prove to be quite profitable. The liquidity factor, however, restricts day trading in Bulgaria and in practice makes it almost similar to gambling. The strategy is used very often with varying success on well developed markets. I personally prefer the so called swing trading.
Tsvetoslav Tsachev, analyst, Elana Trading
The market needs liquidity and any restrictions imposed on the trading options are working against this. This would lower the intraday price fluctuations to a certain extent, but it is far from being among BSE's major problems at present. The introduction of margin trade and especially of short sales without the day trading being officially allowed makes the situation even more absurd. All these problems should be solved in parallel.
Mincho Minchev, chief dealer, Investbank
It is very difficult to say whether intraday trade should be introduced or not, as it is impossible for the advantages and disadvantage to be estimated. On one hand this type of trade would improve liquidity owing to the speculative investors who are buying and selling stock within the same day. On the other hand, such active trade may be a source of doubts about the manipulation of the price on a certain position. It would be nice to draw on the experience of the developed markets and their practices in this regard.