We all know that Hong Kong is a business town and Hongkongers are busy making money. Every which way they can make money, they do it. The Hong Kong stock market is one of the biggest equities markets in Asia in terms of turnover and has one of the highest percentages of retail investors compared with the general population than other stock-crazy markets such as Taipei, Shanghai or Shenzhen. According to the Retail Investor Survey 2007, conducted by the Hong Kong Exchanges and Clearing (HKEx), 35.8 per cent of the adult population, or about 2.02 million individuals, were retail investors in stocks traded on the HKEx in 2007. This more than doubled from about 16 per cent in 1997. Numbers aside, just look at the number of day traders who spend practically half their day in their broker's office buying and selling stocks. From office cleaners to retired office clerks, everyone does day trading here. So how do they go about their business of making money on the stock market? We asked one of them to walk us through his typical trading day. Alfred Chan (not his real name) has been doing this for the past three years. The 52-year-old is a media professional and knew the market mechanism before he decided to plunge into day trading. 'I read all about the stocks I want to invest in the previous day by going through stock analysis, business papers and stockbrokers' websites.' Chan starts his trading in the morning, a few minutes after the opening bell of the stock market, by placing orders for stocks he has listed to buy the previous night. He keeps track of the stock movements every hour or so through the websites or by calling the HKEx hotline. He may check with his broker, whom he rarely uses these days. He says the best way to learn about companies is by reading their annual reports, especially their balance sheets, as it shows how much capital expenditure the firm is going to make the next year to expand its business, which may affect its stock price. He also looks at the price-to-earnings (P/E) ratio before buying that company's stock. 'The P/E ratio gives one a good idea how cheap the stock is and how much it is expected to rise,' Chan explains. Chan prefers to trade by phone banking, which is linked to his securities account with a major bank, even though a number of times he has faced delays when selling or buying stocks as the orders placed by him go through the system. Apart from phone banking, one can get an online platform as die-hard day traders insist that phone banking is largely unsuited for day trading - too much slippage relative to intra-day profits. Some day traders open accounts with United States-based brokerage Interactive Brokers and trade through them, others prefer local sites. All these websites have the full range of Hong Kong stocks and a single account allows them access to any other market and financial instrument such as futures, options, warrants and equities in the world that they cover. If you want to day trade, Chan says it is better to get an online real-time data feed. There are two components to a data feed. One is the data feed itself, the raw data that comes through, and two, how you want that data represented, usually in chart format. There is plenty of fancy charting software such as Tradestation and Metastock, but you have to buy them separately to the data feed. They offer an integrated package and many day traders find their charting software very useful. This software is available in computer shops in Causeway Bay and Mong Kok. Chan says he started with HK$250,000 of seed money, and began picking up blue chips to trade. Blue chips, such as HSBC, Cathay Pacific and China Mobile, were his initial buys as they offered good dividends. 'I sometimes invest as much as HK$50,000 in buying a single stock if I feel it offers a good short-term return. Such stocks I trade on a daily basis with the profits being ploughed back the next day on buying other stocks.' Chan holds on to some stocks, mainly blue chips, for medium- to long-term investment. The long-term investment companies are usually those that declare reasonable dividends and are the favourites of mutual fund managers. 'I own some funds so I know which mutual fund is buying what in the market,' he says. 'Usually a fund would buy a stock for medium- to long-term holding and sometimes they offer good tips in newsletters to shareholders.' He also trades on themes. 'I would look at what is the theme of the day or week or in the short-term future and buy those stocks.' Chan says his theme now for buying stocks is H-shares or red chips - mainly China-related stocks. He reasons that the central government has pumped billions into reviving the economy. The central government announced last November that it was going to inject 4 trillion yuan (HK$4.54 trillion) into the economy to boost those sectors affected by the financial crisis. So Chan has bought stocks that would be affected by this pump-priming measure, such as property, technology, energy, shipping and telecommunications stocks. Another investment that attracts Chan is options. 'My objective is to profit from options that expire in two to three months. One would have to be very active in trading to trade in a volatile market, sometimes stocks can move by 20 per cent in one trading day. The 20-day moving average is sloping upward, that means we have an uptrend.' But he warns that such option trading is not for those just starting out in day trading. It is volatile and you can lose your entire capital in a matter of days. 'Play safe when you are just starting out,' he advises. Chan usually decides around 3pm, an hour before the Hong Kong stock exchange closes, whether he wants to hold on to a stock he has bought in the morning or sell it and take the profit. 'If a stock has risen substantially, say about 10 per cent or so, I would take the profit that same day.' Chan says the volatility in the market means that the next day that same stock will be sold off by the funds, losing a lot of its gain from the previous day. At 4pm, when the stock market closes, Chan is a satisfied man. He says if he makes a couple of grand a day he considers that as successful. He eventually packs up for the day and trudges off to the pub to enjoy a pint of lager.
