Japanese individuals now make up 43% of total equity volume - up dramatically from a mere 27% in November of last year - with commissions at brokers quadrupling year-over-year and an increasing number of 'get-rich-quick' investors turning to day-trading. Amid the huge volatility induced by Abenomics and deregulation of margin trading - enabling 300% leverage, the 'investing' public's attention span has collapsed to minutes: "winning at stocks is about predicting the future," one trader said, "I have a lot better chance of predicting what’s going to happen in the next few seconds than what will happen in the next six months." The volatility provides more room for these 'day-traders' to make money when they bet correctly (forget about the downside) on a stock's direction - long or short - and "now you can borrow endlessly." What could go wrong? One trader, as Bloomberg notes [6], leveraged $4.5mm in cash into as much as $67mm in daily stock bets and made $350,000 this year - triple his annual average of the last eight years.
Via Bloomberg [6],
Sitting before a cluster of computer screens in an apartment with the drapes shut, it took Naoki Murakami seconds to make $3,500 betting $1 million that Tokyo Electric Power Co. (9501) shares would fall a fraction of a percent.
The 34-year-old day trader first sold 50,000 shares at 558 yen ($5.70), then three more lots at 1-yen intervals as the stock dropped. He got out $2,500 richer, repeated the trade, and seconds later had $1,000 more. Within minutes of the market opening, the former water-purifier salesman had made more than the average Japanese person earns in a month.
Stringing together 20 or 30 similar trades each day, Murakami said he’s almost doubled his money to $750,000 this year. He calls himself the smallest player in a group of seven day traders who chat with each other online, vacation together, and cumulatively buy and sell almost $100 million in stocks each day, using leverage to increase the size of their bets.
Day trading helps explain why Japanese individuals now account for more than 40 percent of the nation’s equity volume, or about as much as the overseas institutions that once were the biggest traders. They’ve also helped make Japan the most volatile developed market, which is good for some and bad for others.
"They’re creating the volatility,” said Curtis Freeze, who helps oversee about $320 million as chief investment officer at Prospect Asset Management in Tokyo. “It’s great for them, but for the average long-term investor, it just scares them away -- including me.”
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“Watching stocks go up and up since the start of Abe’s government got me thinking about investing,” said Maki Murayama, a 38-year-old Tokyo office worker. “But seeing what’s happened lately, I realize it’s not that simple.”
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Dramatic price movements aren’t the only thing that’s made Japan a day trader’s paradise. Deregulation of margin trading opened the flood gates, Murakami said. After rules were relaxed in January, investors can borrow three times as much as their brokerage account balances and turn loans over the instant they exit a trading position.
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“Now you can borrow endlessly,” Murakami said.
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Working barefoot in a T-shirt and shorts out of a spare bedroom in his rented apartment in Osaka, Murakami said he’s made $350,000 this year, about three times his average in the previous eight years.
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One of Murakami’s friends, who goes by the blog name Tesuta, said looser rules let him leverage $4.5 million in cash into as much as $67 million in daily stock bets.
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The number of shares traded by individuals rose to a record in May, some 43 percent of Japan’s total equity volume, up from 27 percent before the rally started in November, according to the Tokyo Stock Exchange.
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On an average day, the group of seven day traders to which Murakami and Tesuta belong buy and sell somewhere between $80 million to $100 million in Japanese stocks, according to estimates from the members.
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“When shares don’t move, you can’t get an opening for a trade,” he said. “Now that the market is moving, I feel like I have to make the most of it.”
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Tesuta has tripled his fortune to $4.5 million this year, he said in an interview at a Chinese restaurant in Osaka. Making 200 to 300 trades each day and cutting losses quickly to minimize the cost of bad bets, the 33-year-old said he’s managed to profit even amid the market’s recent decline.
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“Winning at stocks is about predicting the future,” Tesuta said. “I have a lot better chance of predicting what’s going to happen in the next few seconds than what will happen in the next six months.”
Now, where have we seen this before?