Out-of-job brokers turn arbitragers to cover costs

With retail investors facing heavy losses in the stock market, share brokers are turning arbitragers to keep the income stream alive. Ahmedabad has been an important centre for day traders. But since day traders are fast disappearing, broking firms have begun proprietary trading, employing arbitragers on a profit-sharing basis.

In arbitrage, an individual trader buys and sells on two different trading platforms to take advantage of the price difference on these platforms at the same time. There are about 500 arbitragers in Ahmedabad alone, most of them new entrants in the trade. Broking firms, in fact, are on the lookout for trained and experienced arbitragers.

���In the present situation, the volume of business from retail traders and investors has declined substantially. At a time when the income is less compared to the expenses, we find arbitrage as an important solution to cover costs,��� says Kunwarji Finstock vice-president Nainesh Dave.

���Arbitrage is a risk-free business. Since one does not have to take onesided open position, the chances of making profits are high. Moreover, because of high volatility there is greater opportunity of arbitrage,��� he adds.
Kunwarji, which had started arbitrage on a small scale in April 2007, has expanded its arbitrage business. It has over 200 arbitrage seats in Ahmedabad, Rajkot and Vadodara.

However, arbitraging is no longer lucrative, given the tough times. ���It is difficult to earn at a time when there is less liquidity. We need to be very careful while placing an order. Many a time, we don���t even earn the 1-1.5% interest that we need to pay to the broker,��� says Jignesh Shah, who has been in the arbitrage business for over one year.

However, at present, over 40% of the business in the market comes from arbitrage despite the tax levied by the Centre on such transaction. Says KIFS chairman Rajesh Khandwala, which owns 350 arbitrage seats in Mumbai and Gujarat, and who is the pioneer of arbitraging in Gujarat, ���At the moment, arbitrage is providing liquidity.

Our boys engaged in arbitrage are able to earn a decent amount despite the recession. Looking at the market conditions, the government should remove the STT on arbitrage so that many more people can take up arbitrage and there is an improvement in the liquidity.���

Delhi-based BLB Limited works solely on the arbitrage model in the country. Its Gujarat region head Neeraj Patel says, ���There has been a reduction in the volumes compared to the boom time. However, more important is the fact that no one had to suffer losses because arbitrage does not involve risk-taking. Moreover, there is no mental tension because the trader does not have to take an overnight position.���

He said BLB Ltd also runs a training institute for arbitragers. BLB has operations in Delhi, Mumbai, Kolkata and Ahmedabad. The main reason why the business of arbitrage has not spread widely in Ahmedabad is shortage of trained personnel. Says Dave of Kunwarji Finstock: ���An arbitrageur has to be a trained professional.

The person may not have high educational qualification, but he should be computersavvy, have quick decision-making ability and smartness to place orders.��� Says Nikhil Agrawal, director of Genuine Stock Broking which has 100 arbitragers, ���We are going to start our fourth office shortly and employ many more arbitragers.���