Have you ever wondered on how to get shareholders’ special benefits without the risk of the stock price falling?At first glance, it may seem that the risk of a decline in stock price is unavoidable because it is necessary to hold the actual stock in order to obtain shareholders’ benefits. However, by using a method called “cross trading of special benefits”, this kind of like a dream becomes a reality. On this page, we will explain how to obtain shareholders’ benefits with the lowest possible risk.
What is preferential treatment cross trading?
In order to receive shareholder special benefits, you need to buy stocks by the final day of trading and sell them after the ex-rights date. However, there is a high possibility that you will lose money if you sell many of the special benefit stocks around the ex-rights date. The reason for this is that the stock price of a special benefit stock tends to rise until the last day of the month and fall after the ex-rights date. You might think, “Well, I guess I’ll just have to hold on to my shares forever”. However, there is actually a way to avoid this risk of stock price fluctuation. In fact, there is a right way to avoid this stock price fluctuation risk and it’s called “preferential trading”. To make something clear, you can sell short and buy at the same time and receive the right to get special benefits while minimizing the risk of stock price fluctuations.
What is short selling?
It is important to know about the “short selling”, which is necessary for cross trading. It may be difficult to imagine, but margin selling is a transaction in which you can borrow shares that you do not have from a securities company and sell them. So that, you can make money when the stock price falls. This kind of way is powerful to make money when the stock price falls.
Method
If you own a stock and the stock price falls, you will lose money. However, if you place a short sale order at the same time, you will make money when the stock price goes down, which will offset the loss of the stock. Preferential cross trading is a transaction that takes advantage of this result. In other words, by placing these two orders at the same time, you will not lose money no matter how much the stock price falls on the ex-rights date, and conversely, you will not make a profit even if the stock price rises. The following is the specific way of doing a special benefit cross-trade.
- Select a stock for which you want shareholder benefits:
- Place a “buy” and a “short sale” order for that stock at the same time
- Reach the last day of trading = Receive the right to receive the benefit
- Settle the order on or after the ex-rights date
- Receive the preferential treatment
By the following process, you can obtain the benefits with only a small amount of expensesas as “trading fees” and “interest”.
Points
The best solution is to place your buy or short sale orders when the market is closed. Every weekday, place your order after 15:00 to 9:00 the next day when the market is closed, or between 11:30 and 12:30 when the market is on break. If you place your order during the market time is open, the time will be off and you will not be able to execute at the same price (i.e., there will be a risk of stock price fluctuation).
Note
You will not receive dividends. In preferential trading, you tend to think that you will receive “preferential rights” plus “dividends” because you hold the shares until the last day of the trading period, but this is not the case. In fact, if you hold open interest beyond the vesting date, you have to pay the amount equivalent to the dividend to the buyer of the margin transaction. This paid money is called “dividend adjustment money”. The right to dividend adjustment money is determined at the same time as regular dividends. In other words, cross trading will give you the right to shareholder benefits, but not dividends.
Negative interest per diem
Negative interest per diem,” which is the cost of procuring shares from other sources when there is a shortage of shares at a brokerage firm due to too much short selling. In the case of popular shareholder special benefits, there are many cases where there is a shortage of shares and you have to pay negative interest per diem, which can even greatly exceed the value of the benefit. Negative interest per diem varies from stock to stock, for example, if the negative interest per diem for every share is 10 yen and the trading unit required to obtain the benefit is 1,000 shares, you would have to pay 10 yen x 1,000 shares = 10,000 yen. Even if you get a special benefit, it is meaningless if you lose money.
However, there is a way to avoid negative interest per diem, ie, cross trading of special benefits using general margin trading. There are two main types of margin transactions: institutional margin transactions and general margin transactions.
The stock rental fee (rental fee incurred when borrowing shares) to securities companies is a little higher for general margin trading, but it is negligible compared to the risk of negative interest per diem. However, it is not available at all securities companies.
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