Should Remisier Encourage Contra or Long Term Investment

Remisier is faced with dilemma whether to recommend short-term play stock or long-term fundamental investment to a particular client. This is not an argument but some points for my own case study. The points may be wrong in terms of legality or ethicality. If is a case study for myself in dollar and cent.

If remisier’s clients play contra, it will generate more brokerage income for the remisier as compared with buy and keep. But what if the client always lose money? Very soon he may be stop playing and the remisier will lose the client and will also lose the brokerage income.

Ok, let take Mr A as an example.

Mr A doesn’t play contra, but sometimes use small amount do short term trades.

Majority of his fund is for long term investment.

Those short-term trades he normally lose money.

Those long-term investments he normally make money.

Although his long term trades are not that frequent, but his remisier are earning more and more brokerage income from him. As his investment profit grew, his portfolio also grew. His confident grew, he also continues to inject more money for investment and his average value per order has also increased.

Therefore, it is not a bad idea to encourage client to trade long term. However, in the above case, if his remisier want to make more brokerage income from him, he should encourage him to contra or to do more short-term trade/play. Why? This is because the remisier knows that the amount he uses to contra or play is small in comparison to what he can afford. If he keeps losing money, the impact is not that great and he still will continue to invest in long term. Furthermore, there is no guarantee that he always lose money, he may make more than lose.

Therefore, there is no fixed rule of whether to encourage contra or long-term investment. Remisiers need to know the client’s background. Let us look at the factors below:

Money

If the clients have a lot of money, the amount that they invest is not big as compared with what they can afford, and/or have steady income, don’t worry about them losing the money because they will still have money to play.

Easily Give Up?

If the client will easily give up if losing money, then encourage long-term. Because short-term or contra chances are half-half. If he loses money in short-term play, he may stop investing.

Track Records

If the client has good track records of making money in short-term, then no need to encourage them to invest long-term. Short-term can generate more brokerage income for the remisier. But if the client always lose money, then may need to consider encourage the client to do long-term fundamental investment before the client stop investing.

What is The Best For The Client

Some remisiers are very good. They don’t bother about their brokerage income, but they are thinking about what is the best for the client. For example if the client wants to buy a speculative stock that the price has gone up very high, some remisiers discourage the client from buying. They discourage the client for the benefits of the client, although they will lose out the brokerage income.

But I have a question. How remisiers will know that it is not good to buy at that price and at time? Who can guarantee the price will come down? What if the price keeps going up?

From what we can see, there is no fixed rule of whether to encourage contra or long-term investment. Many factors need to be considered, and most of the factors are about Know-Your-Customers (KYC). What is the best for client or brokerage income also may need to be considered.

Please note that the above is for my own case study purely based on dollar and cent comparison and may not be legally right. This is because the stock market and remisiers are governed by a strict law that specifies the conducts of remisiers. I just want to find out how to improve brokerage income for my own understanding. This is purely a case study on numbers or money. Please refer to relevant rules or law for further info.