Kolkata, June 15 (Calcutta Tube / IBNS): The first class of Ajay Jain’s share market miracle theory Ratio Trading began in Kolkata this week with 20 young people, mostly fresh out of college, queuing up to learn the art-science, billed as the surest and safest way to earn money on the stock exchange.
For the last several months now, since the release of his book ‘The Surest Way of Making Money on the Stock Market’, Jain has been going around presenting his idea to industry big fish, inking deals with other broking firms and considering every opportunity to expand his company Ratio Trading Pvt. Ltd.
He has managed to convince about eight other broking firms, several of them quite well known, about the theory, which when one first hears it seems too good to be true, and agreed to license Ratio Trading at an 80:20 profit sharing model.
His certification program, five days of theory and four days of practical experience, basically trains almost novices in Ratio Trading, following which they are scooped up by broking firms with whom he has inked his technology sharing deals.
And he charges Rs 20,000 for the course spread across a month. “No, I don’t think it’s steep,” he says when asked, “Once they get this certificate, they immediately get inducted into broking firms for a Rs 7,000 assured monthly salary plus commissions.”
He has taught the course to about three corporate batches so far, with 20 people in each class, but now he was targeting students fresh out of college. “We’ll train them, educate them in the whole theory and guarantee a job,” he said.
Developed after eight years of research, Ratio Trading (RT), the idea behind his book, is an intra-day strategy for dealing in the options market of the National Stock Exchange (because it offers a greater liquidity, which RT thrives upon).
Instead of the traditional idea of starting with a lump sum amount, buying dozens of equities and hoping for them to close on a high, RT deals with the more sophisticated (and complex) side of the market, where trade begins and ends on the same day with zero capital and some profits.
How much profits? “Today was an extremely dull day. I barely made it above (rupees) 2,000,” he showed me on a day last week. Even though he said the market had been quite “cold” in the last few months, during 2009 he recorded returns worth more than Rs 20,000 after a day of trading.
“And there is no risk. You start with zero investment and you exit with zero balance. What remains is just the profits,” he said, explaining what closely resembled a kite-flying manoeuvre of carefully controlling how many options contracts a trader had at any point of time.
The catch to theory, however, appeared to be the fact that perhaps because it was an idea that spoke of trading in small lots and making small profits which had to be compounded by doing it again and again, there would always be a ceiling on how much one made.
A tradeoff between risk and returns, it seemed. However, Jain vehemently denied this. “How do you calculate returns when your investment is zero?” he said. It was a tricky question.
“It’s really difficult to put a number or a percentage on the returns. Even though it’s a science which guarantees no loss, the amounts of profits are linked to a trader’s skill, how much time he gives and market conditions,” he said.
In India, derivatives traders started warming up to options only after the financial crisis. But now options (especially Nifty options) account for nearly 75 percent of the total derivatives trading on the National Stock Exchange.
Analysts say that the rise in options trading has been aided by a differential tax structure which translated into considerably low outgo on statutory taxes such as the securities transaction tax on options contracts.
In January 2008, the average daily turnover in options contracts amounted to Rs 6,600 crore but now stands at Rs 55,600 crore. In comparison Futures trading during the same period fell from Rs 56,600 crore to Rs 20,000 crore.
But Jain says the road ahead looks even more promising. “By 2015 I estimate the options market to be 10 times as big as today,” he said.
Being from Kolkata, Jain has set up his shop centred around the City of Joy, with a cosy office in Ballygunge, but he does want to expand nationally. In the last couple of months he has signed accords with brokers on Delhi and Chennai for his theory.
He is also looking to start a full fledged training institute, where he wants to impart the ratio trading
(Reporting by Divyanshu Dutta Roy)
(Reporting by Divyanshu Dutta Roy)