The positive difference between the selling price and initial purchase price of a stock (stocks) in a contra transaction (contra trading). Stocks bought on contra can be sold within a specific period of time, e.g. T+3, (the so-called contra period; transaction day + 3 business days), even if the holder has not settled the purchase price. For example, an investor purchased 2 lots of XYZ stock at a price of $10.00 on Tuesday and intends to sell them on Friday (at T+3). If the investor managed to sell them for $10.30 on T+3, his profit (gross profit- i.e., before brokerage fees) would be:
Contra profit = selling price – initial purchase price = 10.30 – 10.00 = $0.30 per share
Contra profit per lot = contra profit per share * 1,000 = 0.30 * 1,000= $300
Total profit = 300 * 2 = $ 600
Within the contra period, the investor will not have to pay the initial purchase price, which is, before brokerage fees:
$10 * 1,000 * 2 = $20,000
If brokerage fees were $150, then net profit would be:
Net profit = 600 – 150 = $450
Comments