InvestorQ : Post trading is back-office task? Why should I worry about post-trading?
Anushri Vasa made post

Post trading is back-office task? Why should I worry about post-trading?

3 years ago

Quite often, the devil lies in the detail. To be a good trader, you need to have a perfect hang of the back-end process. Unless you understand the nuances of the process flow, settlement and clearing, margining etc. you will not be able to appreciate the importance of trading as a process. That is why your full involvement in the post-trading process is equally important.

As a trader, you are a 24X7 player. You have to take the ownership of the front end and the back end of your trading. Your trading activity is not over just because the trading session is closed. The first post-trading activity pertains to taking stock of the trade of the profits / losses for the day. This will tell you how much capital you can risk next day.

You have used a methodology for identifying the right stocks. But that list cannot be static. How do you use your daily trading experience and learnings to improve upon your trading list and stock universe is where the back end and the front end converge. There must be a methodology to shortlist winning trades and losing trades and understanding the reasons for the same. Profits could stem from action and from market forces. Losses could also stem from bad decisions or market volatility. This is the forum to identify the core reasons for the same.

Risk may be abstract but it has to be constantly measured and tweaked. For example; your capital limits, your intraday loss limits and your periodic limits have to change based on the feedback coming from the trading data. Review of risk is an important part of post trading methodology. Did you take too much risk in trades or did you take too little risk. Could have managed your risk or could have enhanced your risk to adjust return. One also needs to understand whether risk came from external factors or from internal decisions.

It is one thing to execute and another thing to execute in the best possible way. That is what post trading methodology can help you understand. Post trading is also about looking back at how execution was handled and whether it could have been done in a better way. If so how? Here the complete order placement and execution process is evaluated.

Finally, you need to decide on risk allocation for the next day which is a function of the trade process post trading is completed with the end-of-day process. This includes risk allocation for the next day, trading allocation for the next day, listing of stocks in action, trading ban, approaching limit etc. You need to tweak your next day strategy accordingly.