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What Is Stock Jobbing

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What Is Stock Jobbing

What Is Stock Jobbing

Umesh Sharma 25 Nov 2020

 

Businessman, Psychologist, Speculator, Robber: The Fascinating World of The Indian Stock Market’s Jobber

  

Stock jobbing is a term that means making quick profits on small moves of a stock. The more common terms for the same used in the stock markets nowadays might be scalping, day-trading, high-frequency trading, etc. 

Scalping is achieving results by increasing the number of winners and sacrificing the size of the wins. A scalper intends to take as many small profits as possible. This is the opposite of the "let your profits run" mindset, which attempts to optimize positive trading results by increasing the size of winning trades.

                                           

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Benefits of Jobbing in Stock Market:

  • Requires Intense Focus, Less Likely To ‘Force’ Trades.

  • Less Overall Market Exposure.

  • Easier to Obtain Lots Of Small Moves Than 1 Large Hence Reducing The Risk Of Making Losses.

  • Flexibility to Trade Any Time.

  • No Investment Required.

  • No Calling, No Sales, No Targets

 

Understanding Stock Jobbing

Stock jobbing is a British slang term for short-term day trading where the trader tries to make frequent small profits. These individuals were actually market makers on the London Stock Exchange before October 1986 when London's financial sector was deregulated.

While most investors assume it is better to seek value through long-term investments, stock-jobbing (day trading) takes on a more speculative short-term goal. As opposed to using fundamental analysis and selecting investments that professionals believe are likely to grow in price over time, the short-term trader seeks to identify and take opportunities to make quick, small profits and replicate that procedure with as great a frequency as possible.

Stock jobbing types will often use technical analysis to generate short-term gains. High-frequency traders are the most modern version of stock jobbers because they seek to identify, fill and match orders in tiny fractions of a second. 

 

 What is the Role of Jobber in the Stock Market?

 

Jobber, also called “stock jobber”, act as market makers. They hold shares on their own books and create market liquidity by buying and selling securities, and matching investors’ buy and sell orders through their brokers, who were not allowed to make markets.

A jobber is a professional speculator, and buys and sells shares for himself. He does not have any clients. His business is to speculate on which way prices are moving and make a quick profit on it. He does not want to buy shares and keep them for the long term as investors do. But, to do business on the floor of the stock exchange, he needs to have a broker as a sponsor. He shares a part of his profit with the broker under a pre-decided agreement.

The jobbers are also known as tarawaniwallas. The Jobber market is essentially a wholesaler who operates on a small scale or who sells only to retailers and institutions.

 

                     

 

To be a successful jobber, one had to be very good at mental arithmetic. If you were jobbing in more than one or two stocks, then your skills needed to be even sharper. That is because you were carrying an inventory of shares at all times, irrespective of whether you were long (had a buy position) or short (had a sell position) on a stock.

Tasks of a Jobber in Share Market 

  • Buying and selling shares, securities, etc. in trading-ring of stock-exchange (place where Brokers and Jobbers meet at stipulated hours for making transactions) to speculate and make profits due to fluctuations in prices of shares, securities, etc.

  • Watching market trend and the movement of prices various shares and securities

  • Making transactions with other Brokers, Jobbers or their authorised agents at prices which appear favourable to him

  • Maintaining records of transactions made by him on note-book called Sauda-Books

  • Well-versed with all alerts and make profits even out of minor fluctuations

 

Role of a Jobber while Placing an Order

 

There are 3 Parties involved in the dealing of shares:

  1. The Stock Broker

  2. The Client

  3. The Jobber

The stock broker simply acts as agent and contacts the particular jobber in the stock exchange on behalf of the client. He does not disclose to the jobber whether he is a buyer or seller of shares. He therefore, asks him to quote two prices: 

  1. The upper prices at which he is ready to sell the shares

  2. The lower prices at which he is ready to buy the shares

Example: Mr. Arnav wants to sell 1000 shares of a company. He contacts a broker dealing on the stock exchange. The broker asks a jobber to give quotations. He does not disclose the jobber whether he wants buy or sell the shares of the company. The jobber gives two prices, one at which he is ready to sell and another at which he is ready to buy.

If the broker is not satisfied, he can go to another jobber or ask the first one to make it closer (i.e. to reduce the margin between buying and selling). If the broker is satisfied with the new quotation, he then contacts with his client, informs him the bid of the share. If the client agrees to bid the price, then bargain is struck.

 

All the players in the stock market, it was the jobber whose role is most fascinating

 

A jobber helped create liquidity in a stock by offering two-way quotes and also helped in price discovery. He took on the risk, confident that he would be able to sell whatever he bought and buy back whatever he sold. 

A jobber would buy from you at a rate lower than what he would sell to you for, and the difference or “spread” as it was known, would be his profit. The spread quoted by the jobber would depend on the quantity of shares you wanted to buy from him or sell to him – the smaller the quantity, the less the spread, and the bigger the quantity, the wider the spread. A jobber had to ask for a higher spread while dealing in big quantities since the risk he took was higher.

It was not just enough to remember the number of shares you were long or short on; you had to remember the average buying or selling cost of those shares. That in turn would decide the bid-ask spread (“bid” is the price quoted by the buyer and “ask” by the seller) a jobber quoted.

I knew of expert jobbers who could memorise their inventory and the average price of trades in nearly two dozen stocks without having to check their deal pads.

A good jobber also had to be a skilled psychologist. It required him to be able to size up a prospective counterparty and gauge whether he was a likely buyer or seller. His profit margin would hinge on his ability at this. 

A typical conversation between the two would run on these lines:

“What is the quote for Arvind Mills? “57-60.” (I will buy from you at 57 and sell to you at 60) “What quantity is this valid for? “500 shares.” “I want to sell 500 shares.” “Okay, bought 500 shares from you at 57.

 Does your quote hold good for another 500? “Yes.“ Okay, I want to sell another 500 shares.” “Bought 500 from you at 57.

 I want to sell another 500.What’s your quote? ”56-59.” Okay, I am selling 500 more to you.” “Bought 500 from you at 56.“

 How about 500 more? “55-58.”

This Quotes are also called ‘Double barrelled price ‘ or ‘Jobbers Turn’


As the client keeps selling more, the jobber will keep lowering the bid-ask quotes, but not necessarily the spread, which will remain Rs 3. That is because the jobber is now running up a plus-position, and his profit will depend on how cheap he can get the shares.

The more heavily traded the stock, the smaller will be the jobber’s spread, because there will be plenty of buyers and sellers. For an illiquid stock, the spread would be wider, and at times even outrageous if a jobber enjoyed a near monopoly in that stock. There were different categories of jobbers, depending on the risk they were willing to take.

A jobber was always in demand because brokers preferred to deal with him rather than with each other. Since jobbers played for small profit margins by trading as many times as possible, brokers had the comfort that they would not be overcharged.

 

 There was an unwritten rule that brokers would not try to make a big profit at the expense of the jobber because that could ruin him 

If a broker was buying on behalf of a promoter using some inside information or buying a huge block of shares for an institution, he would, after the trade, casually tell the jobber something like, “Don’t keep your position open for too long,” or “Take your profit and move on quickly.” An honest jobber would then try to close out his position quickly and not take up a position on the same side as the broker so as to profit from the information.

Brokers looking to buy or sell large blocks were often at the mercy of jobbers, and it was to the credit of the jobbing community that a great majority of them did not misuse this power. 

 

What are the differences between a Jobber and a Broker?

  Jobber Broker
Meaning A jobber is an independent dealer, purchasing or selling securities, on his own account A broker is an agent who deals with the jobber on behalf of his client. In other words, a broker is a middleman between a jobber and clients.
Nature of Trading          A jobber carries out trading activities only with the brokers A broker carries out trading activities with a jobber on behalf of his investors.
Restriction on Dealings They are prohibited to directly buy or sell securities in the stock exchange, also he cannot directly deal with the investors as he is not a member of the exchange. They act as a link between jobbers and investors, i.e. buying and selling securities on behalf of their investors.
Agents A jobber is a special mercantile agent providing two - way quotes A broker is a general mercantile agent and trade on behalf of their clients.
Form of Consideration They get consideration in the form of profit from market-making and profit-sharing They get consideration of commission or brokerage
 


 

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