I walked into the offices in Toronto and warned these guys at Swifttrade over 6 months ago. Guess no one was listening LOL:
nationalpost.com
Brian Hutchinson
Financial Post
Peter Redman, National Post
CHARLES KIM: "It sounds obvious, but it seems to run against human nature. Selling a stock when it starts to fall requires more discipline than you might imagine."
The first thing you notice are the press clippings. There are dozens of them inside the Toronto headquarters of Swift Trade Securities Inc. They are framed and mounted and shamelessly self-congratulatory. The second thing you notice is that Swift Trade's headquarters -- once a hive of trading activity -- appears to be empty.
Canada's largest day-trading firm was a media darling just a year ago, when North American stock markets were boiling hot. This week, the company's main trading floor was deserted, save for some desks, dozens of idle computers and a few bored-looking clients slumped at a table and drinking coffee.
It resembled a homeless shelter.
"It used to be buzzing," sighs Charles Kim, who co-founded Swift Trade four years ago. "We had people lined up at the door, fighting to get a seat inside."
Then the market tanked, and most of Swift Trade's clients vanished.
In February, the company was forced to contemplate closing three of its 10 branches. "We were going into the toilet, and quick," Mr. Kim says. "We grew too big, too fast." So Swift Trade reversed course. "We adopted a totally new methodology." Mr. Kim and his two partners, Peter Beck and Joseph Ianni, decided to recruit their own traders, and put them to work.
They now employ 52 traders, the vast majority of whom have no business experience. Most are male, in their early twenties, with a high school diploma at best. They spend their days frantically buying and selling large volumes of technology-related stock on Swift trade's behalf.
Mr. Kim likes his recruits young, single and raw. "If they have any skills, we don't want them. We want people with nothing in their heads." Among his new employees are a former GAP clothing salesman and a former Globe and Mail reporter.
Most of the new employees -- called proprietary traders -- are installed in a dismal half-empty room one floor above Swift Trade's deserted day-trading area. They each deal in one stock, buying and selling 1,000-share bundles of shares, all day, every day. Mr. Kim and his partners decide which stock each employee trades.
"There's only about 14 companies we're interested in," he says. "They're all listed on Nasdaq and are relatively volatile." They include Cisco Systems and Intel Corp.
Swift Trade's best proprietary traders know to sell their shares the instant they fall a penny. The traders then buy on the uptick and hold the stock until the price drops again. At the end of each day, they close their positions.
It's painstaking work that requires focus and dexterity. Most traders place buy and sell orders every few seconds. The margins are tiny. But when the market is frothy, the profits can add up. "You trade 1,000 shares and catch 5¢, that's $50," says Mr. Kim. "You do it again and again in a single day, and pretty soon you're looking at a lot of money." Swift Trade can accumulate significant profit, as much as US$75,000 a day.
All of its neophyte traders are paid the minimum wage required by provincial law. They also receive a 20% commission on profits they generate for the company. Most net about $500 a day. "That's not bad for some 20-year-old kid with no life experience," observes Mr. Kim, at 28 one of the oldest people in Swift Trade's Toronto office.
All the young traders have endured six weeks of intense training, called boot camp. Mr. Kim's teaches them the same basic rule: Do not hold on to a losing stock. "It sounds obvious," Mr. Kim says, "but it seems to run against human nature. Selling a stock when it starts to fall requires more discipline than you might imagine."
Mr. Kim points to a young Asian man hunched before a blinking computer terminal." That's Jimmy," Mr. Kim says. "He's one of our best."
Jimmy glances at us quickly before returning his attention to his monitors. His fingers start hammering his keyboard. In the next 10 seconds, Jimmy trades his Cisco shares three times, for a US$30 profit.
It is barely 11 a.m., and Jimmy has already made Swift Trade US$1,000.
"People who are good at video games tend to be good at this kind of trading," Mr. Kim says. Unfortunately, only the very good survive. "We have to fire 75% of the people we train." Last week, 150 recruits were shown the door.
The strategy has allowed Swift Trade to keep all its branches open. In fact, the company plans to open a new office in Amsterdam this month. It has just trained four young Dutch men.
Three of the four Amsterdam trainees will likely get the chop, Mr. Kim confides. Oblivious to their impending doom, the four lads have abandoned their terminals and are playing at a Foosball table at the other end of the room.
Mr. Kim moves to another computer. With the push of a button, he can track the combined progress of all his employees, in every Swift Trade location. At 11:08 a.m., they have made 9,827 trades. The company is up US$21,800. At 11:23, Swift Trade's profit has jumped another US$3,600, to US$25,400. "It's a little slow today," Mr. Kim says.
Downstairs, meanwhile, on Swift Trade's old day-trading floor, it's dead quiet. The handful of middle-aged men still hanging around have conducted just 142 trades, for a measly US$480 profit.
"The guys who still show up to trade on their own barely do enough to pay for their seats," Mr. Kim says. They can't lounge about drinking free coffee forever. To keep their trading accounts active, they must each rack up $1,000 in Swift Trade commissions every month.
It's easy to see why most of Swift Trade's clients have opted either to go upstairs and become salaried employees, or simply to disappear. Even in good times, day trading is a tough business.
Day trading allows investors to buy and sell stock themselves. It can be a quick way to make -- or lose -- a bundle. Some critics have dismissed the activity as "legalized gambling," a dangerous get-rich-quick gimmick that wouldn't survive the first economic downturn.
A study conducted by the North American Securities Administrators Association showed 67% of day traders lost money in 1999. Mr. Kim estimates at least 20 of 62 day-trading firms based in the U.S. ceased operations in the past 12 months.
The activity was tarnished two years ago when Mark O. Barton, a deranged day trader in Atlanta, Ga., shot to death nine fellow day traders and wounded 13 others, after murdering his wife and two children. "It's a bad trading day, and it's about to get worse," he reportedly shouted, before opening fire and then killing himself. He had apparently lost tens of thousands of dollars day trading.
The Investment Dealers Association of Canada wants day traders to follow new guidelines, and to demonstrate they understand and can handle the risks involved with trading stock themselves. The IDA also wants to force all day traders to take training courses.
Sensitive to day trading's bad rap, Swift Trade has always required its clients to take the same boot camp as its employees. For a fee, of course. It costs $6,000. To commence trading, clients are required to deposit $33,000 into a Swift Trade.
But no one is lining up any more. "If we hadn't shifted our strategy," admits Mr. Kim, "we wouldn't be in business today." |
