<<Let me say it again: stocks are trading more and more like currencies IMHO.>>
Oh yeah?
Q: WHO is doing the trading?
Ans:
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Day Trading Foreign Exchange
Fun with fiat currencies
WASHINGTON - A Seattle housewife, Cynthia Bartlett, put her handicapped daughter on the bus, fired up the computer next to her kitchen and began watching the Japanese yen descend against the dollar. She highlighted 'quote' and typed in 'yen' to place a $100,000 order with just $1,000 down - and then waited for a currency trader somewhere in the world to accept her offer.
'I thought about trading stocks, but with a child with Down's syndrome and the duties of running a household, I didn't want to watch 30 companies,' the 48-year-old former video producer said.
Instead, she set up an on-line currency-trading account in January and entered a risky and unregulated world once reserved for major banks, corporations and investors such as George Soros. She made $1,300 on that dollar-yen trade in half an hour. She claims to make money regularly now after some heavy losses at first.
Fueled by the same technology and investment mania that landed the stock market in living rooms around the world, global currency is taking off as the latest rage in day trading. Thousands of ordinary people, assisted by new Internet-based businesses, are venturing into the $1.5 trillion-a-day world of trading foreign currency, invading yet another bastion of Wall Street through the World Wide Web.
'The Internet has made it possible for little investors to finally play in this big league,' said Josh Levy, a former Goldman Sachs currency trader who is helping devise an electronic foreign-currency exchange due to make its debut in September. The system, called Matchbook FX, would be the first to link currency buyers and sellers without a broker.
There is no central quoting system like the New York Stock Exchange to assure small investors of a fair deal. Securities firms are not bound by rules that limit loans, so investors can quickly find themselves deep in debt. If an investor has a problem, there's no regulator to cry to.
'Because there is so little oversight, there is vast potential for fraud,' said David Bayless, a lawyer who until recently ran the San Francisco regional office of the Securities and Exchange Commission.
In the past two years, an estimated 5 million people have cast aside their brokers and now trade stocks through on-line services. More than 200 day-tradingshops that rent high-speed computers and desks to an estimated 4,000 to 5,000 people have also opened across the United States.
Until recently, there was a presumption in the currency market that 'the person on the other side of the trade was a consenting adult aware of the risks,' said Laura Weir, who runs the foreign-exchange and investment desk at the New York Federal Reserve Bank. But now, thanks to the Internet, it could be a plumber or doctor at the other end of a dollar-yen trade.
'When I was on my honeymoon in Italy, I made one trade on the beach with my laptop and earned $5,000,' said Glenn Cybulski, a former construction worker who not only trades currencies but also runs a business teaching other people how to do it. For $5,000, his Educational Trading Resources provides seminars, manuals and software that tells traders when to buy and sell.
Dozens of World Wide Web sites offer news pages and training, touting currency trading as the ultimate small business. These support companies coordinate with small brokerages that extend the software to plug people into foreign-exchange markets around the globe. Brokers also provide loans of at least 100 times what an individual puts down, meaning someone with $1,000 can trade $100,000 of currencies. Some routinely extend leverage of 200 to 1.
Currencies trade in lots of $100,000. Prices move in 'pips' - a pip being the equivalent of a hundredth of a cent. Typically, customers are required to put up $5,000 to open an account. Trades cost around $16
One of the best-known promoters of Internet currency trading is the Money Garden, based next door to the New York Stock Exchange. It is among many that offer a month of free demonstrations in which customers learn how to trade yen, euros, British pounds and Swiss francs.
Money Garden is a market-maker. It trades with customers, profiting on the spread between the bid and the ask price. It is allowed to switch the price after a customer puts in an order, as long as the investor is given the chance to reject or accept the new price.
The volatile forex, or foreign-exchange, market is composed of hundreds of banks and businesses around the world that buy and sell about $1.5 trillion of currency daily, according to the Federal Reserve. By comparison, about $300 billion is traded daily on the U.S. Treasury bond market and less than $10 billion in the stock market.
Mrs. Bartlett, the Seattle housewife, pays no attention to world news that might move markets. 'There will always be a trader in Russia who hears the news a few minutes before I do,' she acknowledged.
Instead, she watches the numbers fluctuate and attempts to jump in before they change direction, much like a stock day trader acting on momentum.
'I wanted something to do at home, like other housewives,' she said.
International Herald Tribune, August 13, 1999 |
