Of interest - anyone know anything about this?
The press appears to have failed to investigate the other side of daytrading
that exists---
those who have gone through the process of getting registered with the SEC
to be able to trade at professional trading firms (I do not mean becoming a
broker--you simply must be "cleared" by the SEC to be able to trade at one
of these types of firms--it is not difficult to be cleared as long as you
are not a crook w/ a crminal history---meaning if someone wants to really
become a trader and be able to trade at one of these firms--it is not that
difficult--it is just a process to get cleared)----anyway....--these
"professional" trading firms are not the type of firms who have been in the
spotlight--the Alltechs, Momentum Securities and the host of others that
have been paraded in the press in the aftermath of the latest tragedy --as
well as the other daytrading firms that advertise on CNBC--no --the
professional firms are quite different.
There are vast--vast differences between professional day trading
firms----and the "retail" day trading firms:
Here are some of the major differences:
1) COSTS--all "day-trading " firms charge a "ticket charge" on all trades,
making the total commission per buy or sell $20 to $25-----and this is for
"up to" 1000 shares----meaning ----if you want to trade 100 shares you still
pay $20, if you want to trade 200 shares it cost $20---etc.-----ON THE OTHER
HAND--professional firms where you have to be registered with the SEC in
order to be allowed to trade your capital, you are not charged a ticket
charge on trades and your "commission" per trade is only 1 cent per share,
meaning if you buy or sell 100 shares--you are charged only $1.00 not
$20-$25 like the other firms, if you trade 200 shares then your cost is only
$2, if you trade 1000 shares your cost is $10 -etc. ---they also are given
rebates that can amount to up to 75% of the 1 cent per share if they are
high volume traders---but for our purposes here--we will not be taking thae
possibility of that rebate into consideration
This cost difference is a significant for many reasons:
A) It has beeen reported in the articles about the shooting in Atlanta and
daytrading that the avg "daytrader" makes 35 trades a day, lets say the
average trader is trading stocks in the $70-$100 per share price range and
is trading an average of 200 shares per trade and is doing this 35 times per
day, meaning he or she is buying stocks 35 times per day--and of course
selling stocks 35 times per day ---so that is 70 total transactions per
day---35 buys plus 35 sells-----lets look at the difference in the numbers
between professional firms like trading and the "retail" daytrading firms
like Alltech, Momentum and the others
Trading w/Alltech, Momentum and the others---35 stock buys for 200 shares
each ---you are charged at least $20 per transaction 35 buy transactions x
$20 each =$700 -----PLUS ---35 stock sells for 200 shares each ---you are
charged at least $20 per transaction 35 sell transactions x $20 each =$700,
total transction fees for the 35 trades for that day is $700 PLUS $700 =
$1,400. multiply this cost x 20 trading days in a month = $28,000 per
month----JUST IN TRANSACTION COSTS----that means you have to make $28,000 in
trading profits just to break even!
if you trade just 100 share lots instead of 200 then your transaction costs
are STILL THE SAME --$20 per transaction, $28,000 per month
Plus keep this though in mind ---most daytraders are looking to make a
profit of 1/16, an 1/8, a 1/4--3/8 a 1/2 etc ----if you trade just 200
shares of AOL --for example--and you buy at 88
and sell at say 88 1/8 for a 1/8 profit --that is $25.00 in profit, but you
had a cost of $20 to buy and $20 to sell ---so you have $25.00 in profits
coming in and $40 in costs---you have a loss of $15.00, THAT'S WHERE THE
REGULAR RETAIL DAYTRADER comes to the conclusion that they need to trade in
500 to 1000 share lots to have any chance of making money, and that is the
begnning of their huge downfall on top of the enormus cost structure burden
they are already under---WHY?---1 reason is because they start trading
higher amounts of shares prematurely---they have not even proven that they
can make money consistently and now they are trading larger share amounts to
try to make money on 1/8's and 1/4's under the high transaction cost
structure---and then when they trade in 500 to 1000 share lots and screw up
they lose big money----so in summary--they "retail" day trader can't afford
to go through a typical 6 month+ learning curve to learn how to trade
profitably and consistently because they have too high of a cost structure
to trade in 100, 200 share lots to "learn" how to do it w/o going broke from
the costs
NOW LETS LOOK AT THE COST STRUCTURE
when using a professional daytrading firm
35 stock buys for 200 shares each ---you are charged 1 penny per share per
transaction 200 shares x 1 cent = $2 per transaction 35 buy transactions x
$2 each =$70 -----PLUS ---35 stock sells for 200 shares each ---you are
charged $2 per transaction--- 35 sell transactions x $2 each =$70, total
transction fees for the 35 trades for that day is $70 PLUS $70 = $140.
multiply this cost x 20 trading days in a month = $2,800 per month----
if you trade just 100 share lots instead of 200 then your transaction costs
are cut in half as well
35 stock buys for 100 shares each ---you are charged 1 penny per share per
transaction 200 shares x 1 cent = $1 per transaction 35 buy transactions x
$1 each =$35 -----PLUS ---35 stock sells for 100 shares each ---you are
charged $1 per transaction--- 35 sell transactions x $1 each =$35, total
transction fees for the 35 trades for that day is $35 PLUS $35 = $70.
multiply this cost x 20 trading days in a month = $1,400 per month----
most daytraders are looking to make a profit of 1/16, an 1/8, a 1/4--3/8 a
1/2 etc ----if you trade just 200 shares of AOL --for example--and you buy
at 88
and sell at say 88 1/8 for a 1/8 profit --that is $25.00 in profit, but you
had a cost of $2 to buy and $2 to sell ---so you have $25.00 in profits
coming in and $4 in costs---you have a profit of $21.00
NOW LETS LOOK AT OTHER FACTORS SEPERATING THE 2 TYPES OF DAYTRADING FIRMS:
Here is another big factor outside of costs----the types of trades you are
legally allowed to do
and the efficency and spped that you are able to do them in--- this is
crucual again for someone who wants to do "guerilla" day trading ---35 buys
and 35 sells a day---on average
what am I talking about?----here is one good example---"shorting" stocks, it
is an SEC rule that you cannot "short" stocks unless they "uptick"
---meaning that the stock is trading up at the moment you want to place a
"short", the problem with that is that when you "short" a stock you are
hoping that the stock goes lower and lower---you profit from the stock going
lower---not higher, so if you are only allowed to short stocks when they
"uptick" and are heading higher at the moment--that means they are headed in
the opposite direction that you want, these rules--however---only apply in
the real world to "retail" daytraders and "retail" brokerage account
customers like you and the rest of America, in the world of the professional
"registered" independent day-trader at a "professional" day trading firm
such as , or such as being a professional trader at Goldman Sacs, or Merrill
Lynch --etc on their trading desk, you are legally allowed to "short" stocks
without them having to "uptick", you can short on "downticks"
so as the market's falling out of bed they can easily and swiftly profit on
the ride down --no matter how fast and hard a market downturn it is----they
are able to "short" on downticks and get around the rule because
professionals have industry insider tools available to them called "bullets"
and "conversions" --and these allow them to "legally" "short" on downticks
how does this make a difference in efficency and execution of trades you
ask?
------in a big way------here is the major difference, a person with a normal
brokerage account
like you or the rest of normal America along with the people who trade at
"retail' daytrading firms like the ones Mark Barton was at Alltech, Momentum
& the others------lets say that they are "day-trading" on both sides of the
market swings --trying to buy stocks that go up to make a profit and trying
to 'short" stocks going down to make a profit---in this scenario say the
trader just bought 500 shares of AOL at 88 --AOL sputters and starts heading
down--the dow and the s&p all look like they are heading down---so now the
trader quckly sells his 500 shares at a loss---say 87 13/16 and now he or
she has to go through the motions of setting up and clicking in an order to
short AOL at 87 13/16--AOL keeps falling--now it is at 87 5/8, the trader
now must either cancel the "short" order at 87 13/16 altogether or change it
to 87 5/8 (remember too---that the stock has to "uptick" in order for you to
"short" it, so it is kind of tricky---much more tricky then just buying a
stock at whatever price with no "tick" rules--but people make alot of money
"shorting" --just look at the last 2 weeks of market downturn)
anyway--------------------------so AOL finally "upticks" to 87 11/16 and
your "short" is filled at 87 5/8, but now AOL trades up to 87 13/16----and
you throw your hands up ion disgust and get out with another loss------or
hang in there a few more minutes or longer and "hope"
that it goes back down so you can get out with a profit
ON THE OTHER HAND---the professional trader trading at a professional firm
does the following----"day-trading" on both sides of the market swings
--trying to buy stocks that go up to make a profit and trying to 'short"
stocks going down to make a profit---in this scenario say the trader just
bought 500 shares of AOL at 88 --AOL sputters and starts heading down--the
dow and the s&p all look like they are heading down---so now all this trader
has to do (because he either has "conversions" or "bullets" on AOL is to put
in an ordser to sell 1000 shares at ---say 87 13/16 and now the trader has
in one fell swoop sold the 500 shares he had long and simultanously sold
another 500 shares at the same price and is automatically 500 shares
short---all without having to go through a 2nd transaction like the retail
trader above has to do
This allows the professional trader to truly have just as many chances to
profit on stocks heading down as they do on stocks heading up, you combine
this with the "wholesale" transaaction cost structure ---and you have the
best scenario for a trader to profit, and especially for a new trader to be
able to go through a necessary 6+ month learning curve of learning what to
do and how to make consistent money and they can trade 100 share lots and
make just as much money percentage wise (in relation to their transaction
costs) as if they are trading 1000 share lots---therefore since they can
trade 100 share lots and have just as good of a chance to make a
profit--they can relax more and try to focus on actually learning trading
systems and methodologies |
