Down, but certainly not out
By JEFF PONCZAK
The annual Bear Stearns report on day trading has become one of the most anticipated releases in the trading community. The 2002 report, co-authored by Daniel Goldberg and Angel Lupercio, highlights five key areas of the day-trading landscape: the number of traders, the changing direct-access space, the “hot” markets, implications for related industries and the effect of new regulations.
The report focuses on “semi-pro” traders — those who make more than 25 trades per day.
How many are out there?
Bear Stearns estimates there are 30,000 traders who qualify as semi-pros. That’s a 25-percent decrease from 2001, and a 40-percent drop-off from 2000. According to the report, “2002 was a year that weeded out the casual traders, leaving the industry with a group of 30,000 hard-core traders.”
And, the most active of the active traders are trading less — about 14 percent less (40.5 trades per day) than 2001.
"We attribute the decrease in trading velocity to lower-than-historical volatility during the first half of 2002,” the report says.
Despite the subtraction in the semi-pro space, the number of online accounts actually increased 8 percent to 20.5 million in 2002. “Self-directed asset managers” — investors who make fewer than five trades per year — and “active traders” — those who make between five and 25 trades per year — saw their spaces grow by 9 percent and 7 percent, respectively, in 2002.
However, although semi-pros are responsible for only 0.1 percent of all online accounts (see Table 1, below), they are responsible for more than 78 percent of all online trades. Nonetheless, this number is down from 83 percent in 2001.
Although trading frequency among semi-pros declined 14 percent, it declined 22 percent in the active trader space. As a result, semi-pros accounted for almost one-third (32.1 percent) of total NYSE and Nasdaq volume, about the same number as the year before.
The report estimates that the 32 percent is divided almost equally between proprietary traders (49 percent) and independent retail traders (51 percent). Proprietary traders are those who pool their capital with other traders at firms such as Bright Trading, Millennium Trading or Schonfeld Securities. On average, proprietary traders traded a bit more size — 1,000 shares per trade compared to 700. Overall, the average size for a semi-pro trade was 820 shares, more than 50 percent the average size in 2001.
“At today’s depressed market levels, semi-pros must trade a greater number of shares to produce similar returns,” the report says. “As a result, many direct-access technology providers have shifted to a per-share — rather than a per-ticket — pricing scheme.”
Where’s the technology coming from?
The report notes two firms that were once major players in the direct-access world disappeared from the scene in 2002. TradeCast, which was purchased by Ameritrade in 2001, is no longer a direct-access firm, and Blackwood filed for bankruptcy in 2002 and now is a software provider for institutions. However, two new access providers have made an impact on the scene — Interactive Brokers’ Trader Workstation and RushTrade’s Direct Pro.
The report lists the nine major direct-access providers. Four — REDIPlus, RealTick, Watcher and CyberTrader — are available through various brokers, while the remaining five — Interactive Brokers’ Trader Workstation, E*Trade Pro, Gr8trade (ProTrader), TradeStation and RushTrade Direct Pro — are in-house systems.
Table 2 (right) lists the estimated daily trade volume for the various technology providers.
Derivatives: hot; Stocks: not
The report says the recent growth in futures and other derivative products is partly because of semi-pro traders looking for alternatives to trading stocks.
"Having defiantly ridden a ravenous bear market for three years now, semi-pro traders have begun to realize that the euphoric combination of extreme liquidity, intraday volatility and upward momentum they experienced in the stock market throughout the late 1990s may not return again for some time,” Goldberg and Lupercio write. “These ambitious traders have come to realize they can supplement this combination, to at least some extent, through the use of leverage.”
The report points out volume in the Chicago Mercantile Exchange’s E-Mini S&P 500 product grew 375 percent from January 2002 to February 2003. And, although volume in single-stock futures (SSFs) has been slow in the product’s first few months, the report suggests SSFs could be an immensely popular product for semi-pro traders.
activetradermag.com
Virtually every trade put on by a semi pro was put thru one of the 9 direct access platforms:
Estimated Daily Trades
RediPlus 600-700k
IB Trader WorkStation 100k
Real Tick 75k
Etrade Pro 60k
Watcher 25-50k
Gr8trade 25k
TradeStation 13k
Cybertrader 10k
Rushtrade Direct 1k |
