As stocks rebound, so do day traders
A vestige of the Internet boom, they are stepping up investing in response to a bullish market.
By GASTON F. CERON
Dow Jones Newswires
NEW YORK With the recovering stock markets, a symbol of the Internet boom is also recovering: the day trader.
Lured by the turn that markets took last year - major market indexes finished 2003 firmly in the black, reversing a three-year losing streak - many day traders have returned or stepped up their trading.
Andy Gill, a senior vice president at Charles Schwab Corp., said the San Francisco brokerage firm's active-trader business has seen activity ramp up 80 percent from a year ago. At E-Trade Financial Corp., revenue-producing trades from the unit that caters to active professional traders rose to an average of 42,208 a day in 2003 from 20,876 in 2002.
The more bullish mood was evident at the International Traders Expo in New York, which ran Sunday through Tuesday. The trade show was launched during the waning days of the bull market in 1999 and soon became known as a gathering venue for day traders and industry vendors. But the show suffered during the bear market as interest in trading declined.
The concept of day trading gained notoriety during the bull market that ran rampant through the late 1990s and peaked in March 2000. Many traders profited from small, intraday moves in stock prices, making their living through speculation and market swings rather than long-term investing.
To its advocates, day trading is an exhilarating and potentially lucrative approach to the stock market; to its critics, it amounts to something akin to gambling.
As its popularity rose, and despite warnings from concerned Wall Street regulators, day trading attracted many market neophytes looking to make a quick buck. Often, day traders turned to buying stock "on margin," or with borrowed funds. But when the party ended and stock prices fell, many traders got blown out. Regulators also tightened the rules on day traders' margin borrowing.
Though scarred by market losses and reeling from regulatory scrutiny, the day-trading industry has survived - albeit on a smaller scale. Some large players disappeared, such as Broadway Trading and Heartland Securities, which were absorbed by a third firm, run by Schonfeld Group.
"We were able to get them for a song," said the Jericho, N.Y., company's chief executive, Steven Schonfeld, who is contemplating taking part of his company public. "We tried to be an industry consolidator."
Cary Gruber is one of the 400 people who trade their own money through Schonfeld. (The company also has a group of about 700 who trade the firm's capital.) A former stockbroker, Gruber went into day trading in 1998 and lived through the market's rise and fall. These days, he continues to buy and sell stocks in rapid-fire fashion at one of Schonfeld's offices in Manhattan.
Gruber said conditions for traders clearly have improved.
Market participants in general, including not only day traders but also other groups of investors, once again are turning to margin. And some stocks have seen sharp increases in value. Gruber points to stocks such as Taser International Inc., a Scottsdale, Ariz., maker of stun guns whose stock has multiplied from $1.22 a year ago to $67.75 last week.
Gruber emphasizes the importance of doing one's homework. He tracks as many as hundreds of stocks, recording their symbols in a notebook and charting their progress on a computer screen.
"My goal right now is $5,000 a day" in trading profit, Gruber said. "Sometimes you make more, sometimes you make less, but that's what I look to make these days."
Though earning $5,000 for a day's work might seem like a windfall to many, Gruber said profit was often higher when the stock market was near its peak. "Back in the peak, you had opportunities to make $10,000 in two minutes," he said. "But you also had opportunities to lose $10,000 in two minutes."
To be sure, day trading remains a risky business. There is no guarantee that last year's recovery will stretch deep into 2004. What if the stock market stumbles? "If it happens, there's money to be made on the short side," Gruber said, referring to bearish "short" bets that seek to profit from a decline in the price of a stock.
Benefiting from the market recovery, the Traders Expo conference saw its attendance numbers improve this year. Traders Expo co-founder Tim Bourquin said the New York show had slightly fewer than 5,100 attendees as of Tuesday morning, compared with 3,700 who attended the entire conference last year.
But Bourquin said that while interest in trading had picked up, the tone was different this time. "It's not the hysteria we had in '99 and 2000, when we had people come to the show ready to quit their job and trade for a living," Bourquin said. "There's excitement about it, but it's much more grounded." |
