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Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: marketbrief.com who wrote (3977)	9/15/1999 5:56:00 AM
From: marketbrief.com	Respond to of 18137

I found this article at informedinvestor.com.... Day Trading By Larry Seben When a day trader in Atlanta went berserk in late July, killing his family and several other innocent people, many Americans were exposed to the world of day trading for the first time. Then, on Aug. 9, the North American Securities Administrators Association (NASAA) released a lengthy report on the little-known world of day traders. As if to cast further clouds on the group, it concluded 70 percent of them would lose most if not all their money. The fraternity of day traders, the amateur-type referred to in the NASAA report, is a very small one. But with advances in trading technology, a generally higher level of market sophistication among the general population, and the ever-enticing lure of making a quick buck, the numbers are growing. In a report on Christmas Day, 1998, CNN said there were around 3,000 day traders. According to more recent figures from the Electronic Traders Association (ETA), a Houston-based organization that represents the interests of day traders, there are now upwards of 5,000 traders in the country. Day traders are individuals who literally spend each trading day at a terminal trying to make money from small movements in securities. They put their own money at risk and are, in the very real sense, public customers. According to the ETA, day traders average 35 trades per day involving about 700 shares per trade. The main bone of contention regarding amateur day traders pertains to their high rate of losses and the inability of the firms they use to adequately supervise their activity. First, one has to make a distinction about what day traders do and don't do. What they do is try to make money on incremental movements in securities. By and large anybody who engages in this type of speculative activity has the odds stacked against them. And make no mistake about it, it is speculation in one of its purest forms. There is nothing wrong with speculating - risk itself does not make these activities illegal or unethical. Philip Feigin, Executive Director of NASAA, has likened day trading to gambling. "If you want to gamble, go to Las Vegas, the food is better," Feigin has said. Day trading can be likened to gambling because the odds are decidedly stacked against the player. But allowing regulators to dictate who and where and what individuals can do with their own money goes well beyond the scope of protecting investors from fraud. We enter the realm of the dictated economy. Failure, or losing one's money, is not illegal either. If someone wants to take the risk and loses, that is part of the grander scheme of things. In this sense, I would liken the role of the day trader to that of the entrepreneur. Most new businesses fail within five years. Does that mean we are to ban new enterprise and start-ups? One of the least acknowledged functions of day traders in the larger scheme of the trading world is how they provide liquidity. Whether professional or amateur, day traders provide a very healthy amount of buy-and-sell flow that is needed. If everyone were Warren Buffett, there would be no need for the daily stock pages. The role of supervision and making sure these people understand the risks is a valid regulatory concern. With the gyrations of the markets, it is extremely alluring to think about making a few thousand dollars before lunch time. Risk in any investment is very real. The risks of day trading are fantastic, and those who want to plunge into the fray must be adequately warned by those who know better - the brokerage firms. But once regulators and brokerages do their duty in making sure people fully understand the risks, it is every fools right to be parted from his or her money. Think back for a moment to those old episodes of the classic TV show, "The Honeymooners." Ralph Kramden, the big buffoon of a bus driver, was always looking for a get-rich-quick scheme. We laughed then - mainly because they were so hair-brained and because his wife always took him back no matter what idiotic thing he did. Reflecting on the tragedy in Atlanta, we know that life is not like a Fifties TV comedy. But then again, as we already know, life is not black and white either.