My dear stupid congressmen and congresswomen, the culprit is the monetary policy not day-trading, stupid! Yet, you got a good start:
-----------
Business & Technology 9/27/99
One heck of a way to make a living–or not
Congress turns its attention to day trading
BY ANNE KATES SMITH
'Electronic day trading attracts people dead-ended or unhappy in their current field of endeavor and people with a desire to make trading their life's work. Electronic day trading appeals to executives, victims of downsizing or lay-offs, retirees, graduating college students, and anyone who recognizes the unlimited earning potential and quality of life which an electronic day trader may achieve. Trading allows people to work a 61/2-hour trading day, to take vacations on demand, and to leave for the day on a whim." -All-Tech Investment Group Online
The above appeared in the frequently asked questions section of All-Tech's Web site in July, under the heading "Who becomes an electronic day trader?" A better question might be: What becomes of one?
Well, there's the 28-year-old bank employee in California who left his job and borrowed $40,000 on credit cards to day trade, only to lose all of his money within two months. And the Chicago waiter with no investment experience who lost an inheritance of more than $200,000. And the elderly Boston man with health problems who lost $250,000 of his wife's savings in just a few hours.
Those were some of the horror stories that surfaced last week in the first of a series of congressional hearings on day trading, the controversial strategy of the rapid-fire buying and selling of stocks throughout a single trading day. Regulators told Congress they had uncovered significant problems in one third of the day-trading firms examined so far in a sweep of the industry. Securities and Exchange Commission Chairman Arthur Levitt said investigators uncovered a number of advertising violations, including potentially misleading ads, as well as problems involving the use of margin (buying stocks on credit), record keeping, and supervising employees.
Ten firms have been referred to the commission's enforcement division for possible legal action as a result of the sweep. SEC probes are still underway at 15 firms, while the National Association of Securities Dealers is investigating an additional 22 firms. None of the firms, nor any specific violations, have been named.
Day trading came under intense public scrutiny last month after a gunman in Atlanta opened fire at two day-trading offices where he had lost huge sums. But regulators had been examining the risky practice for months by then. State securities regulators released a study last month that found more than 70 percent of day traders lose money. To cover commissions and margin loan interest, day traders would have to generate annual returns of 56 percent, according to the study.
Industry representatives contend the odds aren't so stacked against day traders. The Electronic Traders Association claims that an informal survey shows about 60 percent of day traders lose money in the first three to five months of trading, while they learn the ropes. Afterward, more than 60 percent of traders make money, averaging $25,000 or more in profits a month, while the rest lose $6,000 to $8,000 a month. The ETA expects to hire KPMG to conduct a more definitive study of day-trading profitability, which should be completed this fall.
Not for everyone. Even so, day trading is a "very, very difficult way to make a living," admits J. William Lauderback, vice president of Momentum Securities, a Houston-based day-trading firm. Most people simply don't have the discipline to cut their losses, he says.
"You've got to have your ego in check–you've got to be able to take a loss," says Bennett Rowe, a Momentum customer. Rowe, 34, began day trading in 1996. He lost $6,000 in his first month; $1,500 in one week. He claims to earn more than $250,000 a year now.
Despite the alluring picture painted in promotional materials, the SEC estimates that there are fewer than 7,000 day traders, compared with 80 million individuals who own stock and more than 5 million online investors.
So why all the fuss? Sen. Susan Collins of Maine fears that more unsophisticated investors are being drawn to the strategy without fully considering the risks. As proof, Collins cites a flier from an adult education program at a high school in Gardiner, Maine. Among the offerings: Christmas wreath making, flower arranging, and beginning day trading. |
