Chat Rooms House the Secrets Of Wall Street's Fastest Traders
By REBECCA BUCKMAN and SUSAN PULLIAM
Staff Reporters of THE WALL STREET JOURNAL
On a recent Monday morning, the stock price of little-known software developer Applix took off like a rocket, leaping nearly 50% in the first hour of trading. Soon, shares of other software companies similar to Applix were on a run, too, chalking up giant stock-market gains on a late-August day when there seemed to be no reason for such excitement.
What was going on? It wasn't company news or Wall Street recommendations that fueled this fire. Rather, Applix was part of a group of small technology stocks that grabbed the spotlight that morning in the Internet's stock chat rooms, the rough-and-tumble cyber-meeting places where investors exchange ideas, opinions and tips on stocks.
Powerful Propellant
Anyone who didn't spend the past year on Mars has heard the warnings about stock chat rooms. And in fact, many of them are teeming with stock promoters, wild rumors and misinformation. But for anyone who invests online, especially a frequent trader, chat rooms can be a useful tool to spy on Internet traders who are moving stock prices, even though some of them may be unloading a stock at the very moment they are chatting it up.
A first trip to a chat room can make a new trader ("newbie" in traders' language) feel like a tourist in Bermuda shorts visiting a foreign bazaar where everyone is wearing robes. But the landscape really isn't as complicated as it might seem. Chat rooms come in two varieties: those that are free, and those that charge a monthly fee.
Within those categories, the differences are many. But there are two places to find stock-chat rooms that are free and attended regularly by large numbers of traders. The first is provided by Yahoo (www.yahoo.com), which offers an ever-changing roster of stock-chat rooms where traders come to exchange ideas on the broad market or on particular stocks. It's easy to listen in. Pick a nickname and password to register. Click "Chat", then click on an area of interest such as StockWatch and -- voila! -- you're in chat-land.
Yahoo's chat rooms are not to be confused with its message boards. These, too, are free of charge. But technically they aren't chat rooms, because the talk doesn't occur in real time. Instead, message boards carry lists of company-specific comments that include the time, date and "Yahoo ID" or nickname of the person who posted the message. Anyone can respond to a message, privately or publicly.
Although the message boards don't have the immediacy of a chat-room conversation, some traders use them for the same purposes, and message boards can be a useful way to get a bead on what other investors are thinking. To go to Yahoo's, click on "message boards" and enter the stock symbol of the company that interests you. Other message boards can be found on www.siliconinvestor.com and www.ragingbull.com.
Yahoo draws visitors from a broad and diverse population. As a result, its stock-chat rooms often are frequented by unsophisticated or beginning traders.
If it's no-holds-barred action you're seeking, however, try visiting the free rooms on one corner of the Internet called "IRC," which stands for Internet Relay Chats. IRC is a computer-server network that, among other things, is home to hundreds of chat rooms, many of them devoted to sex. Several of the servers have been adopted by day traders, though. These traders have turned some of the "channels," as chat rooms are called there, into highly active forums for quick-on-the-trigger stock investors.
Be warned: This is the Wild West of stock chat rooms. Thousands turn out every day in these chat rooms, and the action can be heavily promotional. Though there is no written agenda, the traders in the IRC rooms tend to play a set of stocks each day -- specifically, whatever happens to be moving. And the masses are often led down the path by self-appointed gurus with names such as "Cheetah" and "theMaxx."
Where the Fees Are
Mind you, IRC doesn't have the brand recognition that Yahoo does, though it's visited by many veteran day-traders. And it's no picnic to get there. As a start, visit www.mIRC.com, where you'll find directions on how to download the necessary software, along with a list of frequently asked questions and answers that will help in setting it up. After installing the software, log on to the server named Othernet, which contains several popular stock-chat channels, including some that also operate individual Web sites, www.activetrader.net and www.daytraders.org.
For traders intent on opening their wallets for the privilege of chatting, there are dozens of chat rooms that charge a fee -- usually several hundred dollars a month -- and offer services such as training, technical analysis and other attractions. A few of the better-known for-pay chat rooms are www.daytraders.com, www.undergroundtrader.com, www.pristine.com and www.trading-places.net.
To get an idea of how these chat rooms and message boards work -- and what the risks are -- consider that run-up in Applix's stock late last month. It began on a Friday, when investors' affection for Red Hat, a newly minted initial public offering, spilled over onto Applix. Like Red Hat, the Westboro, Mass. company provides services and software for Linux, a computer operating system developed by computer hackers that some people believe will eventually present a challenge to Microsoft's Windows.
But the stock action didn't get white-hot until the following Monday, when some chat rooms began heavily promoting shares not only of Applix, but also of other software companies that also had some association with Linux. In a flash, shares of Ariel, Corel and a host of others began taking off as well.
A glance at the hourly stock chart of Applix that Monday shows why it can be dangerous to rely on chat rooms as a source of investment ideas. During a 31-minute time span, the shares fell sharply from the day's peak of $24 reached at around 10:30 a.m. and then headed back down to around $18, two points below where the stock opened.
Trading logs for earlier that day from another for-pay chat room show tub-thumping promotion from "Merlin," the chat room's owner and "moderator" or resident guru, whose real name is Chris Rea.
Mr. Rea urged his traders to buy the stock 116 times in the first hour of trading alone.
No wonder chat rooms are controversial. Rick Berry, an analyst with JP Turner in Atlanta, says, "They are detrimental to the markets." Chat-room fans are equally adamant. In the words of day trader Lee Ang, who works for Generic Trading in New York, "You can get a lot of good tips on what is moving, what is hot, and what the leaders of the day are." Still, he adds, chat rooms are only for the fleet of foot. And not the faint of heart. |
