Day Trading Circus Over, Just Not Entirely
NEW YORK (Reuters) - The party ended for most day traders
when tech stocks crashed two years ago, but a small contingent
of avid market gamblers refuses to go home.
"I'm still grinding it out," said Benjamin Krause, a
full-time day trader in Bozeman, Montana who favors volatile
technology shares. "There are dozens of stocks that I'm just
swapping all the time."
Day traders -- who dart in and out of stocks in search of
quick gains -- burst onto the scene in the late 1990s when
Internet technology brought electronic trading to the masses
and the U.S. stock market boomed. At that time, thousands of
people ditched their day jobs to play the market on the theory
that the only way was up.
But most have gone back to their day jobs, seeking the
safety of more traditional forms of employment. The Nasdaq
Composite Index (.IXIC), where most of the stocks favored by
the day trading crowd are traded, has gone back too -- falling
more than 70 percent from its all-time high of 5132.52 reached
in March 2000, sapping the enthusiasm of all but the most
hard-core day traders.
Krause, 30, acknowledges that the market swoon has made it
harder to notch big profits but said he still makes money
trading stocks 10 to 15 times per day.
"I just bought a duplex and I'm remodeling now," he said.
"I haven't had a down month in four years."
Data about the total number of day traders in the United
States is hard to come by, not least because the Electronic
Traders Association in Houston has been defunct since the stock
market began its wrenching decline.
"For an investor, the market would really stink right now,"
Krause said.
Krause sees himself not as an investor but as a trader,
since each day he sells all of his shares and holds only cash
at the market's close, which has limited his losses. "For us
(traders), it's definitely not ideal but it's not as bad as it
would be for an investor because we can still work a trading
range," he said.
NOT EXACTLY EASY
Successful day trading requires quick reflexes and a deep
knowledge of how various stocks tend to behave. Shares moving
up or down by mere pennies can yield big profits if a trader is
quick enough to take positions and liquidate them before more
fluctuation threatens gains.
"The classic rule of thumb is you need to know where you're
getting out before you get in," Krause explained. "And if you
start changing your mind based on emotion once you're in, you
don't really have a plan."
Many day traders also sell stocks short, meaning they sell
borrowed shares in hopes of buying them back later at a lower
price. While very risky, short-selling is the only way to make
money trading stocks in a falling market.
The battered stock market has left only the most
sophisticated day traders afloat.
Craig Day, a 49 year-old Raytheon Co. employee from
Wichita, Kansas, gave up being a day trader last summer. He now
trades once every few weeks and is nursing a portfolio worth
about half of what it was.
"The day trading community is kind of small," Day said. "I
think a lot of guys were taken out when the market started to
tank. Everybody's been burned."
Day said he plans to hold onto the stocks he owns, such as
Apple Computer Inc. (AAPL.O) and Polycom Inc. (PLCM.O), a voice
and video conferencing equipment company, but is reluctant to
buy more stocks in an environment where big accounting scandals
could continue to emerge.
"Nobody has confidence after Enron and Global Crossing and
WorldCom," Day said, referring to companies that have collapsed
amid high-profile accounting scandals. "It's hard enough
investing as it is, but when you can't depend on the books
being clean, you got better odds at a Las Vegas slot machine."
STILL A NICHE
Day traders, and their less serious brethren, known as
active traders, are still attractive to online brokerages and
companies that offer direct access to the Nasdaq stock market.
Those firms make money by charging commissions, typically
around $10, for each trade processed.
"We see the active trader marketplace as an important
business," said Beth Stelluto, an executive at Charles Schwab
Corp's (SCH.N) CyberTrader division. "There is still a very
strong core of investors and traders who will trade and profit
in any market."
CyberTrader, one of the largest direct access providers,
has about 25,000 customers, including those who trade through
Schwab, Stelluto said. While the number of day traders overall
has been reduced to a fraction of what it once was, people like
Krause have no plans to abandon ship for lack of comrades.
"What we'd like to see is a trend, up or down," Krause
said, bemoaning the Nasdaq's uncertain direction. "We can still
grind it out, but it's pretty slow." |
