Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : The Final Frontier - Online Remote Trading -- Ignore unavailable to you. Want to Upgrade?

To: TFF who wrote (6725)	3/17/1999 6:35:00 PM
From: KM	Read Replies (2) \| Respond to of 12617

Don't forget 60 Minutes tonight. They're going to drag out everyone who ever lost money daytrading. A synopsis: Risky Business Make A Killing Or Getting Killed? Who's The Sucker? Wednesday, March 17,1999 - 05:23 PM ET CBS Linda Carrington makes her living as a day trader -------------------------------------------------------------------------------- (CBS) With the stock market hitting new heights, people are finding new ways to make more money in it. One of the latest methods is a risky business that is revolutionizing high finance -- taking it out of the trading pit and putting it right in your living room. It's called day trading. Anyone with a computer and the right software can play the market. CBS News' Dan Rather filed this report for 60 Minutes II. Using their personal bankrolls, they can buy and sell stocks in minutes, sometimes seconds. The rewards can be huge, but so can the risks. The result is less like Wall Street and more like the Wild West, where high stakes gamblers risk everything to try and make a killing. Linda Carrington never knew excitement like this when she was practicing law. Linda is a day trader. Three years ago, she gave up her high-stress law career to make this a full-time living. She buys and sells stock every day from the comfort of her Miami home. Using a laptop computer, Linda dials up her account with an Internet broker, then places an order to buy a stock. If her research pays off and the stock goes up, she will sell it. Not in a few years or a few months. In a few minutes. The profits are a few cents on each share. Multiplied by thousands of shares, it adds up. Over seven million Americans now use Internet brokers. Most play the booming stock market a few times a year. A growing number, like Linda, do it every day. The man who created the blueprint for all this is Harvey Houtkin. He wants to open up electronic stock trading to everyone. "We've eliminated the broker from the equation," says Houtkin. His method is special computer software that allows anyone to buy and sell dozens of times a day, avoiding the time it takes to contact a broker. "I'm changing an industry that needed to be changed," says Houtkin. "I've been a major proponent for market reform. I've stuck my neck on the line." Houtkin calls himself "the father of electronic day trading," and he spreads his message through books and seminars. He urges would-be traders to use his technology to take their own personal seat on the stock exchange, without paying the high commissions that traditional brokers charge: Big Wall Street brokers don't find Houtkin amusing. Some of them call him a bandit. They say their service and advice is valuable to customers who need professional help with the stock market. "The only ones who have described us as a bandit has been the industry," Houtkin says. "You think the average brokerage firm wants to see the mechanism change? Do you know how much money the brokerage industry has made over the last number of years? How many billions and billions and billions of dollars?" It's catching on. An estimated 15 percent of the daily volume on one exchange, the NASDAQ, is now attributed to day traders. And some of them are making it into a full-time occupation. Many can be found at the New Jersey headquarters of Houtkin's company, All-Tech Investment Group. His is the largest of the day trading firms that have popped up all over the country. Who is best suited to be a day trader? "Baby boomers who just finished 25 years on the job, who have money put away, who want to move to North Carolina, but there isn't necessarily a job for them in North Carolina," says Houtkin. "Retired people who feel that their brain is still intact, and they want to do something. They have the financial wherewithal. We're not saying you should take your last dime." It does take a sizeable bankroll to get into the game. Houtkin's firm requires at least $50,000 to open an account. Newcomers spend another $5,000 for a month-long training course. They learn how to grind out profits of $80 or $100 on small spreads in stock prices. Sometimes as tiny as a sixteenth of a share. Houtkin suggests 30 trades a day. But unlike traditional brokers, he doesn't advise you on stocks. And he doesn't make any promises about how you'll do. To be a successful day trader, Houtkin says, one must be disciplined, and willing to cut losses after making a mistake. But it's not easy. "I don't want people to get the idea that it's a cakewalk," says Carrington. "Because it isn't. I've lost, oh, I don't know, probably close to $100,000 learning how not to lose money." John Skiersch learned his lesson the hard way. A liberal arts major in college, he has never held a job paying more than $30,000 a year. Day trading at three different firms in Chicago, he lost the bulk of an inheritance worth $200,000 in less than a year. His training amounted to a few sessions on the computer and some highlighted chapters from Houtkin's book. "You're competing against giant firms with unlimited capital," says Skiersch. "Towers full of MBAs, CPAs, PhDs, in economics, and traders with 20 years of experience. You think you're going to walk in from art school and beat those guys? Scalping second-to-second? No." He wound up paying commissions of $120,000. Day trading firms may cut out the high commissions from traditional brokers, but they still charge for each transaction, and day trading involves a lot of transactions. "You might do 30-50-80 trades a day, at $40 or $50 a pop," he says. But regulators want to know if the customer is making money, too. To Securities officials, day trading is like the Wild West. Massachusetts Secretary of State William Galvin is suing Houtkin's firm, charging the Boston-area branch with a variety of offenses, including fraud in the handling of customer accounts. He also accuses Houtkin of deceptive advertising, saying he targets potentially vulnerable people like senior citizens and laid-off workers. "I used to regulate gambling in Massachusetts," says Galvin. "The rhetoric is often the same. The rhetoric is: This is going to change your life. This is going to make your dreams come true. And the suggestion is somehow it's foolproof." But it's not foolproof. In fact, state regulators checked the records of one bankrupt company, Block Trading, and discovered that 67 out of 68 clients lost money. Now, Massachusetts wants Houtkin to open his books to show them how his clients are doing -- or risk losing his license. Houtkin says that thousands of people across the country make their living as day traders. Investigators say he has not been forthcoming with them. Skiersch says that he became addicted to day trading. He stopped only when his two brothers intervened. Now he's thinking about taking legal steps to get some of his money back. "I was a sucker, he says. "It was calculated -- but I was a sucker."

To: TFF who wrote (6725)	3/18/1999 6:55:00 AM
From: agent99	Read Replies (1) \| Respond to of 12617

CNET Cooks as Chat Room Touts It, Till Word Comes to 'Take Profits here' By SUSAN PULLIAM and REBECCA BUCKMAN Staff Reporters of THE WALL STREET JOURNAL The blizzard of cyber-messages started early in the morning on Monday, March 1. Most were brief and to the point, like one dispatched at precisely 41 seconds after 10:18 a.m. EST. "WINNER ALERT: CNET 123." To cognoscenti of trading-places.net, an Internet chat room for day traders, the message was unmistakable: Keep buying shares in CNET Inc., then trading in the low $120s and already up more than $7 a share on the day. Three minutes later came another message: CNET "IS A MONSTER CALL!!!" Then, six minutes after that, "TRADE ALERT: CNET volume picking up, you chart watchers, when you see the volume go up bigger this thing gonna explode." Explode it did. For the next hour and a half, more than 200 messages, sometimes several a minute, poured forth extolling CNET, a San Francisco company that operates a computer-information network on the Web. "Its gonna fly soon," said one at 11:01, from "skibum." Minutes later, he added, "sorry about the hype, but when I find easy monstas, i like us to be in." At 11:38, CNET hit $139 a share -- up more than $23 for the day. Uh-Oh But two minutes later, the day traders riveted to trading-places.net read a very different message: "PULLBACK ALERT: CNET I WOULD TAKE PROFITS HERE," wrote "Merlin" -- not once but five times in seven seconds. In short order, trading volume in CNET on the Nasdaq Stock Market jumped, and the price fell. By day's end, the stock had racked up tremendous volume equal to more than twice the number of freely tradable shares and posted a 15-point gain. All this on a day when CNET announced no news. Though befuddling even to the company, CNET's wild ride was hardly unique. As everyone on Wall Street knows, Internet stocks increasingly are buffeted by online day traders who jump in and out throughout the day. But how it all works is rarely documented in detail, because of the difficulty of sifting through the massive number of messages posted every day on countless sites and determining which postings actually move individual stocks. The chatter about CNET on March 1 opens a window on this world. A transcript of one day's hundreds of messages -- provided by trading-places.net when it was asked to confirm a partial record provided by a money manager -- shows a remarkable correlation between the movements of CNET's stock and countless brief, often breathless messages posted on the chat room. The Moderators CNET wasn't the only stock tracked on trading-places.net that morning, but it dominated the chatter. The bulk of the messages came from "Merlin" and "skibum." Merlin is Chris Rea, who founded trading-places.net six months ago, and skibum is John Jordan, now a part owner. Neither is a registered broker. What qualifies them to spot hot stocks? Mr. Rea, a 45-year-old Scot who used to develop time-share resorts in Europe, says he gained a knowledge of finance while working as a day trader for four years when he owned a chain of computer stores in Illinois. Mr. Jordan, 39, is a former regional manager for the Ruby Tuesday restaurant chain who left another chat service last fall to join this one. Also getting in on the ground floor was Mr. Rea's wife, Julia, a 35-year-old from the former Yugoslavia who used to trade stocks using the Nasdaq Small Order Execution System. She marks a link between the chat room and a trading phenomenon of a slightly earlier era, the so-called SOES bandits. These traders took advantage of small differences between the prices at which Nasdaq market makers offered to buy and sell stocks. Their strategy became less profitable two years ago after rule changes in the Nasdaq market, but now about 100 former SOES bandits subscribe to trading-places.net. "It's all the old team," says Mr. Rea. But before, "there was no way to form relationships. That's all changed as chat rooms have developed and come on." Go CNET A day on the chat room begins about an hour before the markets open. Merlin and skibum begin by blasting out "what plays we're going to make that day and talking about what stocks are going to be gapping up and down," Mr. Rea explains. Subscribers toss in comments, too, but the two self-styled moderators take the lead. As the morning progresses, traders cheer each other on and offer encouragement on their picks for the day. On March 1, a subscriber using the tag "ACDC," described by Mr. Rea as a former SOES trader, chimed in at 10:33:43: "gooooooooooCNET." Half a minute later, "foz" said, "ok you convinced me, in CNET for a swing." At 10:43:39, "stockman" posted "SKI -- How's about you & Merlin sprinkle some 'dust' on CNET?" Skibum answered at 10:44:21: "CNET has the skipowder for the week, patience my friend." Mr. Rea says he and Mr. Jordan merely help others do what they do best: fast-action day trading. The reason stocks often move up after "trade alerts" and "winner alerts," Mr. Rea says, is that the several hundred traders who subscribe to the service -- at $279.95 a month -- "react quickly when we post information about a stock." What he and skibum do, Mr. Rea says, "is provide the spark for a stock that is ready to run." Although CNET knew of no reason for its stock to jump on March 1, Mr. Rea says the shares were poised for a burst from a few positive developments, including a previously announced 2-for-1 stock split effective March 8 and a planned speech at a conference. One day about a month earlier, the stock du jour was ImaginOn, which was rumored to be planning a deal with America Online. Amid rapid-fire recommendations on trading-places.net, ImaginOn stock soared 66% to $15 from $9. The day's trading volume was huge. The next day, with the rumor denied, the stock fell back to $9. It closed Wednesday at $4.25. Though subscribers chime in freely, they can get slapped down if they try to get the chat room to focus on a stock that Merlin and skibum don't want to highlight. On March 1, the two belittled a trader called "dr stock" for this gambit. "It distracts the other traders and it takes up air time" when subscribers do this, Mr. Rea explains. "Sometimes you've just got to get brutal with them." Services such as trading-places.net (owned by Trading Places Inc. of Niles, Ill.) go well beyond the first generation of online newsletters, which published a plain-vanilla list of stock picks once or twice a day. The new ones -- they include Day Traders On-line, Pristine Trader and the UndergroundTrader -- are brimming with action. "Everything is live," says Mr. Rea. "You can immediately respond to anything anybody says." It is momentum trading in a pure form, both following a stock's trend -- instantly -- and fueling it. Hard to Figure The action raises perplexing questions for regulators grappling with the changes wrought by the Internet. Stock manipulation is illegal, so what is a regulator to make of chat-room subscribers reacting immediately to advice to accumulate or dump a stock? "The conduct certainly raises an eyebrow and would require some scrutiny," says David Levine, senior adviser to the director of enforcement at the Securities and Exchange Commission, without referring to trading-places.net or any other specific site. And what about trading by the site's proprietors, who take the lead in postings? Mr. Rea says he doesn't trade, but Mr. Jordan does. "Skibum" says he bought a total of 1,000 shares of CNET on March 1 and March 2. On March 1 he also penned such messages as "TRADE ALERT: at this pace CNET may hit 200 this week," and one calling CNET "the most undervalued big cap net stock in the universe." Asked if this isn't a conflict of interest, Mr. Jordan says he always "posts the call" before buying shares himself, adding, "You can't 'front-run' these stocks. There are too many people buying it." Yet he says he started buying CNET at $115, which is where it opened March 1, before all the chat. Mr. Jordan says he sold half his shares on March 2 at $140 apiece and the rest the next week at $190. Another issue is whether the new stock-trading chat rooms should be considered investment advisers and have to register with the SEC, says John Hewitt, a New York securities lawyer. Regulators must decide whether "chat rooms are freewheeling discussions between investors, or ... beehives for certain individuals to promote individual securities," he adds. Finally, there is the matter of what investors are told. "Some of these Web sites are luring people in with the promise of riches without also exposing the risks involved," says Mr. Levine, again without referring to any specific site. Trading-places.net includes pages of testimonials. "A professional trader can easily net $10,000 a day on this site, if not far more," says one. Another: "I have just completed my 3rd day in your realtime trading room. Needless to say I am thrilled beyond words. I have made more than $51,000 so far on your calls!" Mr. Rea says he hasn't been contacted by the SEC or any other regulators, even though he has invited the SEC to visit his operations. How much of CNET shares' frenzied action on March 1 can be traced to the chat on trading-places.net? Certainly not all of it. Trading-places.net wasn't even the only chat room discussing CNET, to say nothing of television coverage and all the other things that influence investors. Besides, CNET appealed to some buyers on fundamental grounds; it is a profitable company that analysts say has articulated well its role in Internet commerce. Still, the chat room's influence wouldn't necessarily have been limited to modestly funded individual traders; some institutions with big money to spend now subscribe to trading-places.net. Getting Going Its chatter about CNET actually began before March 1. On Friday, Feb. 26, Merlin advised subscribers that the site would target CNET, among other stocks, the following Monday. CNET, which had closed at $114.625 Friday, took off like a rocket Monday on big volume. The shares peaked shortly after an 11:37 posting from Merlin. His message: "WINNER ALERT: CNET THE SKIBUM SHOWED YOU LAST WEEK ... HE TOLD YOU THIS AM ... HE SAID 150 AND LOOK LOOK LOOK LOOK LOOK ... BIGGEST MONSTER OF MAY SO FAR." ("May" appears to be a typo for "day.") It was just three minutes later that Merlin repeatedly posted his "PULLBACK ALERT" suggesting that traders "take profits" in CNET, that is, sell it. Asked why, Mr. Rea says he had detected a big pile-up of sell orders soon to be executed. Two minutes later, skibum advised, "CNET pullback over baby." Another subscriber chimed in to offer "congrats to all CNET players!!!!" Then from skibum again: "ok i did my job for the day, see you all later," followed by "lol" -- chat-room jargon for "laughing out loud." He thanked a trader who "was part of the CNET team." For several minutes, the stock tumbled. Trading volume spiked. The talk began to focus more on other stocks. By the end of the day, CNET's volume totaled 3,506,000 shares, more than the number traded all the previous week. Though down from its day's high, the stock was still up 13% in one day. The gurus congratulated "team TP." Mr. Jordan assured traders the stock was "going higher this week and we can play everyday." They did. Mr. Rea says the chat room pushed CNET until March 9, the day after its 2-for-1 stock split took effect. And it indeed kept going higher. CNET's split shares closed at $92.5625 Wednesday, equal to $185.125 before the split. That's up 60% since trading-places.net began chatting them up March 1. As skibum -- Mr. Jordan -- said shortly after the morning pullback alert, "we have all worked together to bring you CNET and that is an example of what happens when we concentrate and work as a team... ."