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

To: TraderAlan who wrote (7238)	5/15/1999 9:13:00 AM
From: TFF	Read Replies (3) \| Respond to of 12617

The Economist - In Praise Of Day Traders: The geeks who spend their days dealing in shares online are not all bad LEAVE your job, log on, click and—hey, presto!—you too can turn into the newest pariah of America's stockmarkets, an electronic day trader. In the 1980s, it was Wall Street's takeover barbarians. Today it is the amateurs in jeans and sneakers who sit in front of a computer and trade 40-50 times in a day. Just as they did with the Gordon Gekko types in the 1980s, Wall Street's great and good are demonising day traders, accusing them of distorting the stockmarket and causing volatility in share prices. Arthur Levitt, chairman of the Securities and Exchange Commission, does not even dignify day traders as speculators, let alone investors: he says they are gamblers. And that, as Keynes once said, is not what the stockmarket should be about, is it? Yet the great and good are wrong. Electronic day traders are merely the most fanatical of a new breed of investors, born of regulatory changes and the Internet. In general, America's 5m-odd people who buy and sell shares on the Internet are a good thing. The stockmarket has been democratised; granny can do what was once reserved for boys in red braces. Nor has freedom bred recklessness. Most online investors trade only a little more than they did offline, and extra trades have meant a more liquid market. They have also driven down trading commissions, to the benefit of all investors. Hard-core day traders, of whom there are fewer than 100,000, also help the market. A favourite strategy is to scrutinise quotes offered by market-makers (professionals who publish prices at which they will buy or sell shares). If this uncovers a market-maker who is slow to react when rivals change prices, the day traders attack. But this encourages market-makers to be alert, resulting in more efficient pricing. Moreover, as day traders must complete their trades quickly, they often offer keener prices than market-makers. This narrows the difference between best buy and sell prices, giving all investors a better deal at the expense of intermediaries. Against these benefits stands one big accusation: that day traders who rush in and out of a company's shares make prices more volatile. Actually, academic studies have found little evidence that this is true, even for Internet shares, in which online investors account for an unusually large slice of trading. Rather than causing high volatility, day traders, who live or die by exploiting short-term price movements, may be attracted to shares that are volatile for other reasons. On Internet shares, such volatility mainly reflects massive disagreement among investors about what, if anything, the shares are really worth. The truth about gambling As for gambling, some day traders are doubtless in over their heads. That is regrettable, but it is not a good reason to attack day trading. Alas, for people with a gambling addiction, if it were not shares, it would be something else. And at least in the stockmarket, unlike a lottery or a casino, the average punter is not mathematically certain to lose money. Most day traders would probably be better off putting their money in a fund that tracked the stockmarket index. But that applies equally to most professional equity-fund managers, who also fail on average to beat the market index. Day traders may be mauled if today's high share prices prove to be a stockmarket bubble (see article). But they would not be the only investors left looking foolish. Indeed, with their expertise at trading fast and often, when the conflagration comes, they may prove fleeter of foot than the big, staid institutional investors who have been bad-mouthing them. Wall Street's great and good would do better to remind all investors that being in the stockmarket at all is, at today's prices, something of a gamble.