On any given Saturday morning, an incongruous-looking group of 20 or so people gather at a Coco's coffee shop in Orange County, California. It is an odd group at first glance, people who seem to have little in common. There are two muscled young men in black T-shirts, a couple of women in their late 60s in cotton floral print dresses, a couple of middle-aged businessmen, and a few geeky-looking Gen Xers.
Over scrambled eggs and pancakes, this group meets every weekend to discuss their passions and their futures. They are talking about the stock market, but they have their own unique language. They talk about "jiggles", stocks that move quickly, or "grinding", a trading style that relies on small profits excavated from numerous trades. Who made how much on "teenies", another name for minuscule profit-taking.
These people are all day traders; some are experienced, having "played the game" as they put it for all of 18-20 months; others, like the older women, are just beginning to day trade even though they are not quite sure how to use a computer.
Michael, one of the muscled men, is a Los Angeles City policeman. But he is growing tired of the job, the danger, and the less-than-stellar pay. (Pay of course is relative; Los Angeles cops start their jobs at about £30,000 [€38,000] a year.)
"This is my future. I want to be able to quit and do day trading full time," says Michael. For now, he can only spend a few hours each morning. Like all West Coast day traders, Michael rises at 5 a.m. to be ready for the 6 a.m. opening bell of the stock market (East Coast time).
What exactly is day trading then? To understand, you have to look at the more traditional idea of "playing" or even investing in the stock market. It used to be a fairly straightforward idea. By telephoning a broker, one would execute a trade, buying a set quantity of shares of a stock, then hoping it would grow over months or years. The brokers charged a commission that was rarely less than $100 (€93), and could go much higher depending on the number of shares purchased.
One either made or lost money, but the fundamentals of investing prevailed, notions that involved learning about the basic value of a company and its future prospects, and analysis of the direction of the overall stock market.
Then came the Internet and discount brokerages. In the last 10 years, many Americans turned away from the "full service" brokers and began using discounters. For a much reduced commission, one got no advice and no research, but the ability to trade stocks nonetheless. As the technology of the Internet got more sophisticated, allowing lightening fast executions, a spate of Internet-based brokerages, such as the now giant E-Trade, emerged.
From a home computer, and armed with either a regular phone line or a high-speed T-1 or cable modem, a person could buy and sell their own orders without ever speaking to a broker, and paying commission of as little as $8 per trade.
About three years ago, the US Securities and Exchange Commission passed new regulations that gave small investors access to the volatile Nasdaq exchange through the Small Order Execution System (SOES) which allows trades to be processed directly in an instant. Day trading took off.
Now, in more than 100 offices around the country, a handful of firms such as Momentum Securities and All Tech trading, lease desk and computer space for as little as $250 (€232) a month to day traders, and charge commissions of about two cents per share of stock traded.
It works like this. Before a long row of tables and computers, traders sit looking at a screen filled with live stock market data. Let's say a trader sees on his screen that the price bid for Ascend Communications is $64.375. Access to the technology that used to be only available to large Wall Street investment firms shows that while the bid price is $64.375, the stock is being offered for $64.75. Attracted by the spread, the trader is able to move quickly and buy 4,000 shares of the stock at $64.375 (a purchase price of $257,750). In a few seconds, the trader finds he can sell it for $64.6875 (selling price $258,750.) In seconds, he has made a profit of $1,000 from only a tiny blip rise in the stock.
The trader can also bet the stock will go down and place a "short order".
In other words, day trading depends less on a stock market rising than it does on volatility.
The problem is that thousands can also be lost in minutes. The environment of day trading - exciting, risky - can be addictive and exhilarating, a bad combination for people who are placing their life savings into the venture.
Reports that Mark O. Barton, the Atlanta day trader who killed 12 people before committing suicide in Atlanta recently, had lost more than $400,000 in the market, have now thrown a disturbing light on the field. Perhaps it will lead to a more cautious approach.
"If you are going to be a trader, you have to view it as a business," says Mr Harvey Houtkin, president of All Tech, the firm that leased space to Barton. "Otherwise the market will clean your clock without hesitation."
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