Thursday, February 22, 2007
Trading for a Living?
The Internet has really opened up the market to the regular bloke. I honestly think the most incredible change in the investment landscape over the last few years is the way that instantaneous stockmarket data - once only available to brokers and stockmarket professionals - is now available to anybody with a computer and access to the 'net.
The Sydney Morning Herald recently published (courtesy of the LA Times) a story on this phenomenon, Bull market draws back day traders:
Now, I'm not sure I would recommend trading as a full-time occupation to most people - but what they refer to as "swing" trading in the article need only take an hour or so a day at most. Why not do this in addition to holding down your day job?
It's a way of getting rich - or going broke -without leaving home, finds Walter Hamilton.
AS STOCKS soared in the 1990s, countless Wall Street wannabes became "day traders", quitting their jobs and making their living by trading stocks at a furious pace.
When the boom ended, so did the day trading craze. But rising stock prices and new highs in major stock indices have again tickled investor interest and aggressive trading by individuals is on its way back.
"There's no other way to live," says Robert Earl, a 52-year-old Long Beach, California, man who began trading full time in 2004. "My friends think I gamble but this is not gambling if you do your homework."
Although trading activity doesn't resemble the frenzy of the late 1990s, electronic stock brokers such as Charles Schwab and E-Trade point to a marked uptick in business.
Schwab, for example, averaged 242,300 trades a day in the first nine months of 2006. That was up 29 per cent from the same period a year earlier, and a click above its 242,000 peak in 2000.
"There is certainly more activity, to the point where there is now more online investing going on than there was at the market peak," says Bill Doyle, an analyst at Forrester Research in Cambridge, Massachusetts.
Still, the trading scene is much different now than in the 1990s.
Back then, fewer people had high-speed internet connections, leading to the establishment of day-trading shops stocked with rows of computer stations. Caffeine-fuelled traders "scalped" a handful of stocks all day long, jumping in and out repeatedly as stocks bounced like ping-pong balls. The goal was to notch dozens of small gains.
Stocks are much less volatile today, forcing traders to hold for days or weeks to net decent gains. And the wide availability of speedy online hook-ups has rendered the day-trading centres obsolete.
Indeed, it is easier than ever for investors to trade from home, not just those who hope to make a living at it.
Greg Beyer, for example, has a full-time job as an information-technology specialist but, the 39-year-old from McLean, Virginia, says, he has stepped up his trading as the market has risen in the past few years.
"It certainly is a motivating factor in investing more," says Beyer, who trades five to 10 times a month.
Among affluent investors with $US1 million ($1.28 million) or more in assets, 18 per cent traded stocks online in 2005, up from 13 per cent in 1999, according to Forrester.
"More and more people are coming in and feeling comfortable trading online," says Fuad Ahmed, chief executive of Success Trade Securities, an online-brokerage in Washington, DC.
Even so, several experts say they're surprised that trading levels aren't higher, given the market's lengthy rise. The major indices posted double-digit gains in 2006 and have continued to attain new highs in the new year.
"Usually you have a bull market and it attracts investors," says David Kalt, chief executive of optionsXpress Holdings, a Chicago online broker. "This bull market is a little more incremental."
At E-Trade, for example, annual trades per account rose to about nine last year, from five in 2002. But that's off from about 12 in 2000.
Some investors are holding back because of bad memories from the last bear market and uncertainty about how much longer today's bull market will run. And many people may have shifted their money into real estate earlier this decade, as stocks tanked and home prices rose.
"I don't think the speculative money is coming back into the online investor marketplace," says Don Montanaro, chief executive of TradeKing, a Boca Raton, Florida, online broker. "It's tied up in the condo market in Miami."
Nevertheless, interest in trading is heating up.
In the last year or so, several brokerages and websites have popped up catering to online stock traders, including TradeKing, Just2Trade.com and Zecco.com.
Don Bright is capitalising on the trend. His Bright Trading in Las Vegas teaches trading skills, and demand is growing. About 50 people took his course in October, he says, double the number in 2003. He says 34 people are enrolled in his latest three-day, $US1000 course.
Of course, some active traders never went away despite the market's slump in 2000-02.
Ziyue Fu, 32, of Manhattan, got hooked on stocks in 1997 and dropped out of podiatry school to day trade full time.
He hung on through the bear market but altered his trading style in 2003 when "scalping" became less profitable. He still does about 30 per cent of his trades intraday but is now more of a "swing" trader, holding shares for days or weeks.
Last month, for example, Fu almost doubled his money in internet search engine Mamma.com, which more than tripled in price in one eight-day period, he said.
"It felt just wonderful," he said. "Nothing beats that as a trader."
But he's seen a lot of his friends fail over the years and predicts that many more will.
"I see a lot more newcomers than in 2005," he says. "Most of them wash out in the first six months. Very few of them stay."
Earl, the Long Beach man, is determined to be one of those who stays.
He worked as a district manager at a restaurant company for seven years and owned a seafood restaurant for eight years but says he has found his calling as a full-time trader.
He began day trading in 2004 and says he is making enough to support himself. "I just came in off the golf course," he said with a laugh.
Sharon Ostapiuk is also trading stocks full time, something she never dreamed she would be doing.
The 34-year-old from Arlington Heights, Illinois, had long invested in her 401(k) personal pension fund and in mutual funds but hadn't bought individual stocks until August 2005.
At first, she invested for the long term. That paid off initially but she got hammered when the market slumped last May. So she began trading actively with E-Trade and found she enjoys it.
"I feel that if I get real good at this I can make a lot of money," she said.