Day traders make a comeback
By Matt Krantz, USA TODAY
Apparently, it takes more than a nasty bear market to scare off day traders for good. After being all but wiped out by a near-record bear market and crash of Internet stocks, day traders are sheepishly reappearing.
A day trader keeps close watch on her stocks at a Falls Church, Va., firm in 1999.
By H. Darr Beiser, USA TODAY
This short-term investing strategy of trying to make money from rapid shifts in the market, which became a national obsession during the bubble, is making a Lazarus-like return thanks to the rising stock market.
"A lot of day-trading activity has picked up," says Henry Robertelli, partner at investment management firm Axius Holdings.
This time, though, day traders are different — in fact, many are even dropping the day-trader moniker for more professional sounding names, such as semi-pro traders or swing traders. And the number of day traders is still well below the peak in 2000.
But whatever you call them, brokers and other firms that cater to these hyperactive traders are seeing a pickup in their business:
•Online brokerages. The trading activity of active traders jumped 42?n the second quarter vs. the first quarter at E-Trade, which is one of the online discount brokerages to which day traders gravitate. That's up from the 10?rading activity increase in April over March, says Jarrett Lilien, president of E-Trade Group. Walk-in traffic to E-Trade's financial centers is up as well, he says.
Meanwhile, the average number of daily trades by active traders at Schwab and its CyberTrader unit during the second quarter jumped to 69,500, a 28?ncrease from the first quarter.
Perhaps even more telling of the swelling interest: Customers at CyberTrader, the Schwab unit that caters to active traders, signed onto their accounts 500,000 times in June, up from 300,000 in March, says Vincent Phillips, senior vice president of products and technology. CyberTrader also has enjoyed a 15?ncrease in the number of trades per day, and the account base has grown by 5?his year, he says.
And at TradeStation, a brokerage that caters to active traders, the number of accounts in the second quarter jumped 98?rom year-ago levels to 10,115, and the average number of stock trades per day soared 111?The pickup is a sign of the return of day traders, says Richard Bove, analyst with Hoefer & Arnett. "Nobody likes that term (day trader), but that's their customer base," he says.
•Day-trading chat rooms. Since day traders often work solo in their own homes, they congregate electronically in Internet chat rooms. Chat activity tends to directly track trading activity.
"Volume has picked up," says Jea Yu, founder of one such electronic watering hole, UndergroundTrader.com.
Yu says the number of members on the site is up 20?rom when the market hit bottom last year. But membership, he points out, is still 50?elow the high in 2001.
•Day-trading specialty firms. Day trading has picked up 15?rom the year's low at the 40 day-trading centers run by Bright Trading, founder Don Bright says. "Since March, it has been good," he says, adding though that volume is still 25?elow the peak in 2001.
But while the amount of day trading is rising, the day trader of 2003 is very different than the day trader of the late 1990s bubble — and a potentially less disruptive force on the broader market.
These traders are like Marlene Colean, 66, who three months ago kicked her trading into overdrive. From her home office in Fort Pierce, Fla., overlooking the Indian River, Colean trades roughly 8,000 shares a day and claims she's seen a 52?eturn since March.
But unlike many day traders of the late 1990s, Colean has discipline. She is keeping her day job as a Realtor at the firm she owns. Only on busy trading days does she ask her son to look over things at the office until she arrives in the afternoon. And she sticks to strict rules to prevent catastrophic losses: She sells a stock before it falls even 1?rom the price she paid. "I'm spending more and more time trading," she says. "It's addictive."
This time day traders are quasi-professionals who stick to strict trading rules and prefer exotic trading instruments to simply trading plain vanilla stocks, Schwab's Phillips says. "These semi-pro traders have a specific strategy. They're not just in it for the quick buck," he says.
But that's partly because many of the tricks of making a fast buck, such as investing in IPOs, died along with the bull market, says Lynne Benson-Hernest, who has split her time as a day trader and chiropractor since 1995.
And that's why most don't expect day trading to return its former glory anytime soon. "Yes, activity has picked up a little bit," says Ray Johns, CEO of trading newsletter DayTraders.com. "But not enough to jump up and down over compared to a few years ago."
Answered By: Brite Tiger - 10/11/2006