Day traders return to market, but pace slows

February 18, 2007|By Walter Hamilton | Walter Hamilton,Los Angeles Times

As stocks soared in the 1990s, countless Wall Street wannabes became "day traders," quitting their jobs and trying to make 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 indexes have tickled investor interest, and aggressive trading by individuals is on its way back. "There's no other way to live," said Robert Earl, a 52-year-old Long Beach, Calif., 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 Corp. and E*Trade Financial point to a marked uptick in business. "There is certainly more activity, to the point where there is now more online investing going on than there was at the market peak," said Bill Doyle, an analyst at Forrester Research Inc. in Cambridge, Mass.

Still, the trading scene is much different 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-fueled 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.

Many traders, however, lost money and had to surrender.

Stocks are much less volatile today, forcing traders to hold for days or weeks to net sizable gains. And the wide availability of speedy online hookups has rendered the day-trading centers obsolete.

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, Va., said 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," said Beyer, who trades five to 10 times a month.

Among affluent investors with $1 million or more in assets, 18 percent traded stocks online in 2005, up from 13 percent in 1999, according to Forrester Research.

"More and more people are coming in and feeling comfortable trading online," said Fuad Ahmed, chief executive of Success Trade Securities, an online brokerage in Washington.

Experts surprised

Even so, several experts said they're surprised that trading levels aren't higher, given the market's lengthy rise.

"Usually you have a bull market and it attracts investors," said David Kalt, chief executive of OptionsXpress Holdings Inc., 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 the current 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," said Don Montanaro, chief executive of TradeKing, an online broker in Boca Raton, Fla. "It's tied up in the condo market in Miami."

Nevertheless, interest in trading is heating up.

In the past year or so, several brokerages and Web sites have popped up catering to online stock traders, including, and

Of course, some active traders never went away despite the market's slump in 2000-2002.

Ziyue Fu, 32, of Manhattan became 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 percent of his trades intraday but is more of a "swing" trader, holding shares for days or weeks.

Fu said he recently almost doubled his money in Internet search engine, which more than tripled in price in a single eight-day period. "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.

`More newcomers'

"I see a lot more newcomers than in 2005," he said. "Most of them wash out in the first six months. Very few of them stay."

Sharon Ostapiuk is trading stocks full time, something she never dreamed she would be doing. The 34-year-old from Arlington Heights, Ill., had long invested in her 401(k) 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 in May.

So she began trading actively through E*Trade and found that she enjoys it. "I feel that if I get real good at this, I can make a lot of money," she said.

Walter Hamilton writes for the Los Angeles Times.

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