Cover image for Day trading on the edge : a look-before-you-leap guide to extreme investing
Title:
Day trading on the edge : a look-before-you-leap guide to extreme investing
Author:
Masonson, Leslie N.
Personal Author:
Publication Information:
New York : AMACOM, [2001]

©2001
Physical Description:
xv, 383 pages : illustrations ; 24 cm
Language:
English
ISBN:
9780814405734
Format :
Book

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Library
Call Number
Material Type
Home Location
Status
Central Library HG4515.95 .M376 2001 Adult Non-Fiction Non-Fiction Area
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Summary

Summary

This text supplies potential day traders with an idea of what day trading is all about. It includes an assessment of risks and rewards, the basic principles of day trading, guidelines for getting a business up and running, equipment needed for trading at home, and guidelines for selecting firms.


Reviews 2

Booklist Review

The notion of day trading for beginners may be something of an oxymoron because, as Masonson emphasizes, day trading should be considered only by experienced investors who are willing to assume a great deal of risk. Masonson is a consultant specializing in cash management and the author of Cash, Cash, Cash: The Three Principles of Business Survival and Success (1990). He is also a successful day trader. Unlike others who have touted the get-rich-quick possibilities of day trading, Masonson fills his advice with caveats. For those determined to take the plunge, he lays out the basic principles and key rules of day trading. He also spells out the advantages and disadvantages of using a day trading firm versus trading from home. He details the attributes of successful traders using a survey of 200 persons and includes interviews with 11 traders and 6 trading firm CEOs. In addition, seven "pro's" have contributed chapters to this straightforward guide. --David Rouse


Library Journal Review

Pure and simple, day trading is more closely related to off-track betting, casinos, and gaming halls than it is to investing. Surging bull markets at the close of the decade have made the stock market the "in place" to be. Masonson, a day trader and consultant, provides an instruction guide for other would-be day traders. The author does a credible job of noting downside risks, notably that most day traders lose money and the failure rate is substantial. The lure of easy money, however, is highly enticing. Masonson provides a primer on day trading, offering detailed hardware and software recommendations, down to the right chair to sit in. The book's greatest value is its interviews with other professionals engaged in day trading, while a chapter dealing with how to retain earnings is particularly valuable for any small business. Libraries with a strong financial section might consider this book.DSteven Silkunas, Southeastern Pennsylvania Transportation Authority, Philadelphia (c) Copyright 2010. Library Journals LLC, a wholly owned subsidiary of Media Source, Inc. No redistribution permitted.


Excerpts

Excerpts

Chapter One WHAT IS DAY TRADING? You are constantly being bombarded by newspaper and financial magazine ads, thirty to sixty second TV spots, and mail from online brokers with freebies or discount coupons trying to grab your stock trading business. You've seen the humorous ads from E*Trade and Ameritrade (e.g., Stuart, the red-headed computer nerd), and National Discount Brokers (passenger is placed in a jumbo jet's cockpit and expected to land it). Imagine an online broker paying $2.3 million for a one minute commercial during the Super Bowl (January 30, 2000)! Believe it or not, many of the ads during the 1999 World Series were for online brokers instead of the more traditional products we're used to seeing. Clearly, we are experiencing a burst in online trading volume and continual pitches for your business. The objective of these online brokers is pretty obvious--to bulk up their customer base and exponentially grow their commission income. The profits of online brokerages are staggering. For example, the Senate's Permanent Subcommitee on Investigations Staff Memorandum on Day Trading (February 24, 2000) reported that fifteen online firms had gross revenues of $144 million in 1997, with an income of $22.2 million. In comparison to 1999, these firms grossed $541 million with a net income of $66.5 million. This revenue burst translates into a 275 percent increase and a 200 percent increase in income over three years. These financials are not shabby for a business still in its infancy. Although the growth in online trading continues unabated, volume has dipped during the last two market corrections, Fall 1999 and Spring 2000. For the first quarter of 2000, online brokers added 3 million new online accounts, bringing the tally to 15 million accounts with over $1 trillion in assets. Moreover, trades via the Internet have risen to 38 percent of the combined volume of the New York Stock Exchange (NYSE) and Nasdaq.1 Day trading is very big business. Commissions drive the business. The more frequently individuals day trade, the more these firms make. While there are no published reports on the total earnings of the day-trading firms (which are all privately held), the larger firms are probably doing well with their bottom line. Online Trading and Day Trading Are on Two Different Planets Don't be confused by the terms "online trading" and "day trading." They are not synonymous--they are light years apart in meaning. Online trading refers to individual investors who execute their buy and sell orders for stocks and mutual funds over the Internet through an online broker for low commissions compared to phoning their order to a discount or full-service broker. The confusion lies with the word trading in the term online trading. The more appropriate term is "online investing." These investors are not trading but just making a few transactions a year using a less expensive and more automated method. Actually, most individuals using online services transact only ten to fifteen buys and sells a year, hardly a blip on the radar screen compared to day traders, as we'll see in a minute. The term online trading should be thought of as online investing using the Internet instead of calling a broker to make a trade. As expected, a number of the full-service brokers (e.g., Merrill Lynch, DLJ) are now offering online-trading capability to fend off losing globs of their retail business to their online competitors. Day trading is at the other end of the investing spectrum, on the extreme edge or fringes of investing. The term refers to individuals who execute numerous roundtrip trades (a buy and a sell) a day looking for fractions of a point to a few points per trade, but who close out all their positions by day's end. Day trading is speculating in a short time period. So, in summary, when you hear about or see ads about online trading be aware that the intent has little do with day trading unless that is the ad's specific focus. Be aware that some of the online brokerage firm ads on CNBC and CNNfn, for example, are for day traders or active traders and not for the typical online trading as we have defined it. Online Trading Is Not Necessarily Direct-Access Trading The advent of direct-access trading (DAT) has added even more confusion to the trading scene. DAT refers to the ability of a trader to deal directly with the market makers, bypassing any middlemen, thereby getting extremely fast and competitive executions. Direct-access trading is used by active traders such as day traders through specific firms offering the service to execute trades through an electronic communications network (ECN, such as RediPlus, ISLAND, and ARCA), as well as the New York Stock Exchange's SuperDOT system and Nasdaq's Selectnet, among others. An electronic communication network is a competing trading system that matches buy and sell orders internally and acts as an alternative to the traditional stock exchanges and market-makers on Nasdaq. Most full-service online brokers and many discount brokers do not provide DAT, so when selecting a broker, one of your first questions is: "Do you offer direct-access trading?" If the answer is no, then quickly move on to the next broker. DAT is required if you are involved in day trading, because it is a direct link to the market that offers rapid execution at a competitive price. Day Trading--Easy Come, Easy Go Day trading via the Internet has emerged as an easy way to make a quick buck while trading in the comfort of your home--or so it seems, based on the ads you've seen. And you don't even need a license. In today's Internet age, anyone who plunks down $1,000 for a PC and as little as $15,000 to $25,000 in "risk" capital (defined as money you can afford to lose to get started in this exciting field) at a brokerage firm can begin trading. And no prior investing or trading experience is needed, according to some of the ads of the day-trading firms. This flirting with the truth by some firms has led too many new day traders into financial straits, because they were not aware of the risks involved. Instead, they were mesmerized by the possibility of finding gold at the end of the rainbow. Of course there are many successful full-time day traders who make between $50,000 to $250,000 a year and some over $1 million or more. But these millionaires are few and far between. However, the vast majority of neophyte traders lose all their starting capital and sometimes more within the first three to six months of trading. In reality, only 10 percent to 20 percent (and perhaps fewer) of day traders make consistent profits, according to various industry estimates. The rest drop out after taking a bath. But we're getting way ahead of the story. Day Dreaming, Not Day Trading Here's a possible day-trading scenario that you may believe represents reality in the day-trading kingdom:You wake up at 8:30 A.M., have breakfast, scan The Wall Street Journal and Investor's Business Daily , flip on your TV to CNBC, and turn on your PC. Opening your online broker's Web site, you input your stocks for today's trading so they show up on customized tickers, you pull up real-time intraday tick charts on your watch list, and you get streaming news headlines. Now you're ready to do battle with the thousands of other day traders. After making $500 to $2,000 profit on five or ten roundtrip trades by 2:00 P.M. you turn off your computer and take the rest of the day off. This sure beats getting up at 6:00 A.M., commuting for an hour or more, and working for someone else in a less than thrilling job environment.Of course, this scenario is ridiculous and presents a completely false view of the day-trading world, but it is unfortunately what some potential day traders want to see in their reading of the landscape. What Actually Is Meant by Day Trading Stocks Day trading stocks consists of buying stocks (or selling stocks short) with the intention of making a profit and closing out all positions before the close of business that same day--whether profitable or not. A day trader may make a few trades (buys and sells) or hundreds of trades each day depending upon his or her strategy. The overriding factor is that all positions that are bought are sold by the close of business that day. Using the New York Stock Exchange (NYSE) and Nasdaq, for example, the day trader ends all trading and closes all positions by 4:00 P.M. EST. Of course, a trader could trade in the after-hours market, but the volume of transactions is much lower, the spread between the bid-and-ask price of a stock is wider than it is during regular hours, and liquidity is poorer. Perhaps within a year or two there will be a twenty-four-hour global trading where these problems are not a concern. In summary, the day trader's account is all in cash by the end of the trading day. All gains or losses are taken during the trading day. Normally, a day trader does not hold a position overnight because of the risk of a price decline on the next day's "open," assuming the trader is "long" the stock. A price decline can result from the release of a worse-than-expected earnings report, comments by Federal Reserve Chairman Alan Greenspan, market jitters, or other unforeseen factors. A trader who normally holds stock positions overnight is typically referred to as a "swing" or "position" trader rather than a day trader. These traders may hold stocks for a few days (two to five) or a few weeks, respectively. The trader is looking to stay with the short-term trend and get out before it reverses severely. A "true" day trader does not hold any positions overnight no matter what the rationale may be. I would refer to an individual who both day trades and swing trades to be a "hybrid" trader. This two-way approach may cause difficulty for the trader, since he or she is not following one clear-cut methodology. But some traders successfully use this hybrid approach by keeping two separate accounts--one for each type of trading. A Brief History of Day Trading Day trading did not just appear on the scene in the 1990s out of nowhere. "Professional" day traders (traders who trade at a firm using the firm's capital, not their own) have been around for hundreds of years. Don Bright, of Bright Trading, a firm of professional day traders, provides his insights into the origins of day trading and the trading on exchanges: It is quite interesting that the American public, in general, and the investing public, in particular, know so little about the inner workings and methods of the securities industry. Having spent over a decade as a "floor trader" and "market maker" and many more years as an "upstairs trader" (trading in an office environment off the trading floor), I have come across thousands of people who have what seems to be a genuine interest in the field of day trading stocks for a living. Unfortunately, these Wall Street neophytes and "trader wannabes" for the most part have no clue as to what really transpires on the floor of any of the major stock exchanges. I have advised most of these people to move to a city that has a major stock exchange, get a job on the trading floor, and keep their eyes and ears open. This is surest way to really see how things work. And, in my opinion, if a potential trader doesn't know how the system works, then he or she should not be playing the game. Based on my experience, most people will not take this route to become a trader because it is too difficult, too time consuming, and doesn't provide instant gratification. As expected, 99 percent of these individuals will fail in pursuing their day-trading dream. And they are shocked when they fail and don't understand why. They are totally blind-sided by the huge risks for the uninitiated. Based on all the media attention to the stock market swings, many individuals think that day trading is the latest rage. Actually, day trading has been around for over two hundred years. Let's review a bit of the history [of day trading] so that you understand the basic structure of the securities markets. A stock exchange is an organized market for the trading of stocks and bonds. Stock exchanges exist in major financial centers of the world. Members of an exchange buy and sell for themselves or for others, charging commissions. The largest and best-known exchange is the New York Stock Exchange (NYSE), which was founded in 1792 under the Buttonwood Tree. It handles more than 70 percent (in market value) of all transactions. Only companies that have met certain stringent listing requirements may be traded on an exchange. These securities are called "listed" securities as opposed to "over-the-counter" (OTC) securities. The American Stock Exchange (AMEX), also based in New York City, and regional exchanges account for the remainder of the listed securities. Those exchanges have varying listing requirements. Unlisted shares, often of smaller companies, are traded in the growing Nasdaq market. The over-the-counter (OTC) market is composed of thousands of far-flung stock and bond dealers and brokers who negotiate most transactions by computer or telephone. For the most part, dealers purchase securities for their own accounts and sell them at markup prices. Many U.S. OTC issues are quoted on Nasdaq (National Association of Securities Dealers Automated Quotations), a computerized system. A company can usually list its stock on only one major stock exchange (with some recent changes, dual listings can occur), although options (e.g., put and call options) on a stock may be traded on other exchanges, such as the Philadelphia Stock Exchange or the Chicago Board Options Exchange. The different exchanges attract different kinds of companies. For example, the AMEX, for years, attracted many companies in the energy field. Newer electronic exchanges typically trade the stock of small, emerging businesses, such as high-tech companies. The AMEX lists small- to medium-size businesses, including many oil and gas companies. The NYSE primarily lists large, established companies. The NYSE uses a "specialist" system. At a stock exchange, certain brokers specialize in handling specific stocks. These specialists operate on the floor of the exchange, the area where all trading takes place. The floor of the NYSE, for example, is an enormous room that measures about 100 feet wide by 183 feet long, with a ceiling 79 feet high. Brokers pack the floor during trading. They often use bargaining and negotiating to execute larger trades, and they take bids for the highest prices. The process is noisy and frantic, and brokers use hand signals to communicate above the chaos. In U.S. exchanges, only trades over a certain number of shares are negotiated on the floor. For smaller trades, orders commonly go to specialist brokers directly via computer. Specialists sometimes act as dealers instead of as intermediaries or brokers, trading directly in the stocks of their firms' accounts. (For this reason, they are also known as "broker-dealers.") They do this when market trends favor the trading of certain stocks, and investors have not ordered enough trades to clear the market or balance supply and demand. Floor traders trade only in stocks owned by their brokerage firms and never act as intermediaries. The specialist system is probably the best example of a day-trading environment. The specialists on the NYSE and regional exchanges have, in many cases, inherited the job from someone in their family. Up until the 1987 "crash," family firms owned many, if not most, of the NYSE memberships, or "seats." The specialist does not want to take home any open positions in the group of stocks he or she is responsible for. He or she is charged with the job of making "fair and orderly" markets and has many rules he must follow. For example, a specialist cannot initiate an "uptick" [increase in price over the last trade] nor can he take the bulk of any public order. The specialist can participate in, but not initiate, any movement of the stock. He or she is responsible for determining "opening" and "closing" prices, based on the orders present, and participating on the "other side" of any imbalances. Day trading provides the liquidity needed in an open marketplace. With the tremendous growth in online trading on the Internet a new genre of traders has come about. They are interested in new technology companies listed on the Nasdaq, whose rules are known by the "market makers" (who are the professionals of their marketplace). They call themselves "day traders," but, for the most part, they are simply "retail" customers of a brokerage firm who have little if any knowledge of this very competitive and risky business. For the most part, buying and selling shares via the Internet on either the NYSE or the Nasdaq is fine for investors but should not be confused with a method for actual trading. In the early 1990s the "DOT," or "Designated Order Turnaround" system of electronic trading was developed. This allowed the "upstairs trader" to trade directly with the NYSE specialist or OTC market makers. This electronic system has developed to such a degree that a high percentage of all NYSE trades are done via DOT or "SuperDOT." Now, armed with quick execution ability, professional traders are able to compete effectively off the trading floor. This system has evolved and improved to the state-of-the-art system known as RediPlus. RediPlus and other ECN systems allow trading to actually take place in cyberspace. The trading of listed securities is every bit as fair as trading on the trading floor. This is due, in part, to the tight scrutiny of the NYSE specialists. On the retail level, customers of brokerage firms are enabled to enter orders (not execute, just enter) electronically via the Internet. This has been a boon to the volume of trades, while taking away the need for "registered representatives" (stock brokers). In the mid 1990s, with the advent of what is called the "Small Order Execution System," or SOES, many small trading firms opened to take advantage of the disparity in OTC market-maker markets. This system was used effectively for only a few short years. It allowed traders to trade between the professional market-makers' markets. It wasn't long before a system commonly known as "SOES-Busters" was put in place to take away any advantage that the SOES traders had. "Professional" stock trading is done by about 7,500 men and women who are licensed, registered traders. A few firms have hundreds of these dedicated professionals in offices nationwide. Stock trading should be left to the professionals. Over the years, only a small fraction of these experts have been able to make any money when trading at home. (In the industry we call this "hermit trading," referring to the fact that one is out of the much needed environment of other professionals.) If our professional traders have a difficult time trading away from the office, it must be very tough for the non-professional retail customer. And that was Don Bright's take on the day-trading scene. Don's extensive trading experience and an interview with him are provided in chapter 13, "Interviews with Firm CEOs," as well as in chapter 12, "Interviews with Traders." Professional Day Traders vs. Retail Day Traders You should be aware of the major distinction between a "professional" day trader and a "retail" day trader. Don Bright and others define a professional trader as an individual who is licensed, has investment experience, and has a full-time position at a trading firm trading the firm's money. A "retail" day trader trades his own money at a day-trading firm or from home (known as "remote" trading). "Professional" traders work for investment/brokerage/trading organizations as employees or possibly as independent contractors obtaining a percentage of the profits from their trades. These traders typically trade in 1,000-share lots or multiples thereof, are provided with a trading line (trading capital plus margin--sometimes ten times the normal margin requirements), and have wide latitude in their trading throughout the working day. Most of these companies electronically monitor their traders' performance throughout the day to ensure compliance with their trading policies as well as to protect the firm from a trader going astray and carrying a big losing position.This monitoring must be ongoing or else the firm can be hit with a huge disaster. Remember the stories in the past few years about traders who put their employers in bankruptcy by covering up or running up huge losses before the employers became aware of the situation (e.g., trader Nick Leeson at the Barings Bank in 1994-1995).3 These traders were not day trading stocks but, rather, options, futures, or other derivatives. There is another definition of professional espoused by many day-trading firm officials. They define a person who trades full-time for his or her own account as a professional day trader, trading either at an office or at home. These traders use their own capital and are often referred to as "retail" day traders, since they are customers of day-trading or other brokerage firms. Therefore, you should be aware of the different meanings of the term "professional" and who is using the term. Where you see the term "professional," it will most likely refer to "retail" day traders unless otherwise specified. Day Trading by Individuals Since 1994, and perhaps earlier, a handful of companies (e.g., Spear, Leeds & Kellogg; Schonfeld Securities, and Bright Trading, among others) offered individuals a complete trading workstation for day trading their own accounts in their offices. These firms, mostly based in the New York City area, provided individuals with a margin account (sometimes with ten times the normal margin) and a terminal containing streaming real-time quotes, charts, news, and rapid order execution. The orders were routed to various sources, including SOES (Small Order Execution System), Instinet or Selectnet for competitive price execution (between the bid-ask) on Nasdaq stocks. These firms charged traders commissions averaging one to two cents a share as well as charging for the use of their terminal and information feeds. Typically, these firms did not provide the individual with any training or account monitoring. Therefore, most individuals that decided to day trade for a living at that time had some previous experience in the markets--they were ex-brokers, investment bankers, and floor traders.This is in sharp contrast to today's typical newbie (beginner) day trader, who may have limited stock market experience, minimal knowledge of trading basics, and no idea what the risks are. For today's neophyte day trader the odds of success are slim to none. According to Don Bright, "99 percent of today's traders will not make it." These are pretty daunting odds. Even so, hordes of potential day traders are still contacting online and direct-access brokers, buying trading software, and attending trading conferences and day-trading seminars in record numbers. Day Trading Setup In 1994, when real-time quotes became available via FM, cable TV, and satellite dish, the opportunity for day trading from home became viable for the individual. Also, there were a number of discount brokerage firms that offered reasonable commissions--much less than the big firms--which made day-trading profit potential viable. For example, with a roundtrip commission of $90, making $0.50 per share on a trade of 1,000 shares resulted in a profit of about $410. I started day trading NYSE and Nasdaq stocks in 1994 using the following setup: Gateway 486DX2 computer with Windows 3.1 ($2,700). Omega Research TradeStation software (for real-time tick-by-tick charts and technical analysis tools) ($700). BMI (as the real-time quote service via satellite costing about $240 per month plus $500 for the 3-foot satellite dish), now mergered into eSignal. Waterhouse Securities (for handling trades at $45 each). Buying power at Waterhouse was recalculated only at night. For example, if you had $100,000 in your account, you could do two 1,000-share trades of $100 using your $100,000 of margin. The buying power was not readjusted upwards after each roundtrip was completed! So you could not trade for the rest of the day. From 1994 to 1996, my day-trading equipment and services setup was typical for the "remote" (at-home) day trader. At that time there were only three or four providers of real-time continuous quotes (e.g., Signal, Data Broadcasting, BMI, and Telemet), a few real-time charting programs, and a handful of discount brokers. Deep discount brokers were nonexistent in those years.I upgraded my trading setup in March 1999: Gateway Pentium II GP6-450 with Windows 98 ($2,400). myTrack "gold" trading software package including AIQ software, broker execution, real-time feed, and real-time intraday technical charting for $69.95 per month over the Internet at 50Kbps speed. Frontier Internet service costs $19.95 for unlimited usage. Buying power is now calculated in real time, so after each sale my buying power rises accordingly. Commissions run $12.95, except for NYSE limit orders, which cost $15.95. Thus, in a few short years, technology has greatly increased, software has more features at lower cost, and commissions have dropped over 70 percent. All these advancements have fueled the growth of online trading and day trading. Today, there are over twenty-five deep discount brokerage firms that offer trades for $4.95 to $15.95 each and many larger ones that charge $14.95 to $19.95 for active traders. Over the past five years commissions have dropped dramatically, now averaging about $15 to $16 a trade, which greatly increases the profit potential even for a very active trader. Today, online transactions cost about as much to make as long distance phone calls did only a few years ago. This shows how technology has transformed the landscape.Currently, commissions have leveled off and will most likely remain at existing levels unless there are structural changes in the way that trading is handled in the future. A few organizations are offering "no" commissions--but be careful about the spreads and the execution prices (which can kill you). Just remember the old adage, "There is no such thing as a free lunch." This applies to all dealings in the day-trading arena.Since 1997, many day-trading firms (now called direct-access firms) have sprung up to offer their services to "wannabe" day traders who either trade at the firm's office or in some cases from their homes using proprietary software. Refer to chapter 7, "Ten Steps to Selecting a Trading Firm" to get a handle on the process. A Day Trader's Dream Setup Today, anyone can become a day trader at home using the Internet in two weeks or less with minimal expense and training. A top-of-the-line desktop computer, with one or two large 21-inch flat screens, trading software, and an Internet connection all can be had for less than $5,000. Of course, you'll need a brokerage account and start-up capital. The suggested minimum starting capital is $25,000 to $100,000, so that you can trade multiple positions simultaneously. And your initial capital is doubled if you use a margin account (similar to a two-edged sword, as we'll see later). It may take a week or two to get the necessary forms from a brokerage firm and have them processed to begin trading. Some firms have online registration, so that all you have to do is fill out the forms online, print and sign them, and send them with a check to get the account active. Electronic signatures are now acceptable, so the entire account registration process may take minutes instead of days. One of the potential problems of day trading from home is that no one is monitoring your account's status except yourself. And you can be your own worst enemy by making a few big mistakes, resulting in losing all your capital and more (if on margin). Also, your Internet connection may be slow and may get knocked off a few times a day--most often when you are just about to make a trade. So you must get a consistent internet service provider (ISP), or better yet, get a cable modem, digital subscriber line (DSL), or integrated service digital network (ISDN) in your area by contacting your phone company and cable provider. More about this in chapter 6, "It's All about Connections." Information on Day Trading Obtaining reliable data on all the aspects of day trading is difficult. There have been a number of reports issued by regulators and govenment agencies, but they have not provided much in the way of comparative data. Chapter 2, "Day Trader Characteristics," contains a survey that provides a much needed look at how day traders go about their business and how profitable they are. Refer to that chapter for never-before published statistics.A few reports have been issued on online trading or day trading practices by different organizations. The key findings of these reports are summarized in chapter 14, "Regulatory Findings on the Day-Trading Industry."The number of day traders plying their trade at day-trading firms for their own accounts has been estimated at about 7,500 countrywide. Perhaps another 20,000 (my guess) individuals are day trading from home either part or full time. Estimates on the number of day traders who are unsuccessful and leave the profession range between 70 percent to 90 percent, depending upon the source. These individuals have lost a portion of their initial capital, all their starting capital, or more than their starting capital (if they have to cover margined funds that turned into losses). Because of the constant turnover of day traders, the day-trading firms, which number fifty to sixty nationally, need to advertise to bring in new clients and, of course, to keep those traders who generate numerous trades and high commission traffic. According to J. William Lauderback, a spokesperson for the Electronic Traders Association, the top nine trading firms control approximately 93 percent of onsite trading business and about 15 percent of Nasdaq daily dollar volume--over 350,000 transactions and over 120 million shares. These firms are as follows: * Tradescape.com Securities LLC (doing business as Momentum Securities LLC) * Mt. Pleasant Brokerage Services * Heartland Securities (Datek) * Broadway Trading * Cornerstone SecuritiesCorporation (name changed to ProTrader Group in February 2000) * On-Line Investment Services, Inc. (parent company is GS Hold.com) * Andover Brokerage * On-Site Trading, Inc. * All-Tech Direct, Inc. Day-Trading Expo When you see ads for an expo on a subject for the first time, you know that it's "hot." The first ever International Day Trading Expo was held in Ontario, California, in November 1999. A few thousand individuals attended to hear expert speakers and see exhibitors show their wares. I attended the second expo, dubbed the International Online Trading Expo, held at the Marriott Marquis on February 18-20, 2000, in New York City. The expo name was changed to "online" instead of "day" trading to include the expanding universe of online investors.By the large crowd--over 5,000--you could not tell that the weather outside was horrendous. Snow had just begun to fall, and the winds were kicking up. Attendees were not in the least bit deterred by the weather. I got to the Expo about thirty minutes after it opened, and I expected to see a minimal crowd so early in the morning, especially with the bad weather. Was I wrong! The exhibit hall was already open, and thousands of mostly young males were prowling the booths looking to grab any information packet they could about the day-trading phenomenon. The exhibit hall contained the booths of day-trading firms, organizations that provide trading courses and training, software, books, and newsletters, and many live "demos" of software and trading systems. I would estimate the ratio of males to females was ten to one. A host of prominent speakers and sessions on all aspects of day trading took place on Saturday and Sunday. Most speakers were industry veterans, and from the comments I heard from those attending the sessions the quality was very good to excellent. By attending for three days I obtained a unique perspective on the insatiable demand for information on day trading and DAT. Here are some of my observations on that expo: There were over a hundred vendors in the exhibit hall promoting online and direct-access trading companies, training courses, technical analysis software, new computer hardware, and software. A few vendors had large flat screens with crystal-clear resolution to display the trading screens and real-time quotes. The exhibit hall aisles were packed all the time, even during educational sessions. The bookstore booth was fully stocked with hundreds of trading titles, and a huge number of books were sold on all aspects of trading. Vendor demos were given every fifteen to forty-five minutes with fancy screens and software, and giveaways were common. There was a big scramble to obtain a handout after a certain speaker finished his well-attended (crowd of seven hundred) session. When he announced at the end of the session that he had brought only a hundred handouts, a stampede to the podium occurred! Focus of This Book This book is different from most other day-trading books, which focus on how to make money day trading using a specific technique or methodology. Day Trading on the Edge instead focuses on what the potential day trader should know before putting even one dollar on the table. The risks of day trading are clearly delineated, since day trading by inexperienced individuals is a deadly game--financially and psychologically. In Day Trading on the Edge, you will learn: * How day trading got to where it is today. * What you need to know in order to trade from home, including the importance of selecting the best communications link to the markets. * Money management principles to reduce risk of loss. * How to go about getting the best trading education to reduce your learning curve. * A ten-step process for selecting a trading firm. * Specific findings from a fifty-seven-question survey of over two hundred day traders. * Viewpoints of two experts onthe importance of psychology in the day-trading equation. * Experiences and insights of seasoned traders, as well as the attributes that separate the successful traders from the many unsuccessful ones. * Viewpoints of CEOs of trading firms on the day-trading phenomenon. * Tax-planning tips for traders. * Abuses by day-trading companies uncovered by regulators. * A viewpoint on why you should not be a day trader. * Where day trading is headed in the future. After reading and absorbing the wealth of down-to-earth information in this book, my hope is that, if you plan to day trade as a career or just part-time, you do your homework, determine if you are really cut out for the tremendous market volatility--the fits and starts--and then carefully assess whether or not you believe that becoming a licensed "professional" trader is a realistic goal, one that you should pursue. Copyright (c) 2001 Leslie N. Masonson. All rights reserved.

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