Day traders still thriving despite Nasdaq's plunge

Discussion in 'Trading' started by DtSec, Mar 11, 2001.

  1. DtSec


    Day traders still thriving despite Nasdaq's plunge
    From BRIDGENEWS GLOBAL MARKETS, March 9th, 2001

    By Cynthia Vespereny New York, March 9 (BridgeNews) - The Federal Reserve's surprise rate cut Jan. 3 was a windfall for Garrett Bauer, who made $180,000 within minutes of the announcement by trading a handful of stocks at lightning speed.

    The 33-year-old Bauer is among thousands of day traders who could care less about the Nasdaq's nasty bear market. Give them volatility, or big price swings in the market, and they're on a magic carpet ride.

    "It always feels good when you make that kind of money," said Bauer, a quiet guy who makes On-Site Trading in Manhattan his second home after seven years of day trading.

    As soon as Bauer heard the Fed's news, he bought 5,000 to 10,000 shares each of stocks including Citigroup, Goldman Sachs and Providian Financial because financials typically benefit from lower rates. He also snapped up technology giant EMC Corp.

    Trading halts were imposed, with some stocks indicated to reopen up to 10 points higher. It was pure gold for Bauer, who sold as soon as trading resumed.

    WILD WEST SHOW Estimates on the number of day traders in the country range from fewer than 10,000 to about 50,000. They usually define themselves as disciplined market participants who trade intraday and don't hold positions overnight.

    "Those traders are still alive and well," said Harvey Houtkin, the day-trading pioneer who heads All-Tech Direct in Montvale, N.J.

    Nasdaq, whose volatility remains near record levels, still offers opportunity to make buckets of money, he said. It's those who tried day trading on a whim amid dot-com hype and the Nasdaq Composite's heady rise toward 5,000 that have vanished.

    "The reason most people lost money -- they had no discipline," Houtkin said. "It was a wild west show." Day trading accounts for an estimated 15% to 18% of Nasdaq's volume, while retail online trading through brokerages such as Charles Schwab and TD Waterhouse account for another 25%. Most day trading firms said they haven't noticed huge decreases in volume because of the bear market, but the opposite is true at online brokerages.

    "This has been a prolonged, drawn-out, painful market," said e-finance analyst Greg Smith of J.P. Morgan Chase. He believes it has scared most mainstream online investors into the hills, especially last month, when the Nasdaq fell 22%.

    "We expect that the downtrodden mainstream online investor was nearly dormant during the month with few, if any, reasons to trade," he said in a recent report. Average daily Nasdaq volume in February was 1.92 million shares, down 18% from January.

    'DAY TRADER LITES' John Barr, a 24-year-old day trader at Momentum Securities in Dallas, said he's still making money, but lighter volume makes his job more challenging.

    "When the volume goes down, movement in stocks goes down, the big swings," he said.

    The bear market requires a change in mindset because it's easier to jump in when stocks are rising, said J.A. McEntire, chief executive of Protrader.

    "As long as the market is active, it really doesn't matter which way the market is going," added McEntire, whose company has 19 sites serving about 800 day traders.

    Daniel Samson, who manages On-Site's Manhattan office, said his company is thriving, having added five sites in the past six months for a total of 27.

    "Business has actually picked up," said Samson, whose company expects to open another five outlets in coming months. It estimates business is up 5% to 10% over last year.

    "The strong have gotten stronger and the weak have gotten weaker," said James Lee, president of Momentum. Frequent online traders at the likes of Schwab "got creamed," said Lee, who refers to the group as "day trader lites." Lee said his company's commission revenue jumped 150% last year over 1999 and likely will rise more than 100% this year.

    "In the face of adversity last year we countered the trend," he said.


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    Cynthia Vespereny, BridgeNews, Tel: (212) 372-7205 Send comments to

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