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Cristina McEachern
Cristina McEachern
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Will Day Trading Face Scrutiny?

The day-trading industry has been thrust into the spotlight in the wake of the Atlanta office shootings by day trader Mark O. Barton and the results of a recent study conducted by the North American Securities Administrators Association.

The day-trading industry has been thrust into the spotlight in the wake of the Atlanta office shootings by day trader Mark O. Barton and the results of a recent study conducted by the North American Securities Administrators Association. The study’s results, which found that 70% of day traders accounts analyzed were not profitable and "were traded in a way that would almost certainly lose any and all funds put at risk in them," is making the industry question the future of day trading.

James Lee, co-owner of Momentum Securities and president of the Electronic Traders Association (ETA), defends the day-trading industry wholeheartedly. Lee questions the results of the study, which also cited problems in the industry including deceptive marketing, violation of suitability requirements, questionable loan arrangements and the trading of other customers’ accounts. He says the data studied is two years old and the industry has changed significantly since then.

SEE WALL STREET & TECHNOLOGY IN HISTORY for a look at the past 10 years in financial technology, below.

"The NASAA looked at one branch office of one company in one state two years ago," says Lee. "The study analyzed only about 8,000 trades, in a business that is now doing up to 300,000 trades per day, and drew inferences about an entire industry." Lee acknowledges that there are pitfalls to the day-trading industry, but says, "I do not believe they are anywhere near the degree in severity of what the report would have us believe."

However, TowerGroup director of the securities and investments practice, Larry Tabb, says, "Absolutely, customers will be more skeptical of day-trading practices in the future. The people with knowledge and experience and understanding of trading will gravitate more toward day-trading and the non-experienced traders will stay more on the Internet where they have a little more flexibility."

According to Tabb, the issue of stricter regulation of day-trading firms and suitability requirements will probably not be changing much in the future. "The SEC doesn’t have the right to tell any specific individual what they can or cannot trade using their own money or how quickly or slowly they can trade," says Tabb. But he adds, "What is enforceable are the margin issues, arranging loans among customers to meet margin calls, and collecting assets from others to trade."

Lee insists that the Federal Reserve Board, "clearly and unambiguously relaxed margin arrangement and lending rules in early 1997 to provide for just these very loans." As for the day-trading industry forecast, Lee says, "The industry is not going away, there’s too much capital committed and too much underlying success, it’s just a matter of modifying and improving things."

Wall Street & Technology in History

1 year ago

Straight-Through Processing: The Global Straight-Through Processing Committee had been working on a set of standards to achieve global STP. Critics, however, would contend that the committee was moving too slow, especially when addressing such issues as the euro and the Y2k problem. The flow of the markets themselves would set the standards, others say. Who would turn out to be right, and what would set the standards? See "Delay in STP Standards Leads the Industry in Different Directions."

5 years ago

It’s All in the Timing: Capturing the business from international customers was a priority for the world’s two largest futures exchanges, whose share of global futures volumes was slipping. Chicago’s futures exchanges were operating rival after-hours trading systems, while international alliances were being redrawn. The question remained as to whether the U.S. exchanges could boost liquidity in different time zones. See "Can Chicago Wire the Clock."

10 years ago

Weathering the Changes: There was a time when overseas investments meant facing additional and more complex kinds of exposure. But, with the advent of technology, new computerized tools and techniques were emerging to help reduce the risk of investing in the global village. The challenge of investing globally would lead investment professionals to seek out and develop new tools to manage the risk in their domestic and overseas portfolios. See "Portfolio Managers Weather Global Risk Management Challenges," print magazine, October 1989, p. 20.

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