DAY TRADERS are suckers, losing out to the house percentage. That's not quite how the North American Securities Administration Association (Nasaa) put it, but that is the gist of its conclusion. Releasing its review of day trading to America's press earlier this week, Peter Hildreth, president of the association, said: "Day trading isn't investing, its gambling. There is no other word for it."
You may already be familiar with the idea of day trading - investors attempting to make profits on small changes in stock prices, buying and selling many times a day using equipment at offices specially set up for the use of private individuals. Even in the US, however, day traders are less than 1 per cent of all investors although, by some estimates, they account for 15 per cent of the daily volume on the Nasdaq-Amex exchange.
The phenomenon has already been thrown into relief by the murders committed two weeks ago by a day trader in Atlanta, Georgia. Mark Barton killed his wife, children and nine other people in two day- trading offices, apparently distraught over his trading losses.
The Nasaa analysis covered 30 randomly selected accounts at the Massachusetts office of All-Tech Investment Group over a seven-month period. The review showed that 70 per cent of the day traders lost money, that the firm used deceptive marketing and the promise of fast, easy money to sign up customers and that it encouraged questionable lending schemes to keep customers at the computer even when they did not have the cash to be there.
The number of people in the UK who may be called day traders can literally be counted on two hands. The market is different here. There is not the depth of private involvement in share trading and, of course, there is the issue of stamp duty, which boosts the costs of day trading in UK stocks. So why the commentary? Because it appears that day trading is coming. As the Nasaa report was being released, one US day-trading firm, Intercapital USA, announced its plans to open a day-trading centre in London early next year. Stealing a march on this is InvestIN Securities, which is launching its service next week.
Should you consider signing up? Not according to Hildreth: "To anyone out there considering day trading, I would say stop, think long and hard about it. Take stock of yourself and your personality. You need to have a strong stomach for risk and money you can afford to lose. For heaven's sake, don't do this with home loans, credit card advances or your... nest egg. You wouldn't take that money to Las Vegas; day trading is no different."
Which is not to say that you should not sign up for an online stockbroking account. Trading shares online as a private investor and being an all- out day trader trying to ride price differences of a few pence are two completely different things. There are now 11 web- based stockbroking services in the UK, with four more due to launch by the autumn. Indeed, Nasaa's equivalent in this country, the Association of Private Client Investment Managers and Stockbrokers (Apcims), itself believes in the power of the Internet. Angela Knight, Apcims' chief executive, recently said that she expects "all basic execution-only trading to be done on the Net in the future."
Robin can be reached at RobinAmlot@aol.com
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