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>From the WSJ today...
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....According to the complaint, the firm's (Block Trading) marketing
materials describe the "unlimited earning potential of day trading," even
though only one of the Boston office's 68 accounts made money during the
year it was open...He said he didn't know whether it is true that nearly all
of the Boston customers lost money, but said the firm's marketing accurately
reflected the upside potential of day trading. "It would not be unreasonable
for a very good day trader to make half a million to a million dollars a
year,"
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Ha! Amazing. With all the hype about daytrading, where is the evidence that
anybody actually makes half a million dollars a year? Maybe if you start out
with 100M??
What about the one guy who made money you ask?
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Massachusetts regulators further allege that the company allowed Mr.
Baruchowitz to allocate trades to either his account or the other customer's
at the end of each day. His personal account was the only profitable one,
according to the complaint.
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Aha! The one guy who made money did it by assigning himself the winners and
his 'clients' the losers!
This industry is so full of BS about how to get rich quick...
Scott Hoffman
Issaquah, WA
Moreover, they allege, the firm encouraged customers to trade with borrowed
money -- and even arranged loans for them. A major lender, the regulators
said, was the father of one of the firm's executives.
Furthermore, regulators allege, one trader, Adam Baruchowitz, acted as an
unregistered investment adviser by trading the account of another customer.
That general practice is among several aspects of day-trading now being
examined by a task force of state securities regulators. Massachusetts
regulators further allege that the company allowed Mr. Baruchowitz to
allocate trades to either his account or the other customer's at the end of
each day. His personal account was the only profitable one, according to the
complaint.
Mr. Baruchowitz declined to comment. Christopher M. Block, Block Trading's
chief executive, said the firm didn't violate any laws. He said the firm's
computer system doesn't allow post-hoc allocations to separate accounts, and
that information about loan availability was spread through "word of mouth"
by customers, not through the firm's employees.
He said he didn't know whether it is true that nearly all of the Boston
customers lost money, but said the firm's marketing accurately reflected the
upside potential of day trading. "It would not be unreasonable for a very
good day trader to make half a million to a million dollars a year," he
said.
He added that customers were warned of potential losses, and asked to sign
waivers holding Block Trading harmless for any losses. "We never told them
when to buy and when to sell," he said.
Block Trading ceased operating last month because the industry had become
too competitive, Mr. Block said.
Day-trading firms, which offer individual investors the opportunity to do
short-term trading on sophisticated computer systems and collect a
commission on each trade, have become increasingly popular in recent years.
The idea is to allow individuals to take advantage of small stock-price
fluctuations. But regulators fear the firms may be duping inexperienced
investors into spending money unwisely on training courses and high
commissions.
The Boston example "shows the dark side of the business," says Philip A.
Feigin, who heads the six-month-old day-trading task force. Mr. Feigin,
executive director of the North American Securities Administrators
Association, an umbrella group for state regulators, adds, "regulators are
catching up on the issue, and I think you'll see more enforcement actions in
the future."
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