|
PureBytes Links
Trading Reference Links
|
When I daytraded the NYFE back in 1997, I found that although my strategy
had a 25% edge (think 62.5% win, 1:1 payoff) *before slip/comm* after
slip/comm it was a breakeven deal at best. And that's not counting datafeed
/ hardware costs. Articles like this never really give the true impression
of just how difficult it is to consistantly make money daytrading. The
transaction cost barrier is the killer. Maybe the barrier in the equities
world has dropped so dramatically that it may actually be feasible. On the
other hand, I posted an article from the WSJ a few months ago about Block
Trading's (a daytrading outfit where you go to there office, use there
equipment, pay them a fee) demise indicating *not one* of their clients made
money. Be sure to be skeptical of casual statements of profitability.
Anybody can say anything. And our human nature is that the more we *want*
something to be true, the less objective - or should I say "the more
foolish" - we become in judging truth from fraud.
Scott Hoffman
Issaquah, WA
>From WSJ, Nov 23, 1998
----------------------------------------------------------------------------
----
The Remarkable Growth of Day Trading
Can Be Tracked to Pioneering Individuals
By MICHELE MARRINAN
Special to THE WALL STREET JOURNAL INTERACTIVE EDITION
Mike Rutigliano is a pioneer. But that's not how his colleagues at the New
York Stock Exchange looked upon him in 1988, when he left Wall Street to
begin trading from his suburban Long Island home.
"My decision was met with a certain degree of shock and surprise," he says,
adding that online trading was unheard of back then. "Who walks away from
what they perceive to be the pinnacle? It's not as if I went to Harvard or
Yale. I was just a kid who grew up on Long Island and played a lot of
baseball."
Mr. Rutigliano, 40 years old, didn't even go to college. Instead, after
graduating high school he worked in various advertising and real-estate
positions until 1979, when he launched a small heating oil-delivery and
service company, Omni Fuel Oil, in Lindenhurst, N.Y.
That same year, he took a job as a runner with Reliance Investors. In that
age before computers, Mr. Rutigliano spent his days traveling between
Reliance's offices and the floor of the New York Stock Exchange. He would
pick up floor tickets and match them to customer orders. His nights were
spent delivering heating oil and repairing oil burners.
After just a few months with Reliance, Mr. Rutigliano was promoted to
trainee, and then clerk. In 1983, at the tender age of 25, he became a
partner at San Francisco-based investment bank Hambrecht & Quist. At that
time, he sold his oil-delivery and service business to focus on his
investment banking job.
But, he says, by 1988, the job had become mundane. "It just didn't light my
fire anymore," Mr. Rutigliano recalls. "[Trading from home] is really for
the person who ultimately wants to take responsibility for his actions, good
or bad. It became a natural extension of my nature, which is to be
independent."
So, he took $200,000 in savings, set up a small office in his home and began
trading on his own. Between 1989 and 1997, he says his investments earned an
average profit of 40% to 50%. In 1997, feeling it was time for a new
challenge, he gave up day trading on his own to become a partner in the Long
Island-based proprietary trading division of W.J. Bonfanti Inc., a
traditional brokerage firm based in New York.
As the bull market raged on into the 1990s and technology improved, Mr.
Rutigliano's home-trading idea didn't seem so crazy after all. An estimated
3,500 day traders in the U.S. have followed in his footsteps. Most rent a
computer station at a specialized day trading firm. A small percentage --
experts have no exact figures -- purchase their own equipment and work from
home.
Day traders rely on small market fluctuations to turn a profit. They make at
least 10 large-volume trades per day and rarely hold positions overnight.
Most home-based traders combine this short-term strategy with swing trading,
which capitalizes on a stock's movement between its high and low trading
range.
That's how Reza Seyedin got his feet wet back in 1987, when he first tried
his hand at the stock market. An artist by training, he sold his
Washington-based graphic-arts company in 1984 and moved to Florida to paint
full time. But by 1987, he found himself forced to supplement his income in
other ways, so he turned to the stock market.
"I was doing very well, and then came the crash of '87," Mr. Seyedin says.
"It was kind of rattling. Although I did very well during the crash, it was
all luck."
The crash may have been unsettling, but it was the difficulty in receiving
real-time information that ended Mr. Seyedin's brief trading career -- for a
time. The dawn of real-time quotes, direct news feeds and online trading via
the Internet drew him back two years ago. Mr. Seyedin began studying the
market in earnest and buying trading systems piecemeal. He and his wife,
Linda, have been tracking technology stocks from their Palm Beach, Fla.,
home since January. So far, they have turned $15,000 in savings into
$100,000.
"There's technological improvements, especially in communications and
software that wasn't available two years ago," says Richard Roberts, an
attorney with Thelen Reid & Priest LLP in Washington, and a former
commissioner of the U.S. Securities and Exchange Commission. "As a result of
those technological improvements, individuals have determined that they can
trade along with employees of brokerage firms."
Resources
Day Traders of Orange County
www.worldwidetraders.com
Electronic Traders Association
www.electronic-traders.org
North American Securities
Administrators Association
www.nasaa.org
When Mr. Rutigliano began trading from home, online-trading systems were
nonexistent. To make a transaction he would call in to a voice-activated
system, a practice he tolerated for one day before he managed to obtain a
direct phone line to a trading desk. Mr. Rutigliano spent $3,000 on hardware
and software, and about $2,000 a month for direct data feeds. Five years
later, the same data cost him just $600 a month.
"Now, it's essentially free," he says. "If you're online with one of these
Internet trading companies, there's a tremendous amount of service and
features that you once had to pay for. The question becomes the timeliness
of it and the accuracy."
That's why most home-based traders bypass online brokerage firms such as
E*Trade Group and Ameritrade Holding Corp., he says. Instead, most
home-based traders purchase software that provide streaming market data,
charting capabilities, real-time quotes and portfolio management. They use
direct data feeds through modems and satellites.
As technology becomes more efficient, experts believe the number of
home-based day traders will increase. "I think the driver in growth going
forward is going to be bandwidth and performance, especially as we move to
cable-modem access and/or digital-modem access," says James Lee, president
of Momentum Securities Management Co. and head of the Electronic Traders
Association, both based in Houston.
Tim Bourquin agrees. The Newport Beach, Calif., trader says that his cable
modem makes day trading feasible. "I get really fast confirmations on my
trades because of that," he says. "I don't know if I'd put that much faith
in a dialup connection."
Mr. Bourquin, 29, worked as a broker for three years before deciding that it
wasn't for him. He eventually became a Los Angeles police officer. But by
1994, the markets beckoned once again. So, after paying about $4,500 for
hardware and software, $220 a month for a data feed, and $45 a month for a
cable modem, he began swing trading during the day before leaving for his
job on the LAPD night shift. In 1996, he started day trading with $5,000.
That's when he encountered one of the biggest challenges home-based traders
face: isolation. "People who trade from home have a tougher time because
there's a tendency to force a trade when nothing looks good," he says.
"There's nobody to talk to, so you have to discipline yourself."
Mr. Bourquin sought to fill this gap by starting Day Traders of Orange
County about 18 months ago. Most of the group's 240 members trade from home.
Today, nearly 100 of them gather every second and fourth Saturday to listen
to a speaker and to participate in an open discussion.
"The exchange of ideas is probably the most valuable part of the entire
meeting," says Mr. Bourquin, who says he's been so successful in his "day
job" that he plans to leave the LAPD to trade full-time by the end of 1999.
But experts warn that day trading is not for everyone. "It takes a lot of
money, it takes a lot of skill, it takes a lot of staying power," says
Philip Feigin, executive director of the North American Securities
Administrators Association. "It's for the most independent, the most
capable, the smartest and the most sophisticated. If it was so easy, more
people would have done it already."
|