Day Trading Takes a Dive In crummy markets and hot weather, players head to the beach
The Investment Dealers' Digest : IDD; New York; Aug 20, 2001; Laura Santini (laura.santini@tfn.com);
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Abstract:
Day-trading volume - once a stalwart of the ailing trading environment - has begun showing signs of weakening, with many frustrated traders opting to take a few months off until business picks up again. With Nasdaq volume steadily declining, day-trading opportunities have become increasingly rare.
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Full Text:
Copyright Thomson Financial Services Inc. Aug 20, 2001
Day-trading volume-once a stalwart of the ailing trading environment-has begun showing signs of weakening, with many frustrated traders opting to take a few months off until business picks up again.
"For the five or six months that retail volume dropped off, day- trading volume was still there," said Barry Smith, director of sales and marketing for Watcher Technologies, a wholly owned subsidiary of Datek Online Holdings Corp. Watcher, like other so-called direct access shops, provides day-traders with the sophisticated systems they need to gain entry to real-time stock quotes and order execution.
With Nasdaq volume steadily declining, day-trading opportunities have become increasingly rare. Last Wednesday, for example, Nasdaq traded 1.46 billion shares, more than 50% lower than its 52-week volume high of 3 billion shares. Similarly, about one billion shares changed hands on the New York Stock Exchange the same day, also less than half of that market's 52-week high of 2.13 billion shares, according to Yahoo! Finance. Charles Schwab Corp., one barometer of the retail market, has been reporting steady drops in volume every month for June, July and August.
All that means many of the day traders who continued raking profits amid a decline in retail online volume are finding it increasingly tough to turn a profit these days. "Now we are hearing from our clients (mainly day traders) that they want to take the summer or one month off, which perpetuates the problem," Watcher Technologies' Smith lamented. At Terra Nova Trading LLC in Chicago, day traders are executing fewer shares per order, said Peter Stolcers, director of marketing.
Although comprehensive volume data for just day traders could not be gleaned by press time, anecdotal evidence suggests volumes may have plunged as much as 50% from early July, according to executives at direct access firms. What is unclear to these executives is whether the situation will reverse itself once summer is over.
Joe Cammarata, founder of direct access firm Sonic Trading LLC, said volume typically slows down during the summer's popular vacation months but that this is the worst decline he's ever seen. "A lot of people are getting out [of day-trading]," he said.
Cammarata and other executives attribute the suffering of day- trading volumes to low volume in the overall stock market, which has made it increasingly tough for previous tried-and-true day-trading strategies to remain profitable.
For instance, day traders routinely rely on high-speed technology to beat market makers on stock prices. Take a situation in which a market maker is offering to purchase shares at, say, $14.50. A day- trader might bid 1/256th of a penny ($.0039) higher through a faster electronic trading system, such as an ECN, grabbing the shares ahead of the market maker.
Last week, Keefe, Bruyette & Woods Inc. downgraded direct access firm A.B. Watley Group Inc. because of concerns over cash flow at the company and weaker-than-expected earnings. On the bright side, Keefe Bruyette analyst Russell Keene noted in his report that he believes long-term prospects of direct access technology remain positive. Indeed, last year online firms were scrambling to add direct access technology, either through acquisitions or joint ventures, so they could compete for intense day-trading volume (IDD, 10/9/2000).
That technology, it appears, is still attractive. T.D. Waterhouse Group Inc. said Thursday it would buy direct access firm R.J. Thompson Holdings for an undisclosed sum.
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