It all started with Wall Street, the movie rather than the place, when our hero Gordon Gekko strolls along a beach at dawn near his zillion dollar home in The Hamptons. As he watches the sun rise over the Atlantic, he calls his protege Bud Fox and smugly tells him that he has made his first million of the day, trading on the world's currency markets. A million in the bank and breakfast is still an hour away.
Oliver Stone intended cinema audiences to be dazzled by the technology at Gekko's finertips. Looking back, it seems almost nostalgic, as now the Internet allows anyone with a PC and high-speed modem to take their chances at making a quick buck on the world's financial markets. But it is also harder, riskier and more expensive than it appears.
When the share prices of many over-hyped technology companies crashed in March, the myth that anyone could make a fortune from day trading crashed with them. It seemed like a great deal. All you needed to do was buy a PC with a fast modem, set up an account with an online broker and start buying anything that ended in dot com. For many, it all ended in tears.
Day traders are not investors. They attempt to exploit the daily fluctuations in share prices to make a quick killing from minuscule price movements. This involves executing dozens or even hundreds of trades per day, buying low and selling high, hoping to time the market right. At the end of each day, a day trader will close all his positions and hope to have come out ahead.
Many day traders don't even know or care what the companies they trade actually do. Whereas a good investor takes a long-term view of a company, a day trader may hold a stock for a couple minutes or even seconds before selling. Though an increasing number of people are share owners and may fancy a flutter on the market, there are very few real day traders in Ireland or the UK. This is mainly because the market conditions are unsuitable for the high number of deals day traders require to make money. There are simply not enough shares traded on the Irish market to make day trading worthwhile, so many Irish day traders prefer the high volume and volatile Nasdaq market.
To start trading, you need to subscribe to real-time direct access dealing service that will provide instant price information and news updates. A number of online brokers such as Charles Schwab, Ameritrade and E-trade provide this browser-based service for a fee of around $150 per month. Online brokers charge between $15 and $25 per trade, depending on the size of the deal and the market.
You will also need a minimum of $1,000 to open an account. However, most day traders say starting capital of $50,000 is essential to fund the large number of trades required. Carlin Securities, which operates a number of day-trading centres in Britain, requires a deposit of $25,000 from their daily clients.
Even with the arrival of discount brokers such as Charles Scwab, the costs involved in day trading are significant and eat into profits. A study by the US Securities and Exchange Commission, which regulates Wall Street, calculated that a day trader who makes 50 trades per day with a mid-price broker ($16.70 per trade plus $150 per month service fee), must make $16,850 per month just to break even.
If you are still determined to join the Gekko club, the best advice is to get at least some training before you swim with the sharks. InvstIN Securities in Britain hold training seminars in London for would-be day traders. The price of a week-long seminar is £995 sterling. You can read the full course outline at www.investin.co.uk or else check out financial websites such as www.iii.co.uk. Good luck.