Though pressures in the stock market have dampened the enthusiasm of many investors, day traders areincreasing their activity in the market and changing the investment industry as a result, according to a study released Tuesdayby banking and brokerage firm BearStearns.
As part of the report “Day Trading and Beyond,” the firm found thatsemi-professional traders — those investors who made between 25and 45 trades per day — experienced a 55 percent rise in tradeexecutions per account.
By comparison, the study said that the number of trades undertaken by thosewho are “active” market participants, or customers who make 15 to 40 tradesper year, were down 37 percent. In addition, self-directed asset managers whomade less than 15 trades per year have flattened their execution activity.
“Last year we were only first learning of the day-trading phenomenon,” saidBear Stearns financial services analyst Amy Butte, who authored the report.”Now we are finding that semiprofessional traders continue to flourish,surpassing many other types of traders and defining their industry.”
As day traders continue to hone their Internet savvy, the report predictsthat online developers will step up their offerings to meet the increaseddemand, in particular by creating updated trading technologies.
While “first-mover” status is currently providing trading firms with a”crucial competitive advantage,” developers will soon be faced with thechallenge of moving beyond direct-access capabilities to tap additionalrevenue streams.
“Previously traders simply looked for fast, efficient execution,” saidButte. “Now, as traders’ demands intensify, they are searching for bettertrading technology.”
Small but Strong
Butte added that “what could be considered a relatively small community of day traders hasreally emerged as a powerful force in the online investing world.”
The report also found that “smart order routing” capabilities, whichprovide real-time or end-of-day information, are now helping to meet daytrading demands. These systems assist traders by uncovering trading patternsand helping to pinpoint the best method of execution.
In the coming 6 to 12 months, however, the online trading technologysector may face a bout of consolidation as the pressure to improve tradeexecution and increase capacity grows, according to the report.
Despite the Bear Stearns report’s optimism regarding the state of onlineinvesting, brokerage firms have been hit hard across the board by apull-back by investors.
Last week, Ameritrade cited a downturn in the growth of online trading whenit slashed 230 full-time jobs, or roughly 9 percent of the firm’sworkforce, as well as 100 temporary positions. The company also said that itexpects to incur a larger-than-expected loss for the first quarter.
Meanwhile, Morgan Online laid off 150 employees as part of the merger that formed J.P. Morgan Chase & Co. Additionally, Charles Schwab last month said it would temporarily stop hiring, and freeze the salaries ofhundreds of its top executives, until market conditions take an upturn.
Indeed, the tech-heavy Nasdaq Composite Index finished the year 2000 down 39percent — the largest decline in its history.
As a result, industry analysts have said that fourth quarter profitestimates for nearly all the big name firms in the Internet brokeragesector, which will be issued in the coming weeks, are expected to belackluster as well.