"New people get chopped up pretty easily," Kruger said. "We try to steer new people away from more-volatile stocks."
While most online investing at least involves a sheen of rationality, given that decisions are longer-term, day trading is all about catching a dip in a certain stock one minute and selling it on the rise a few minutes later. It is, of course, what brokers at major financial houses do every day. But professionals argue that day traders like Lambau are playing with fire.
"For most small investors, day trading is little more than online gambling," said Bradley Skolnik, president of the North American Securities Administrators Association, which found in a recent study that at least 70 percent of day traders "will not only lose, but will almost certainly lose everything they invest."
Skolnik sees some positive as well as negative signs emerging from the world of online and day trading. The stock market's oscillations of late seem to have tempered the unrealistic expectations associated with investing in general, and the glamour of day trading has worn off to a degree. At the same time, the continued growth in online investing has brought something of a day-trading atmosphere with it, he said.
"We've seen a rise in the number of people engaging in day trading online," Skolnik said.
Peddling real-time systems
That is good news for MB Trading Inc., an El Segundo company that sells software to online investors seeking the same kind of immediate ("real-time") access to the markets that both brokerages and day-trading firms have. Online investors using normal access systems were highly frustrated during the spring market plunge because those systems often have a lag period between the moment an order is placed and the time it is executed.
As a result, big online brokerages like E*Trade Group Inc. and Ameritrade Holding Corp. were flooded with calls from irate customers whose trades were delayed as the modem-dependant system got flooded.
"It's like every time you drive your car, you have to restart your car after every stop sign," said Steve Demarest, MB Trading's president. His firm sells direct access software that allows its customers to monitor the market like any day trader. Though small, MB Trading has 3,500 active clients trading stocks. As evidence of the potential for such software, online trading pioneer Charles Schwab Corp. bought one of MB's competitors in February for $488 million.
Like Landau, Demarest disputes the notion that day traders suffered any more than any other investor during the recent stock volatility. There may be fewer day traders right now as a result, but that's to be expected, he insisted.
"Actually, day traders i.e., people who don't hold (stock) positions overnight came out fine," he said. "It's the people who held on to their positions who got killed."
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