They are the shock troops of the stock market, measuring gains in pennies per share, and time by the second.
These securities doughboys get plastered on a quarter-point move the wrong way, and charge forward to profits if a stock goes the right way by 12.5 cents.
In the industry, they are called day traders, but “minutemen” is probably more apt.
Meet Joe Belford, hunkered down by his side-by-side 17-inch color computer screens at Westwood Stock Trading Co., in the Oppenheimer Tower in Westwood.
He makes between 60 and 110 trades a day. Right now, he is buying: 1,000 shares of Qualcomm Inc. at 15:04:05, according to his computer screen.
A true cyberworld soldier, Belford clicks and shoots his mouse at 15:04:30, and his computer automatically records that he executed a sell on Qualcomm, at $46.75 up 12.5 cents from where Belford bought.
“I just made $125 in 25 seconds,” says Belford, tanned, dressed in a flannel shirt and shorts. “What’s that work out to per hour?” (It would work out to $18,000 an hour, although no one manages to sustain that kind of trading pace).
When asked what is the longest he ever held a stock, Belford briefly leans back in his chair, and tries to recall. “Like 10 minutes,” he answers, eyes returning to the screen.
Belford’s warren, the trading floor of Westwood Stock, is where computer technology, online services and the stock market meet. Belford is part of a growing army of day traders across the United States estimated from 2,000 to 4,000 lured by the chance to make money by the seconds.
The practice has been big on the East Coast and is now catching on here, as evidenced by Westwood Stock, and another firm, Go Trading Inc., both opening up in the last year.
Day traders have their genesis in the Nasdaq Small Order Execution System. The system, known as SOES, was started after the 1987 crash when many small investors complained they couldn’t quickly dump their diving stocks like the big boys could.
As a result, brokerages were instructed to trade orders of less than 1,000 shares through an automatic system. Improvements in computer technology have since led to a growing number of day traders.
West Coast day traders such as Belford bet their money from 6:30 a.m. to 1:15 p.m., when the market closes.
The banks of computers allow Belford and 11 other day traders at Westwood Stock all men, mostly under 40 to monitor dozens of brokerages, and to track the prices brokers are bidding or asking for stock, in real time.
There are several ways to make a quick buck.
The first is to determine the general market direction, and whether big buyers mutual funds are directing brokerages to accumulate, or dump, a particular stock.
In today’s market, the mutual funds are behemoths, with assets in the hundreds of billions. When they start buying, the market is going to move.
Day traders work off paired computer monitors, which feature color coded information, gobs of up-to-the-second data and graphs on selected stocks.
Upticks or downticks in price and volume can be assessed rapidly, with green for positive, and red for negative.
Thus, if a stock is trading up on good volume say, after a positive announcement on earnings the day trader knows it on a real time basis, at a glance.
A really big day for a day trader is one with a predictable market-moving event such as U.S. Federal Reserve Chairman Alan Greenspan’s recent announcement on interest rates. Because of Gallagher’s adroitness with the mouse, and his real-time monitoring of stocks, he will ascertain within seconds what Greenspan said, and what stocks are doing.
It may a take a minute or two before the market reacts. “That’s glacial,” says Gallagher.
Another day trader strategy is to simply arbitrage. If one brokerage is selling a stock at $5.25 and another is buying at $5.50, the day trader just buys and sells 1,000 shares making $250, minus commissions.
“Generally, we charge about $20 a trade,” says Albert “Bud” Kruger, president and founder of Westwood Stock.
With a dozen traders on the floor banging out trades by the dozens per hour, the commission flow is healthy, Kruger said. But he has spent heavily on state-of-the-art high-speed computers, and on-line equipment that keeps day traders competitive, he says.
Expensive data lines, not common phone lines, connect Westwood to trading forums.
In general, the day trader strategy is to take losses quickly, and keep them small. If traders are short a stock, and it goes up, they prefer to sell when it has risen only an eighth-point. Then the loss is only $125.
The temptation, of course, is to wait, hoping the stock will reverse itself. On 1,000 shares, and in a short position, the risk is great.
But on the long side, the risk is more in having capital tied up. “But, if you don’t sell your positions, pretty soon you will have a portfolio of stocks that went down after you bought them and you need income from trading,” says Kruger. So day traders will sell out a long position quickly, as well, says Kruger.
To an outsider, the trading floor is mysterious, with its murky nomenclature and trader antics. One trader with a baseball cap and a two-day stubble of beard suddenly calls out, “I got filled by Goldman Sachs. You might not want to sell yet, if Goldman is out there.”
By that, the trader means major New York brokerage Goldman Sachs is buying a certain stock, and other day traders in the stock might want to wait for another eighth-point move before selling.
Different traders have different strategies. Kevin Gallagher, 26, makes between 80 and 120 trades a day. His big kill of the day was for $1,700, made by shorting ADPT at $34 and buying it back at $32.25. “My goal is is to make $2,000 a day,” he says. “But I don’t want to do this for a long time, not beyond five years. You can’t keep up this pace. Then I want to buy a beach and retire.”
Right now, he is worried. He left one position open at the close. “That may come back to bite me,” he says.