Though pressures in the stock market have dampened the enthusiasm of many investors, day traders are increasing their activity in the market and changing the investment industry as a result, according to a study released Tuesday by banking and brokerage firm Bear Stearns.
As part of the report "Day Trading and Beyond," the firm found that semi-professional traders -- those investors who made between 25 and 45 trades per day -- experienced a 55 percent rise in trade executions per account.
By comparison, the study said that the number of trades undertaken by those who are "active" market participants, or customers who make 15 to 40 trades per year, were down 37 percent. In addition, self-directed asset managers who made less than 15 trades per year have flattened their execution activity.
"Last year we were only first learning of the day-trading phenomenon," said Bear 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."
Updating Technology
As day traders continue to hone their Internet savvy, the report predicts that online developers will step up their offerings to meet the increased demand, 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 the challenge of moving beyond direct-access capabilities to tap additional revenue streams.
"Previously traders simply looked for fast, efficient execution," said Butte. "Now, as traders' demands intensify, they are searching for better trading technology."
Small but Strong
Butte added that "what could be considered a relatively small community of day traders has really emerged as a powerful force in the online investing world."
The report also found that "smart order routing" capabilities, which provide real-time or end-of-day information, are now helping to meet day trading demands. These systems assist traders by uncovering trading patterns and helping to pinpoint the best method of execution.
In the coming 6 to 12 months, however, the online trading technology sector may face a bout of consolidation as the pressure to improve trade execution and increase capacity grows, according to the report.
Downturn Hits
Despite the Bear Stearns report's optimism regarding the state of online investing, brokerage firms have been hit hard across the board by a pull-back by investors.
Last week, Ameritrade cited a downturn in the growth of online trading when it slashed 230 full-time jobs, or roughly 9 percent of the firm's workforce, as well as 100 temporary positions. The company also said that it expects to incur a larger-than-expected loss for the first quarter.
Nasdaq Impact
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 of hundreds of its top executives, until market conditions take an upturn.
Indeed, the tech-heavy Nasdaq Composite Index finished the year 2000 down 39 percent -- the largest decline in its history.
As a result, industry analysts have said that fourth quarter profit
estimates for nearly all the big name firms in the Internet brokerage
sector, which will be issued in the coming weeks, are expected to be
lackluster as well.
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