Day-trading should be banned...

[Hooobi]

Well.... here I am just sitting around procrastinating as usual and I've been doing a lot of thinking today while watching the market tank (yet again) and listening to Bush try to reassure investors (yet again) that maybe one of the things that should be done to assist the economy is... ban day-trading.

Or maybe just tax the hell out of it.

Day-trading does nothing for the economy really, unless you count all the commissions going to the brokerages' bottom line.

In fact, it basically has the effect of exaggerating market movements. I'd hazard a guess that only a minority of shares traded on a typical day nowadays are purchased because someone actually likes a company.

I figure if people want to gamble, they should just go to the casinos... that's what they're there for.

Leave the market alone and let stock prices and company valuations find their happy place.

Stop taking advantage of those who are in it for the long haul and have palpitations as they watch theirretirement plans collapse...

Anyway, not really sure why I am rambling on about this.

And just for disclosure's sake... I used to be a broker at a day-trading firm, and a day-trader myself. It was quite an adrenaline rush at the time, but I really don't think, in retrospect, that it's good for the economy or the stock market. Maybe something should be done.

Your thoughts?

 

[amnesiac]

Does it have THAT much of a bearing on overall stock performance? I don't know the percentage of day traders compared to other investors..also don't day traders relinquish shares after only a short period of time?

Also I was under teh impression that it's a significantly deflated field in this post-dot-com investment world...

 

[tcsenter]

Day trading has no significant effect on the markets, nor would I suspect its even measurable. The number of day traders is rather small in comparison with all investment strategies, and most day traders (60%) lose money from an article I read in USA Today a while back. I see nothing "wrong" at all with short term investment strategies which try to capitalize off market swings and are not about confidence in any particular company's performance. That's part of the whole game! Yes, the stock market is a game, not unlike betting on horses. When you buy a stock, you are "betting" that stock will return something to you, regardless of the basis of your speculation.

Day trading is not unethical nor illegal but its part of the broad range of risk structure in commodities, currencies, and stock investment. It is a high risk strategy and should never be portrayed as anything but high risk nor promoted to the average investor. But I don't see why it should be banned simply because a lot of people aren't any good at it.

 

[coolVariable]

Most avarage Joe day traders loose many but you have to take into account the thousands of broker day traders ...
brokers don't pay a comission so it's fine with them if the make only minuscle % on a day trade.
Brokers should be banned from day trading

 

[Mister T]

please explain the difference between a day trader, a trader working for a bulge bracket doing proprietary trading and a hedge fund trader?

Also, please clarify, but the reason you want to strip my freedom of buying and selling shares in the open market is because you want to decrease the market's volatility, right?

Might I recommend choosing a portfolio with a lower risk/return profile so you can sleep easier at night

 

[Mister T]

Day-trading does nothing for the economy really, unless you count all the commissions going to the brokerages' bottom line.

Ever heard of liquidity and the concept of market efficiency?

 

[cavingjan]

For some reason day trading always brought up the image just before the crash of 1929 when a wealthy man (I can't remember whether it was Carnegie or not) discovered that his shoe shine boy had money in the stock market and determined it was time to take his money out.

Its not quite the same and nothing particularly bad about it. Just a gut feeling.

 

[GasX]

Hoobi - you didn't do your homework here. Such a law would accomplish nothing more than hindering the freedoms that Americans value (at least the day trading americans...)

 

[Miramonti]

Daytraders do more for the economy than the average Joe because most lose money, which feeds the pockets of other pro's, who then feed the economy.

Also, the real daytrading is done behind institutional trading desks and has been around forever. The major volatility people see across the market is from fund managers and institutions liquidating, etc. Charles Scwaab daytraders aren't moving the markets because if it was them selling off the market so its down 400 pts., then it would always rally back since they usually have 0 positions by the end of the day.

 

[Miramonti]

Or maybe just tax the hell out of it.

Hahahaha.

This is ironic because full-time daytraders don't pay self-employment taxes.

 

[slikmunks]

it's not just the day trading... it's the programmed trading... as good as it is for the person who's doing it, it's bad, cuz if a lot of people are doing it, once it drops below their set point, if everyone sells, that's gonna hurt...

 

[Hooobi]

Originally posted by: Mister T

Day-trading does nothing for the economy really, unless you count all the commissions going to the brokerages' bottom line.

Ever heard of liquidity and the concept of market efficiency?

Actually, from what I recall, the markets were fairly liquid before everyone and their dog started day-trading.

Don't get me wrong... I have nothing against day-traders and I also feel they should have the right to get their fix any way they choose. To be honest, I'll probably begin to trade fairly actively again as soon as I have the time. Although, definitely not the 20-50 round-trips per day that I used to do.

My point is, I simply don't feel that setting loose a large number of semi-compulsive gamblers, who are typically margined out far more than anyone needs to be, is a healthy thing for the markets.

Back when I was a broker and trader, around 1999, the markets were relatively good, the tech bubble was still growing and I worked at a office with a couple of the country's top individual day-traders. Other traders would fly in for a week just to watch these guys work. And those guys were good. Yet even they would still lose a significant amount of money on a regular basis, although they definitely were making money in the "long" run. They had the serious resources it took to ride out the slumps and swings, and they had the discipline to know when to not be in the market, and they were bright.

However, when I looked around me, 99 out of a hundred traders in there were either:
1) in their early 20's pissing away their inheritance money or some other windfall
2) in their 30's having made a quick buck (usually in tech) and slowly pissing it away
3) in their 40's - 50's, usually having had to earn the money they were pissing away. These were the ones who would start out a bit cautious, find out it was so much easier than all the toil they'd been they'd been wasting on whatever career (often these were doctors or other professional) and then jump in with reckless abandon. Inevitably, within a few weeks you'd would see them hunched over their keyboards with a frightening look on their face. Soon after, they would decide that working for a living wasn't so bad and slowly wean off of the day-trading bug.

Out of these three groups, the one thing that many had in common was an air of quiet desperation barely masked by the facade of machismo that we guys must maintain. Out of about a 120 traders in that office, I believe 2 were women. I guess that's because they have more sense. To be honest, those two were better traders than most of the men.

You typically didn't see anyone nearing retirement age in their because those people really appreciate what their money means to them and they know a gamble when they see it. They typically go to Vegas and play nickel slots to get their fix.

So you see, I have nothing against the traders or the act of trading. I'm simply stating that it may not be healthy for either the stock market, or the droves of day traders, to leave this area as loosely regulated as it is.

And I'm sure you know, MrT, that many things go on in these day trading firms that would not withstand any type of regulatory scrutiny.

With regard to transparency, liquidity, etc. There will be more than enough volume in the market to maintain liquidity and markets are becoming more and more transparent through technology, so I don't think you can really say that day-trading is good for the market.

Nor do I think we should deprive anyone of making a living in any way that makes them happy (and is legal). I'm simply saying that more regulation may be needed in this particular "profession" just as other professions are regulated, in order to protect the public as well as the individuals involved.

 

[Miramonti]

Originally posted by: Hooobi

Originally posted by: Mister T

Day-trading does nothing for the economy really, unless you count all the commissions going to the brokerages' bottom line.

Ever heard of liquidity and the concept of market efficiency?

Actually, from what I recall, the markets were fairly liquid before everyone and their dog started day-trading. Don't get me wrong... I have nothing against day-traders and I also feel they should have the right to get their fix any way they choose. To be honest, I'll probably begin to trade fairly actively again as soon as I have the time. Although, definitely not the 20-50 round-trips per day that I used to do. My point is, I simply don't feel that setting loose a large number of semi-compulsive gamblers, who are typically margined out far more than anyone needs to be, is a healthy thing for the markets. Back when I was a broker and trader, around 1999, the markets were relatively good, the tech bubble was still growing and I worked at a office with a couple of the country's top individual day-traders. Other traders would fly in for a week just to watch these guys work. And those guys were good. Yet even they would still lose a significant amount of money on a regular basis, although they definitely were making money in the "long" run. They had the serious resources it took to ride out the slumps and swings, and they had the discipline to know when to not be in the market, and they were bright. However, when I looked around me, 99 out of a hundred traders in there were either: 1) in their early 20's pissing away their inheritance money or some other windfall 2) in their 30's having made a quick buck (usually in tech) and slowly pissing it away 3) in their 40's - 50's, usually having had to earn the money they were pissing away. These were the ones who would start out a bit cautious, find out it was so much easier than all the toil they'd been they'd been wasting on whatever career (often these were doctors or other professional) and then jump in with reckless abandon. Inevitably, within a few weeks you'd would see them hunched over their keyboards with a frightening look on their face. Soon after, they would decide that working for a living wasn't so bad and slowly wean off of the day-trading bug. Out of these three groups, the one thing that many had in common was an air of quiet desperation barely masked by the facade of machismo that we guys must maintain. Out of about a 120 traders in that office, I believe 2 were women. I guess that's because they have more sense. To be honest, those two were better traders than most of the men. You typically didn't see anyone nearing retirement age in their because those people really appreciate what their money means to them and they know a gamble when they see it. They typically go to Vegas and play nickel slots to get their fix. So you see, I have nothing against the traders or the act of trading. I'm simply stating that it may not be healthy for either the stock market, or the droves of day traders, to leave this area as loosely regulated as it is. And I'm sure you know, MrT, that many things go on in these day trading firms that would not withstand any type of regulatory scrutiny. With regard to transparency, liquidity, etc. There will be more than enough volume in the market to maintain liquidity and markets are becoming more and more transparent through technology, so I don't think you can really say that day-trading is good for the market. Nor do I think we should deprive anyone of making a living in any way that makes them happy (and is legal). I'm simply saying that more regulation may be needed in this particular "profession" just as other professions are regulated, in order to protect the public as well as the individuals involved.

So you know more about daytrading than you originally led on, but still are as ignorant.

You didn't address how it is bad for the economy, which it isn't. It may be bad for an 'individual's economy', but if thats the case he won't be doing it long anyways, even tho he helped someone elses 'individual economy'. This is certainly not as bad as someone whos addicted to credit cards and is spending money they don't even have.

And its not about liquidity either, its about investment and growing your money. You can't say that "there were enough day traders before and there shouldn't be anymore". And the addictions a daytrader may have may be no different than someone who works in an office working 80 hours a week trying to get rich.

Don't kid yourself when you reference a real job. Is it a "real job" if you work for nike or someone else who exploits workers in southeast asia so you can make 50k+ a year? Atleast daytraders aren't exploiting anyone, and that is left for the corporations and the investment bankers and institutional trading, and so on.


/edit...added...and is it better for the economy to put ones savings away in a mutual fund and not touch it for the next 50 years...and then perhaps die with most of it unspent? I don't think so...as far as the economy goes, taking money out of circulation generally doesn't help it either.

 

[RSMemphis]

I would have to agree that day-trading only does limited damage.

Most of the damage is done by large (not small) investment houses, who funneled a lot of money into the market first, told everyone and their dutch uncle about the wonderful return rates. When enough people were on, they took the money out, parked it (loan bonds, etc.) and let the fund course tumble with the market.

Which means that a lot of people paid more for the investment fund than they will get in a while. Which flows directly into the fund managers' and other pockets.

 

[Hooobi]

Originally posted by: jjsole

Originally posted by: Hooobi

Originally posted by: Mister T

Day-trading does nothing for the economy really, unless you count all the commissions going to the brokerages' bottom line.

Ever heard of liquidity and the concept of market efficiency?

Actually, from what I recall, the markets were fairly liquid before everyone and their dog started day-trading. Don't get me wrong... I have nothing against day-traders and I also feel they should have the right to get their fix any way they choose. To be honest, I'll probably begin to trade fairly actively again as soon as I have the time. Although, definitely not the 20-50 round-trips per day that I used to do. My point is, I simply don't feel that setting loose a large number of semi-compulsive gamblers, who are typically margined out far more than anyone needs to be, is a healthy thing for the markets. Back when I was a broker and trader, around 1999, the markets were relatively good, the tech bubble was still growing and I worked at a office with a couple of the country's top individual day-traders. Other traders would fly in for a week just to watch these guys work. And those guys were good. Yet even they would still lose a significant amount of money on a regular basis, although they definitely were making money in the "long" run. They had the serious resources it took to ride out the slumps and swings, and they had the discipline to know when to not be in the market, and they were bright. However, when I looked around me, 99 out of a hundred traders in there were either: 1) in their early 20's pissing away their inheritance money or some other windfall 2) in their 30's having made a quick buck (usually in tech) and slowly pissing it away 3) in their 40's - 50's, usually having had to earn the money they were pissing away. These were the ones who would start out a bit cautious, find out it was so much easier than all the toil they'd been they'd been wasting on whatever career (often these were doctors or other professional) and then jump in with reckless abandon. Inevitably, within a few weeks you'd would see them hunched over their keyboards with a frightening look on their face. Soon after, they would decide that working for a living wasn't so bad and slowly wean off of the day-trading bug. Out of these three groups, the one thing that many had in common was an air of quiet desperation barely masked by the facade of machismo that we guys must maintain. Out of about a 120 traders in that office, I believe 2 were women. I guess that's because they have more sense. To be honest, those two were better traders than most of the men. You typically didn't see anyone nearing retirement age in their because those people really appreciate what their money means to them and they know a gamble when they see it. They typically go to Vegas and play nickel slots to get their fix. So you see, I have nothing against the traders or the act of trading. I'm simply stating that it may not be healthy for either the stock market, or the droves of day traders, to leave this area as loosely regulated as it is. And I'm sure you know, MrT, that many things go on in these day trading firms that would not withstand any type of regulatory scrutiny. With regard to transparency, liquidity, etc. There will be more than enough volume in the market to maintain liquidity and markets are becoming more and more transparent through technology, so I don't think you can really say that day-trading is good for the market. Nor do I think we should deprive anyone of making a living in any way that makes them happy (and is legal). I'm simply saying that more regulation may be needed in this particular "profession" just as other professions are regulated, in order to protect the public as well as the individuals involved.

So you know more about daytrading than you originally led on, but still are as ignorant.

geez, there's always one in every bunch who's insecure enough to make it personal...

You didn't address how it is bad for the economy, which it isn't. It may be bad for an 'individual's economy', but if thats the case he won't be doing it long anyways, even tho he helped someone elses 'individual economy'. This is certainly not as bad as someone whos addicted to credit cards and is spending money they don't even have.

One way in which it's obviously bad for the economy is the effect such exaggerated market volatility has on investor confidence. I'm sure you realize, simply by watching Bush's repeated efforts to reassure investors, that investor confidence is very important to maintaining a stable economy. How can anyone be confident about a market in which the stock markets swing wildly back and forth, often on a daily basis, with no rhym or reason? What kind of investor is going to want to dip his toe in those uncertain waters, much less jump in and rebuild his confidence? And, by the way, as far as spending money you don't have, have you ever heard of "margin"... that's basically what you're doing when you trade on margin and margin and day-trading go hand in hand.

And its not about liquidity either, its about investment and growing your money. You can't say that "there were enough day traders before and there shouldn't be anymore". And the addictions a daytrader may have may be no different than someone who works in an office working 80 hours a week trying to get rich.

Actually, liquidity is an important aspect of the market, I was simply saying that there was enough liquidity before and there will continue to be even if day-trading is more strictly regulated. Maybe you should look up liquidity...

And day trading is not the same as working in an office day after day. When you work in an office for 8 hours, you know what you will be getting out of it --> a certain amount of $$. When you day trade for 8 hours, you know what you will be getting out of it --> your fix, otherwise known as a variable reinforcement schedule... the same thing that makes gamblers into addicts and keeps people coming back for one more pull of the one-arm bandit.

Don't kid yourself when you reference a real job. Is it a "real job" if you work for nike or someone else who exploits workers in southeast asia so you can make 50k+ a year? Atleast daytraders aren't exploiting anyone, and that is left for the corporations and the investment bankers and institutional trading, and so on.

Some traders do work very hard at it, they take the time to study and understand what they're doing and thereby they increase their chance of being able to earn a living at it. Most traders spend a lot of hours at it and desperately try to convince themselves and others that by doing so, it is really a job and they are actually working...

Of course, this last statement applies mainly to those who do it for a living and not just the hobbyist.

<STRONG>/edit...added...</STRONG>and is it better for the economy to put ones savings away in a mutual fund and not touch it for the next 50 years...and then perhaps die with most of it unspent? I don't think so...as far as the economy goes, taking money out of circulation generally doesn't help it either.

What? do you think this money is going from the rich to the poor? Or even to you or your neighbor? Most of the money lost by these types of investors is being raked in by the large institutions that have all the patience in the world and can afford to squeeze the market until every every last trader out there trying to "ride it out" begs for mercy. And do you think these institutional investors then go cash out and spend their money in your neighborhood? They throw it back into the game and gain a bit more leverage...

Would you rather that everyone keeps their money in "circulation" for the next 50 years and then you and I and our children have to support them? There's still plenty of money in circulation.

 

[CrazyDe1]

No it shouldn't be banned...my dad was laid off about a year ago, and the only reason why we're not collecting unemployment and still able to survive is day trading. Ever since he was laid off he became a day trader, and theres days he loses big and theres days he wins big, but at least hes doing something about his money instead of sitting there and letting it drop. We made out pretty good on worldcom. If he would have just sat there keeping his money in what he had it in, his retirement fund would have gone to hell..he had 35000 shares of qwest, which he moved at like 20 bucks a share and started daytrading with the money. Hes gotten his retirement fund back to where it was a few years ago, he didn't get killed by holding onto his qwest shares, and he pulls in a few grand a month. Sure theres days hes down 10grand, and days where hes up 10 grand, but I'd rather have him day trading than collecting money off unemployment.

 

[Hooobi]

Originally posted by: CrazyDe1
No it shouldn't be banned...my dad was laid off about a year ago, and the only reason why we're not collecting unemployment and still able to survive is day trading. Ever since he was laid off he became a day trader, and theres days he loses big and theres days he wins big, but at least hes doing something about his money instead of sitting there and letting it drop. We made out pretty good on worldcom. If he would have just sat there keeping his money in what he had it in, his retirement fund would have gone to hell..he had 35000 shares of qwest, which he moved at like 20 bucks a share and started daytrading with the money. Hes gotten his retirement fund back to where it was a few years ago, he didn't get killed by holding onto his qwest shares, and he pulls in a few grand a month. Sure theres days hes down 10grand, and days where hes up 10 grand, but I'd rather have him day trading than collecting money off unemployment.

Well, banning it would be a little extreme, and I don't think that will ever happen. I do believe that it needs to be more strictly regulated.

For every trader who manages to eke out a living on it, there are two others who are pissing away their savings.

Good for your dad, I'm glad things are working out for him at the moment.

As long as you also have the discipline to know when not to trade, there's no reason you can't supplement your income by actively trading stocks. Unfortunately, many traders don't have that discipline, especially when they feel the pressure of having to make a living at it and thereby feel pressured to trade all the time. Shorting tech stocks has been pretty much a no-brainer over the last year or so. That will likely change in the future...

 

[PlatinumGold]

besides. i don't have the statistics, but wouldn't most day traders be working with penny stocks. options and futures? how much could you make on the higher priced stocks. not enough movement it would seem to me.

 

[DaiShan]

Oh jesus is that idiot talking off the cuff again? I thought they told him to shut up and be a puppet.

 

[Doggiedog]

Originally posted by: PlatinumGold
besides. i don't have the statistics, but wouldn't most day traders be working with penny stocks. options and futures? how much could you make on the higher priced stocks. not enough movement it would seem to me.

Of course you can make money on higher priced stocks. I still don't get why people think high dollar priced stocks are safer and aren't as volatile. 2 years ago, on my Bloomberg screen, I had about 200 stocks about 2/3-3/4 of which were in the triple digits. Now 2/3-3/4 of them are in the single digits. Absolute dollar price of stocks means zippo.

As for making money, traders don't care if the stock is $1 or $100 as long as the stocks move enough for them to make money.

 

[PlatinumGold]

Of course you can make money on higher priced stocks. I still don't get why people think high dollar priced stocks are safer and aren't as volatile. 2 years ago, on my Bloomberg screen, I had about 200 stocks about 2/3-3/4 of which were in the triple digits. Now 2/3-3/4 of them are in the single digits. Absolute dollar price of stocks means zippo.

As for making money, traders don't care if the stock is $1 or $100 as long as the stocks move enough for them to make money.

I never said they weren't volatile.

it's about leverage. buyer has a lot more leverage at $1.00 / share than they do at $100 / share. there is a greater chance for the $1.00 share to move $1.00 than there is for the $100.00 share to move $100.00. also, commission is usually a %age of the transaction. if stock moved 5% but your commision if 5% what's the point? lower priced shares are much more likely to move percentage wise. also if you read my post you should have noticed options and futures. If i wanted to bet on volatility of Higher priced stocks, i'd go with options. MORE LEVERAGE.

 

[Miramonti]

geez, there's always one in every bunch who's insecure enough to make it personal...

well, there's actually a couple already in this thread.

One way in which it's obviously bad for the economy is the effect such exaggerated market volatility has on investor confidence. I'm sure you realize, simply by watching Bush's repeated efforts to reassure investors, that investor confidence is very important to maintaining a stable economy. How can anyone be confident about a market in which the stock markets swing wildly back and forth, often on a daily basis, with no rhym or reason?

They were pretty confident when it was swinging back and forth on the way up during the 90's but here's some rhyme and reason:
Accounting scandels and the largest bankruptcies in the history of the US. Earnings restatement. The whole communications sector is practically going belly up from over-investment. Plenty of rational reasons to justify increased volatility...and none of these are due to daytrading.

The moves aren't exagerated, and the daytraders didn't put the markets at the record levels that they were at either.

Actually, liquidity is an important aspect of the market, I was simply saying that there was enough liquidity before and there will continue to be even if day-trading is more strictly regulated. Maybe you should look up liquidity...

And day trading is not the same as working in an office day after day. When you work in an office for 8 hours, you know what you will be getting out of it --> a certain amount of $$. When you day trade for 8 hours, you know what you will be getting out of it --> your fix, otherwise known as a variable reinforcement schedule... the same thing that makes gamblers into addicts and keeps people coming back for one more pull of the one-arm bandit.

There is lots of liquidity in the high caps but not much in the low caps. We need more day traders here and it would actually cut down on their volatility, which is much higher than what you see in the dow or nasdaq 100.

And there's nothing that says there shouldn't be risk in the economy or ones job. Some people can't handle a risky job but its not much different in that regard than sales. You work hard, and if you don't, you don't get paid. Although with sales, your selling something that the consumer probably doesn' t need anyways.

And if the people who started the company that you might work for didn't take any risks, the company probably wouldn't exist. Capitalism is all about risk, from the top down. You can ask your employers, or you can ask the former worldcom employees as well, everyone is taking a gamble everytime they spend money, or show up at work. Sometimes you get what you put in, sometimes you don't.

Some traders do work very hard at it, they take the time to study and understand what they're doing and thereby they increase their <I>chance</I> of being able to earn a living at it. Most traders spend a lot of hours at it and desperately try to convince themselves and others that by doing so, it is really a job and they are actually working...

I'm certain that this whole issue isn't about whether someone is working hard or not. If you were, you wouldn't be posting so much.

What? do you think this money is going from the rich to the poor? Or even to you or your neighbor? Most of the money lost by these types of investors is being raked in by the large institutions that have all the patience in the world and can afford to squeeze the market until every every last trader out there trying to "ride it out" begs for mercy. And do you think these institutional investors then go cash out and spend their money in your neighborhood? They throw it back into the game and gain a bit more leverage...

Would you rather that everyone keeps their money in "circulation" for the next 50 years and then you and I and our children have to support them? There's still plenty of money in circulation.

The big players are some of the biggest spenders there is. Anyhow this isn't about the merits of capitalism and how things make the rich richer, and the poor poorer, thats another worthy subject, but its not directly relevant to the merits of increased daytrading. The economy is built on investement and money changing hands. Whether you invest in building a car to then sell it, or buying a car yourself, these are both investments. To make a good investment, you also have to exploit an inneficiency. Traders, especially the 'new breed of daytraders' didn't invent this. The financial markets is just a purer form of what other capitalists are trying to do...increase wealth.

However I never said I was a proponent of capitalism in general tho. Thats a different story.

 

[Hooobi]

Originally posted by: PlatinumGold

Of course you can make money on higher priced stocks. I still don't get why people think high dollar priced stocks are safer and aren't as volatile. 2 years ago, on my Bloomberg screen, I had about 200 stocks about 2/3-3/4 of which were in the triple digits. Now 2/3-3/4 of them are in the single digits. Absolute dollar price of stocks means zippo.

As for making money, traders don't care if the stock is $1 or $100 as long as the stocks move enough for them to make money.

I never said they weren't volatile.

it's about leverage. buyer has a lot more leverage at $1.00 / share than they do at $100 / share. there is a greater chance for the $1.00 share to move $1.00 than there is for the $100.00 share to move $100.00. also, commission is usually a %age of the transaction. if stock moved 5% but your commision if 5% what's the point? lower priced shares are much more likely to move percentage wise. also if you read my post you should have noticed options and futures. If i wanted to bet on volatility of Higher priced stocks, i'd go with options. MORE LEVERAGE.

Actually, leverage is about how much money you control with a certain amount of capital. Thus, if you spend your $100 on 100 shares of a $1 stock or 1 share of a $100 stock, you have the same leverage. Either way, a 10% move in stock price will net you $10.

Options do allow you greater leverage because your $100 in options might give you a stake in $1000 worth of stock and a 10% move might net you $100, of course options are priced based on what the "experts" feel a stock will be doing over the period before expiration and the longer that period is, the higher a premium you will typically pay. Also, options have a limited life span so that adds to the risk as well because you could be left with nothing the day after expiration if you do not sell or exercise your options.

As far as a $1 stock having a greater chance of doubling than a $100 stock, that is true. However, that same $1 stock has a much greater chance of going to $.05 than a $100 stock has of going to $5. The reason for this is because the more epensive stocks are typically those of larger companies with larger floats and much higher trading volumes. This boils down to the fact that such stocks will typically be watched by a greater number of people and there will be much more info available on such companies, leading to a greater ability to value them fairly. Whereas a smaller stock typically has a much smaller float and lower trading volume and trades of only a few thousand shares can have the effect of moving the price significantly. For the larger stocks, many millions of shares would have to be traded, all on the same side, to get a similar move. Usually with the larger stocks there are enough people on the other side willing to absorb those trades, thereby minimizing the likelihood of any drastic price swings.

 

[Doggiedog]

Originally posted by: PlatinumGold

Of course you can make money on higher priced stocks. I still don't get why people think high dollar priced stocks are safer and aren't as volatile. 2 years ago, on my Bloomberg screen, I had about 200 stocks about 2/3-3/4 of which were in the triple digits. Now 2/3-3/4 of them are in the single digits. Absolute dollar price of stocks means zippo.

As for making money, traders don't care if the stock is $1 or $100 as long as the stocks move enough for them to make money.

I never said they weren't volatile.

it's about leverage. buyer has a lot more leverage at $1.00 / share than they do at $100 / share. there is a greater chance for the $1.00 share to move $1.00 than there is for the $100.00 share to move $100.00. also, commission is usually a %age of the transaction. if stock moved 5% but your commision if 5% what's the point? lower priced shares are much more likely to move percentage wise. also if you read my post you should have noticed options and futures. If i wanted to bet on volatility of Higher priced stocks, i'd go with options. MORE LEVERAGE.

Day traders usually don't pay %age commission. It's usually a few pennies per share or a fixed commission rate. Options would cost you a lot of money because there is a time value included in the option. When you buy an option, you are almost immediately in the hole because you have to overcome the time value. The only time it may not make a difference is if the option is way in or out of the money or it is close to options expiration day. If you want more leverage, go margin.

Another thing you also need to consider when buying penny stocks is the spread. Spreads are usually not as large %age wise on higher priced stocks than penny stocks.

 

[Hooobi]

Originally posted by: jjsole

One way in which it's obviously bad for the economy is the effect such exaggerated market volatility has on investor confidence. I'm sure you realize, simply by watching Bush's repeated efforts to reassure investors, that investor confidence is very important to maintaining a stable economy. How can anyone be confident about a market in which the stock markets swing wildly back and forth, often on a daily basis, with no rhym or reason?

They were pretty confident when it was swinging back and forth on the way up during the 90's but here's some rhyme and reason:
Accounting scandels and the largest bankruptcies in the history of the US. Earnings restatement. The whole communications sector is practically going belly up from over-investment. Plenty of rational reasons to justify increased volatility...and none of these are due to daytrading.

The moves aren't exagerated, and the daytraders didn't put the markets at the record levels that they were at either.

Actually, those scandals and bankruptcies are a good example of what too little regulation will do. Everything seems fine for the longest time because no one is really looking at it. Then, all of a sudden, you start thinking "why the hell wasn't anyone regulating this?" and by then it's a bit late.

And I would even say that day-trading contributed to the likelihood of such scandals and bankruptcies because, for a while there, nobody cared any more about company fundamentals and people stopped scrutinizing balance sheets so they could get a running start and hop on the bandwagon...