Day trading: time to take stock

Many investors were alarmed at the slide in the FTSE Techmark index which lost more than a fifth of its value in a month, whereas daytraders saw the falls as an unprecedented opportunity

Technology stocks took a battering this week, proving that they do not really have a magic power to turn investors - or their creators - into instant millionaires. But ironically it was technology that enabled some ordinary people to use the situation to their advantage and make quick returns on their money.

Technology stocks took a battering this week, proving that they do not really have a magic power to turn investors - or their creators - into instant millionaires. But ironically it was technology that enabled some ordinary people to use the situation to their advantage and make quick returns on their money.

These were the growing army of so-called "daytraders" - people who buy in and out of shares over the course of a day. They were equipped with exactly the same sophisticated software that traders from the City of London's most prestigious investment banks use when they buy and sell millions of pounds worth of stock every day.

Many private and institutional investors were alarmed at the slide in the FTSE Techmark index which lost more than a fifth of its value in a month. Techmark was in turn effected by another technology-heavy stockmarket, the US-based Nasdaq, which at one point fell nearly 1,000 points in a day and a half, recovering only half of that by last Thursday. Many of the daytraders who visit Britain's first daytrading centre on Cannon Street, in the City, saw the falls as an unprecedented opportunity.

"Volatility is a great opportunity for daytraders to make money," said David Whitehead, a frequent visitor to Cannon Street. He explained that, as daytraders move in and out of shares many times during the day, they can take advantage of rapid price movements.

He said daytraders follow one golden rule: Close your position at the end of the day. Unlike other investors, who take the risk of a price change overnight and were hard hit by the fall in technology stocks as a consequence, the daytraders dived in and out of the stock all day, but sold up at the close of play. Although fortunes were not made at the Cannon Street centre this week, one man made nearly £1,500 in a day and a half. One trader said people earn an average of £500 a day.

But Mr Whitehead, who also works for a sports magazine publisher, warned: "The current market is full of great opportunities but also great possibilities to lose money."

He said that he, as someone who began daytrading in January without a financial background, has played it safe. "A key word is discipline. You have to learn to set yourself guidelines for what you are prepared to lose, as well as a target that you want to make, and walk away if you reach that point."

Mr Whitehead joined the Cannon Street centre after attending a course run by its owner, Investin, the US company which has opened centres across America.

This week Investin gained membership of the London Stock Exchange, which prepares the way for daytrading on the FTSE in the near future, and it is the only company which has complied with the necessary red tape to get a licence for a daytrading centre in Britain. It is also aware that the practice has had a bad press, after the tragic case of Mark Barton. Mr Barton, a daytrader from Atlanta, Georgia, hit the headlines last year when he lost $100,000 through daytrading before he killed his wife and two children and then shot dead nine people from two stockbrokers firms.

Ian Peacock, chief executive for Investin in Europe, said: "We have had no [legal] cases against us. We let people trade to double what they have in their account but no more." Investin also knows many of its 150 users are not hardened dealers. "We monitor people's progress. If they look as though they are losing a lot we give them advice. We can suggest they go on a course, we have beginners as well as more advanced courses, or possibly try to spread their investments, rather than putting it all into one stock," he said.

Currently the majority of Investin's users have the software on their computers at home and trade over the Internet. The firm intends to open up to 10 other centres across Britain, including branches in Scotland, Manchester and Leeds, as well as a couple planned for the suburbs. The costs at Investin are £500 a month to trade from the floor, with a reduction of £200 if you make 300 trades. If you opt to trade online - which gives you access to exactly the same information, which is downloaded onto your computer - the service will cost you £200. This is fully rebated if you make 50 trades in a month. The cost per trade is between £10 and £7. Investin says this allows you to execute a trade in an eighth of a second - crucial to take advantage of the types of volatile prices around last week.

The firm hopes daytrading will be taken up enthusiastically on the LSE. "You have to pay stamp duty of 0.5 per cent in Britain, which brings down profit. But there is more opportunity to save money on the LSE too, as the spreads between buying and selling prices are greater here. If you go through a traditional broker they make the profit on this. If you trade directly, you do," said Mr Peacock.

But is this game really only for the frustrated red-braced brokers out-there who love the stock market and speak about it as though it is an unpredictable but wonderful creature?

Not according to Mr Peacock, who says: "People are becoming increasingly sophisticated investors. They are unhappy with traditional methods and want to use the Internet. They also want to have direct access to more and more information to make their choices."