The day trader, symbol of the stock market bubble of the late 1990s, may be re-emerging as part of a surge in online trading that has lifted volumes by 42 per cent in a single quarter, according to brokers.
Day traders, aggressive private investors who quit their jobs and spent their days buying and selling minute-by-minute - often hiding behind macho pseudonyms such as The Crusader - were last seen actively trading the markets in early 2001.
They disappeared when markets crashed that year. Their tactics of buying technology shares, and "stagging" new issues - subscribing to new offerings and selling on the first day of trading - suddenly became obsolete. Many lost fortunes.
Volumes of retail trades, which hit 60,000 a day in the heady days of the boom in technology stocks, fell to 23,000 by February 2003. As even the biggest brokers struggled to do 6,000 trades a day, analysts declared that day traders were extinct.
Two-and-a-half years later, retail trading volumes have begun to rise again, hitting a peak of 50,000 a day on June 6th, and there are claims that the day traders are back in town. This time, though, they are likely to be much less visible, and much more restrained.
Mr Hans Georgeson, director of Barclays Stockbrokers, the biggest execution-only retail stockbroker in the UK, says the firm's volumes are up by more than 50 per cent since March. But he sounds a note of caution about the prospects for day trading.
"Day-trading volumes are extremely erratic," he says, arguing that there is no evidence that day traders' confidence in shares will be sustained, or that they will ever be the force they were in the late 1990s.
Like other brokers, Mr Georgeson calculates that the bulk of recent rises in Barclay's volumes comes not from day traders but from investors who trade regularly but usually less than once a day.
Some of these will be former day traders lured back into the market by the recent rally. Ten to 15 per cent of account openings at Barclays Stockbrokers are accounts being re-opened by investors who had closed their accounts a year or more ago.
However, many former day traders are thought to have switched their activities into other forms of trading - or betting - such as contracts for difference (CFDs), covered warrants and spread betting.
Dealers in these new tools have charted record interest. Barclays, which recently launched a CFD dealing service, says trades already exceed £1.8 million a day.
The benefits of these instruments - particularly spread bets - are that they are quick, efficient and allow you to bet on falling markets as well as hedge against, for example, falling house prices, say day traders. They can be riskier than buying ordinary shares because investors can lose more than their original stake. But that is part of the buzz.
Whatever the cause of the surge in online trading, it comes as a godsend to execution-only and online stock brokers, many of whom were pushed close to disaster by the slump in volumes.
There has been a wave of consolidation in the sector as companies have been forced to merge or sell out. "The price competition between all execution-only firms has been shocking, specifically online brokers without a telephone channel," says Mr Richard Bethell of Compeer.- (Financial Times Service)
