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With the explosive growth of online brokerage firms, it seems that practically everyone is trying to make money by trading stocks electronically. And as millions of Americans join the online trading craze, an increasing number of investors are tempted to try a more lucrative-and much more risky-way to cash in on the trend. They become day traders.
A day trader is an individual who buys and sells securities all day for a living. It’s that investor’s job to spot opportunities in the market and quickly capitalize on them. That may require "going long," buying an equity that appears poised to rise, or "shorting" a stock, selling it in what is essentially a bet that the stock will fall in value.
But there are huge differences between a professional day trader and the average person who updates his or her stock portfolio now and then through an account with, say, E*Trade or Ameritrade.For one thing, a typical individual investor can get into the online trading game with a personal computer and less than $100. Among professional day traders, the usual cost of entry is a hefty $25,000. Another difference: even active investors typically don’t tinker with their stock holdings more than twice a month, if that often. By contrast, day traders may hold their positions for a few precious minutes, purchasing or unloading as many as 50 stocks a day.
There is one other enormous distinction separating day traders from the so-called armchair investor sitting in front of their home or office PC. Professional day traders are engaged in a persistent, two-pronged battle: one against Wall Street, the other against themselves. For not only are day traders matching their wits against the market on a minute-by-minute basis, they must also fight to keep their own emotions in check-regardless of whether they happen to be making a king’s ransom or watching all their money go up in smoke.
As a result, being a day trader takes nerves of steel, often demands the patience of Job and-it almost goes without saying-requires some serious cash. In other words, if you don’t have the discipline or the dollars, don’t even try it.
INTO THE LIFE
Just ask Vanita Jones, 36, of Los Angeles. One year ago, Jones became a day trader. She did it for six months-working from July through December 1998. Her experience illustrates the thrills of day trading, the despair that sometimes occurs and the personal and professional lessons to be learned along
Jones is the kind of person who has always excelled at whatever she did. Before she started day trading, she was a successful stockbroker for Prudential Securities. Prior to her one-year stint at Pru, Jones worked in sales for eight years at a firm that sold messenger and attorney services to law firms. By the time Prudential recruited her, Jones had been promoted to vice president and was earning a six-figure salary.
At Prudential, Jones