It was at the center of a recent multiple homicide. It's receiving close scrutiny from the U.S. Securities and Exchange Commission (SEC). It's made millions for some, lost fortunes for others. Yet day trading continues to entice Americans--and, yes, even entrepreneurs who may be juggling online trading with running their businesses--to take a chance with their personal finances.
"There's a blurred distinction of what a day trader is, depending on whom you talk to," explains the SEC's John Nester. According to the SEC, those individuals who invest online are dubbed "day traders light"--they execute a lot of trades but don't have real-time access to the market information that traditional, offline day traders do. Why the distinction? Because if you can't trade in real time, you don't know the most current prices and changes--and that amplifies the risk of buying and selling. Still, these risks of trading online aren't stopping day traders light from choosing the Internet as their investment medium.
According to SEC Chairman Arthur Levitt, 25 percent of all trades made by individuals are done online. That's 7 million U.S. investors, up from not one Internet trade a mere five years ago.
"A lot of people try to trade on the Internet in hopes of making a quick profit on short holding periods, but they don't always understand the nuances of the decisions they make," says Nester, adding that many--if not most--online day traders have inadequate investment knowledge.
"Successful investing takes time," Nester explains. "To make intelligent decisions, you need to look at company fundamentals, learn about the industry, check to see if revenues meet expectations, and read about management decisions and analysis in the annual reports." In many cases, Nester adds, people wager large sums of money on companies they know nothing about other than their ticker symbols.
According to the Electronic Traders Association (ETA), there's a steep learning curve when you start trading online, and you can expect to lose money during your first three to five months of trading. And as with small businesses, the failure rate among day traders is high: approximately one-third. Consequently, you need to go into day trading armed with information, information and more information, advises Bill Lauderback, vice president of corporate affairs at Momentum Securities Inc., a firm that provides electronic access to securities markets and private trading systems. Before you start, you should ask yourself: Is it worth my time and the risk to my business?
Count It Up
How's your Social Security?
You may have your doubts about the solvency of Social Security, but you should still keep track of how much you're due. To help with the task, the Social Security Administration has begun mailing out annual Social Security statements to workers and self-employed people 25 and older who aren't already receiving benefits.
Look for your statement every year about three months before your birthday. Carefully check the earnings-history portion, which notes your income for every year in which you paid Social Security taxes. Be sure the numbers jibe with yours so you get what you're entitled to.
The statements also show how much Social Security income you can expect once you're retired. Not happy with the numbers? Make sure you've got a good retirement plan.
Gotta Have It
Check the warning signs. Are you addicted to the Net?
Strange as it may sound, there is such a condition as Internet addiction, and according to clinical psychologist Kimberly Young, the consequences can be unemployment, bankruptcy, divorce or worse.
Young, author of Caught in the Net (John Wiley & Sons) has found that roughly 5 to 10 percent of online users are addicted, and she believes this number could increase. Among the signs to look for are preoccupation with the Net, hiding or lying about your level of Internet use, trying to cut down usage but being unable to do so, and using the Internet to escape from other problems.
Acknowledging the irony of treating online addiction via her Web site (http://www.netaddiction.com), Young says the goal is not to stop usage, but to teach moderation. She provides counseling via e-mail, chat rooms, phone and office visits. She also works with businesses and recently began providing services for National Discount Brokers' online investors.
Center for On-Line Addiction, (814) 362-7045