One of the insights you get from watching Wall Street is that there are two kinds of money in the world--other people's money, or OPM, and your personal money, which is the kind that really matters. When Wall Street traders or hedge fund managers hit a bad patch and drop a few million or a few billion dollars, they're losing other people's money. But if you're a day trader who hits the skids, you're generally losing your own money. That's vastly harder on the pocketbook--and the ego--than losing OPM.
Which brings us to the difference between your typical Wall Street trading floor and the growing hordes of day traders speculating in the market for their own accounts. And, possibly, to an insight or two into Mark Barton, the man who gunned down nine people at two day-trading firms' offices in Atlanta last week after first killing his wife and kids.
To be sure, the typical big trading floor looks like a white-collar madhouse. It's filled with traders, mostly men, looking at screens and screaming, into phones or at one another. You can practically see the tension shimmering in the air, because traders are generally betting millions of dollars at a throw, which means that even tiny market moves can make--or lose--big bucks. You can see why traders burn out quickly. But a bad day on a Wall Street trading floor is a walk in the park compared with a bad day for a day trader who's losing his or her own money. Professional traders play tricks on one another, tease anyone in range, and originate and pass along terribly crude jokes. You think it's a coincidence that some traders are already using a new term--"going Nasdaq"--to describe what Barton did last week? What other group of people could be so tasteless? Or so quick? What's more, these traders have bosses to absorb some of the pressure and help them keep their heads on straight.
By contrast, an individual day trader isn't part of a team and either sits in a noise-filled room at a day-trading house, utterly alone, or, even more isolating, sits at home staring at computer screens all day. And, while you can't blame computers and the Internet for what people like Barton do, it's obvious that interacting with screens and message boards and e-mail is more alienating than dealing with real people. People send crude, vicious e-mails, saying things they'd never dare say in person or even on the phone. It's easy to get so enmeshed in a cyber group of like-thinking people--Wall Street wanna-bes, racists, idealists, even journalists--that you lose perspective on the real world. A real danger for day traders, for whom reality bites every time they make a bad trade. Think of this lifestyle as a petri dish for neuroses. Any oddity you have--and we all have some--will be encouraged to flourish.
"Trading seems deceptively easy, but I like to say that it's the hardest way to make an easy dollar," because it takes incredible discipline and self-control, says Alexander Elder, a New York psychiatrist who specializes in the psychological stresses and challenges of trading. The fact that such a specialty exists ought to tell you something about trading.
Why is day trading so hard, aside from having to watch the market nonstop for seven hours a day? For starters, if you're trying to make a living by day trading, you've got to have a lot of money, or else be one of the best traders on Earth. Say you open a day-trading account with $100,000. How much do you need to live on? Probably at least $50,000. Which means you have to make 50 percent a year to cover living expenses. That's a lot more than most professional traders make. And if you trade a lot, it gets expensive, even at only $25 a trade at a day-trading outfit with top-of-the-line technology. As for trading volatile Internet stocks from home with a $7.95-per-trade online account, good luck. You press the button, but Lord only knows what price you'll actually get. In a world in which Yahoo can move $10 in an eye blink, a phenomenon I observed one day this spring, a good idea but a slow trade can cost you big time.
When the market was going straight up and Internet stocks were rising 400 or 500 or 1,000 percent a year, day trading was risky but profitable. Now, with even Net "blue chips" such as Yahoo, Amazon.com and America Online down 44 to 55 percent from their highs at Friday's prices, life is getting a little harder. For the would-be Masters of the Universe looking to enrich and empower themselves, day trading looked simple and profitable. Which brings us back to another Wall Street rule, even older than making sure you lose OPM, not your own money: There's no such thing as a free lunch.
Sloan is Newsweek's Wall Street editor. His e-mail address is email@example.com.