The former chemist who went on a shooting spree at two Atlanta stock-trading shops yesterday was one of thousands of amateurs who tried to latch onto the soaring bull market, often by ditching their day jobs and flocking to day-trading firms that offered promises of riches and independence.
Day traders try to make money by rapidly buying and selling shares of stocks, often holding volatile stocks for just minutes at a time and selling much of their holdings by the end of the trading day.
An estimated 4,000 to 5,000 people -- mostly young men -- engage in day trading at small, cramped offices filled with stock-trading computers that have sprung up throughout the country, giving traders a base from which to bet their money and engage in market gossip. Thousands more trade at home with online accounts with brokerages such as E-Trade Group Inc. and Charles Schwab & Co.
Day trading is a relatively recent phenomenon, the result of market innovations that gave greater access to small investors, the introduction of powerful computers that could process trades quickly and the flow of information over the Internet. Many day traders, in fact, specialize in trading Internet-related stocks, accounting for much of the wide price swings in those securities.
But the shooting also comes as day trading has been in a slump, in part because Internet stocks have fallen sharply since April.
There are more than 100 day-trading firms, which typically require at least $5,000 to open an account. They offer a desk and a computer with high-speed access to the markets -- often without asking potential customers their trading history and often allowing borrowing that exceeds federal limits.
All-Tech, where five people were killed yesterday, is one of the biggest day-trading firms, with 24 offices, including one in Falls Church. Harvey Houtkin, All-Tech's chief executive, dubs himself the "father of day-trading" in advertisements touting his seminars, because his firm was one of the first to open and he wrote a watershed book on the subject. His site promotes day trading as an alternative for "people dead-ended or unhappy in their current field of endeavor and people with a desire to make trading their life's work."
At All-Tech and other shops that have opened across the country dot-matrix style, ordinary people pay more attention to the numbers on the screen -- showing the movement of stocks -- than the companies they're buying and selling. "We thrive on moves in stock prices -- whether it's up or down," said a doctor who day trades on the side and asked not to be identified.
It is that need for price movements that have driven day traders to Internet stocks, giving them 15 percent of the volume of the Nasdaq Stock Market, where many Internet stocks trade. Since April, many have been dispirited as the market has fallen.
Professional investors who predicted the slide covered themselves by buying "shorts" -- in essence, a bet that a stock will decline. Many amateur day traders simply buy stocks, expecting them to go up, and have been battered by the downturn.
Many people have flooded to regulators and the courts to try to recoup losses, but it is very hard to hold a firm responsible for decisions made by individuals. The National Association of Securities Dealers, which regulates many day-trading companies, has several arbitration cases pending against day-trading firms.
Yesterday, around the time of the shooting, NASD's board submitted a proposal to the Securities and Exchange Commission that would require day-trading firms and electronic trading companies to better screen customers and disclose the risks of trading. The proposal had met with fierce opposition from everyone from major institutions such as Merrill Lynch & Co. to tiny day-trading firms, arguing that if they are not recommending stocks, they cannot control what people do with their money.
"Ultimately, if people want to gamble, it's a free country," said David Bayless, former head of the SEC's San Francisco office. "Legally, they're going to lose."
James Lee, head of the Electronic Traders Association, said before the shooting: "To impose a further burden will hurt not only day-trading firms, but investors. There are no similar standards for people who want to gamble away their Social Security checks in the Foxwood Casinos." Four people were also killed by the gunman at an Atlanta office of Lee's firm, Momentum Securities.
SEC Chairman Arthur Levitt Jr. has encouraged investors to educate themselves better and admonished firms to disclose risk, but has stopped short of holding day-trading firms liable for their customers' behavior. He has also asked online firms to tone down ads that convey a false sense of potential wealth, alluding to ads depicting tow-truck drivers buying islands and teenagers flying new helicopters.
"Some argue that day trading is really nothing more than speculation," Levitt said in a recent speech. "Personally, I don't think day traders are speculating because traditional speculation requires some market knowledge. They are instead gambling, which doesn't."
Levitt said he was concerned that people "may be undertaking day trading strategies without a full appreciation of the risk and difficulty involved."
"It's Wall Street that did this," said James Marlen, an attorney who is representing two clients in arbitrations against All-Tech. "People think they are going to be loaded, and they have not been prepared for such a volatile market."
But many investors themselves want regulators to stay out of it.
"I am 56 years of age, have had two strokes, both double and single pneumonia simultaneously, am paralyzed on my left side, cannot drive a car, and have little for entertainment other than my computer and the stock market," one day trader wrote to the NASD, which had solicited responses to the idea. "Stop telling us to invest for the long haul. If we awaken tomorrow, we consider that the long haul."