Seattle housewife Cynthia Bartlett put her handicapped daughter on the bus the other morning, fired up the computer next to her kitchen and began watching the Japanese yen descend against the dollar. She highlighted "quote" and typed in "yen" to place a $100,000 order with just $1,000 down -- and waited for a currency trader somewhere in the world to accept her offer.
"I thought about trading stocks, but with a child with Down's syndrome and the duties of running a household, I didn't want to watch 30 companies," said the 48-year-old former video producer. So, in January, she set up an online currency-trading account and entered a risky and unregulated world once reserved for major banks, corporations and marquee investors such as George Soros. She made $1,300 on that dollar-yen trade in half an hour -- and claims she's regularly in the black after heavy losses at first.
Fueled by the same technology and investment mania that landed the stock market in American living rooms, global currency is taking off as the latest rage in day trading. Thousands of ordinary people, ushered by new Internet-based businesses, are venturing into the $1.5 trillion-a-day world of foreign-currency trading, shaking up yet another bastion of Wall Street with the World Wide Web.
"The Internet has made it possible for little investors to finally play in this big league," said Josh Levy, a former Goldman Sachs currency trader who is helping launch a new electronic foreign-currency exchange in September. The New York-based system, called Matchbook FX, would be the first to link buyers and sellers of foreign currency without a broker.
Consumer advocates worry that the market could become yet another money-sucking vacuum for unsophisticated investors. Predicting the direction of currencies requires vast knowledge of world politics, news and investor psychology. There is no central quoting system like the New York Stock Exchange to assure small investors of a fair deal. Securities firms are not bound by rules that limit loans for stock purchases, so investors can quickly find themselves deeply in debt. And if an investor has a problem, there's no regulator to cry to.
"Because there is so little oversight, there is vast potential for fraud," said David Bayless, a lawyer who until recently ran the San Francisco regional office of the Securities and Exchange Commission.
In the past two years, an estimated 5 million people have thrown aside their brokers and traded stocks for themselves through online services. More than 200 day-trading shops that rent high-speed computers and desks to an estimated 4,000 to 5,000 people have also opened across the country.
The burgeoning day-trading business was thrust into the spotlight in late July, when Mark Barton, a former chemist, went on a murderous rampage in Atlanta after losing a fortune trading stocks for himself.
Until recently, the currency market was available only to huge banks, corporations and billionaires with the economics savvy needed to play the global money-swapping game. "There was a presumption that the person on the other side of the trade was a consenting adult aware of the risks," said Laura Weir, who runs the foreign exchange and investment desk at the New York Federal Reserve Bank.
But now, thanks to the Internet, it could be your plumber or your doctor at the other end of that dollar-yen trade.
"When I was on my honeymoon in Italy, I made one trade on the beach with my laptop and earned $5,000," said Glenn Cybulski, who was a construction worker until a few years ago.
Cybulski not only trades currency, he also runs a business teaching other people how to do it. For $5,000, Educational Trading Resources provides seminars, manuals and software that alerts traders when to buy and sell. With 300 people pumping about $1.4 million into his San Francisco firm last year, Cybulski said he plans to bring the concept national. He is about to launch an ad campaign to coincide with several new offices -- including one in downtown Washington early next year.
Dozens of Web sites offer news, chats and training, touting currency trading as the ultimate small business. "Have you been looking for something new to do with your life?" one new trading company asks on its site. "Would you be interested in a business . . . that allows you to work when you want, from wherever you want to be?"
These support companies coordinate with small brokerages that extend the software to plug people into foreign exchange markets around the globe.
These brokers also provide loans of at least 100 times what an individual puts down, meaning someone with $1,000 can trade $100,000 worth of currency. Some routinely extend leverage of 200 to 1.
Currency traders trade in lots of $100,000. Prices move by "pips" -- a pip being a point representing the equivalent of a hundredth of a cent.
Typically, customers are required to put down $5,000 to open an account. Trades cost roughly $16 each.
One of the best-known promoters of Internet currency trading is the Money Garden, which is based next door to the New York Stock Exchange. It is among many that offer one-month free demos, in which customers learn how to trade yen, euros, British pounds and Swiss francs.
But it gets tougher when real money and emotions start to roll. Money Garden is a market maker, just like a dealer in stocks traded on the Nasdaq Stock Market, meaning it trades with its customers, profiting on the spread between the bid and the ask price. It is allowed to switch the price after a customer puts in an order, as long as the investor is given the chance to reject or accept the new price.
Two years after extending its system to retail customers, the Money Garden claims to have more than 1,000 customers trading foreign currency on their own.
"If you're investing for 20 or 30 years, you should probably invest in stocks and bonds," said chief executive Oleg Tchouproun. "But a portion of your portfolio should be more risky -- perhaps 5 to 10 percent in forex."
The volatile forex market is composed of hundreds of banks and businesses around the world that buy and sell about $1.5 trillion worth of currency to one another every day, according to the Federal Reserve. By comparison, about $300 billion is traded daily on the U.S. Treasury bond market and less than $10 billion in the stock market.
Bartlett, the Seattle housewife, pays no attention to world news that might move markets. "There will always be a trader in Russia who hears the news a few minutes before I do," she acknowledged. Instead, she watches the numbers fluctuate and attempts to jump in before they change direction, much like a stock day trader acting on momentum.
Bartlett, whose husband attends medical school, uses the same "stop loss" technique used by professionals, programming her computer to stop currency trading after a certain loss. She typically puts the loss at $200. "If the market goes in the opposite direction of what I've predicted, I lose $200, not $1,000."
She opened her account in January with profits from a home sale, putting $5,000 down with a Michigan firm called Global Forex. "I wanted something to do at home, like other housewives," she said.