A block down from the New York Stock Exchange a large room full of mainly young men are pursuing an Internet age version of the American dream of rugged individualism: be your own boss; take (intelligent, calculated) risks; get rich.
These men are laboring at Broadway Trading LLC, one of a half-dozen or so of the better-known firms around the country which specializes in catering to serious day traders. Broadway has about 800 traders, most of whom operate in about a half dozen trading rooms in New York, Florida, and Georgia.
Both the risks and potential rewards of day trading are high, acknowledges Marc Friedfertig, Broadway's 36-year-old managing director. About 5 percent of his traders make over US$1 million per year, but only about 50 percent make money.
This is better than the mid-1999 assessment by the North American Securities Administrators Association (NASAA), which studied another day trading firm, concluding that 70 percent of day traders lose money. This jives with anecdotal evidence observed by industry watchers, some of whom peg the percentage of money-losing traders even higher -- up to 80 percent.
Is there a difference between what Broadway's traders do and gambling?
"We train them, give them skills," says Friedfertig. "Just giving people the technology to go out and trade against the professionals and the market makers is not enough. It's like sitting someone with no experience down in a racing car; they're either going to crash or blow it up."
Broadway's successful traders avoid crashing, at least most of the time, and in fact some garner national media attention (full disclosure: one of the half dozen or so press clips displayed in its reception room is an article, by this reporter, which mentions Broadway).
Friedfertig also has authored two books, "The Electronic Day Trader," with partner and co-author George West, and "Electronic Day Traders' Secrets," with West and Jonathan Burton. Some of the tales -- such as making tens of thousands of dollars in 15 minutes -- are mouth-watering.
Broadway's traders, some of whom no doubt are lured by such stories, are different from most people who trade through Internet brokerage accounts.
Broadway uses specialized Datek Online Brokerage Services LLC software that tracks multiple stocks in real time. It directly accesses Nasdaq's electronic execution systems and posts orders on Datek's private Island Electronic Communications Network, one of several popular ECNs. Most people who use Internet broker accounts have neither direct order execution, nor as much real-time information.
But as more and more Americans use Internet accounts to trade -- up to 2.9 million households, according to market researcher Forrester Research in Cambridge, Mass. -- the risk incurred by online trading, and the electronic trading hard core represented by full-time day traders, is coming under increasing scrutiny.
Anticipating new regulations, Broadway's disclaimer of day trading's risks is posted at www.broadwaytrading.com, and Friedfertig screens people who want to plunk down the $75,000 it takes to open up a Broadway account, urging them to take a week-long course in trading techniques.
In Broadway's main trading room in Manhattan, the atmosphere is at once casual and intense. Dressed as if for a game of softball, sitting shoulder to shoulder in long rows of desks, traders tap away at terminals, peer intently at displays of multicolored numbers, and shout expletives and words of encouragement.
On one typical trading day Gary Haar, like almost everyone else in the room, is dressed in sweatshirt, jeans and sneakers. But unlike most, he is over 40, and has a family. After running his own food distribution business for years, he quit last April. "I've always wanted to do this," he says.
Traders like Haar make money by moving in and out of stocks as they fluctuate in increments as small as 1/16 of a point (a point equals US$1.00), often making hundreds of trades a day. Like most Broadway traders, Haar has little use for information, like a company's overall strategy, dear to long-term investors.
Aside from those few traders who get rich using these techniques, is this type of trading doing anyone -- the vast majority of traders, the public companies themselves -- any good?
"Day trading adds liquidity to the market," Friedfertig says. "Day trading also helps stabilize the market, because we teach people to buy into weakness and sell into strength."
Industry watchers agree -- up to a point. Increased liquidity, the cash available for trading, certainly helped fuel the fortunes of many U.S. public companies in the 1990s. "To the extent that day traders exploit inefficiencies in the system, they make it more efficient," adds Kenneth Clemmer, an analyst with Forrester. "But when they're doing momentum trading, dumping a stock that's falling fast, they're just adding to market volatility but these are difficult points to prove, it ends up being almost a philosophical debate."
Those on the front lines, though, are not worried about philosophy.
Gary Haar, for example, has been a net loser up to now, but insists "I know I can do this, I know I can learn and be good at it." He's giving himself another month to achieve his dream -- or give up.