Day Trading (Speed and Trade Execution)

March 23, 2010

When it comes to day trading, those who make the most money are institutional professionals who get the news two minutes (or more) before you or I do. They pay $1500 per month to have a wire service feed them the news the moment it is released.

If that isn’t enough, they have direct access to call company management when they need to get specific information. They also have guys who sit around and do nothing but analyze stocks in every way imaginable using very expensive software programs.

In addition, they evaluate and decide faster than you or I. And, finally, they execute their trades faster than we can because they are not having to go through a discount broker. Their trades are executed directly and instantaneously through independent networks.

This speed of information and execution is available to day traders using super-speedy computers in day trading firms. It is one of the benefits they have to offer. Unlike online traders at home, most of whom are going through discount brokers, they are trading directly with market makers through electronic networks. So, in terms of speed, they are on a par with the big institutional traders.

What they don’t have available to them that the institutional establishments have are sophisticated programmed trading software programs that help them buy and sell automatically in huge volume. These programs use mathematical formulas to try and determine stocks that are undervalued. When they kick in, stock prices may be affected quickly and powerfully.

There are now web sites that offer speedy execution for the online day trader at home. To take advantage of these sites, you must have the necessary hardware and software: a speedy computer, a cable modem or fast digital subscriber line (DSL), and the required configuration of browser and software.

At the end of 1999, these day trading sites were still costly and not really worth the price unless you planned to do a lot of trading. If you did, they would give you “free” access for the equivalent of approximately 50 trades per month.

Remember that when it comes to short-term trading, every dollar that is lost in a trade is going to someone else. If approximately 88 percent of retail day traders are losing money, who is making all that money? The institutional day traders are making it, that’s who!

Individual day traders have their work cut out for them if they think they can compete successfully on a long-term basis against the likes of Goldman Sachs, Morgan Stanley, and the other large players or even smaller firms made up of seasoned professionals.

The fact that the odds are against retail day traders is not likely to stop growing numbers from trying. Only a significant and prolonged market slump would cut down the numbers of traders. And even then, as soon as the market recovered, many would return to try again.