In the US, professional day traders have taken to playing the stock market from their homes and offices. The rewards are proving plentiful in the current bull market, particularly from the Nasdaq exchange where technology stocks are turning out major winners and losers on a daily basis.
While the majority of online brokerage accounts mainly comprise infrequent flutters, the more serious dabblers will trade twice a day on average. But the fast-emerging hardhitters are the online professionals.
According to the US-based Electronic Traders' Association, there are up to 5,000 online professionals. They are conducting trades around 35 times a day, and their daily trading totals are approaching $5.5 billion (€5.16 billion), or 15 per cent of the Nasdaq's daily dollar volume.
Typically, the professionals have opened their own trading accounts at electronic trading firms where they can link directly to the markets. One such firm, Tradescape.com provides direct access to stock exchange data through the Instinet network and its own proprietary system. This circumvents the traditional astronomical charges to buy a seat on the New York Stock Exchange, or pay licensed traders huge rental fees.
Established just 18 months ago, Tradescape now has 600 on-site professionals, who pay for the privilege of direct trading via a $1.50 commission per 100 shares traded. Tradescape's revenues have soared from $2 million to an estimated $46 million over this period. Now it has raised venture capital to acquire a rival firm, with an announcement expected within weeks. The key to Tradescape's success is the enabling technology behind the automated transactions, and the wider market access offered by the Internet. These developments circumvent traditional "routing" activity, where the decision to buy or sell a stock at a certain price always comes down to the market maker. According to Mr Omar Amanat (26), Tradescape's founder and chief executive, the company operates a system of order "executions", where intelligent software finds the best price for the online trader, eliminating the market maker's final arbitrary decision.
"Electronic communication networks have led to a complete disintermediation of the stockbroking process, and it is really only beginning to happen over here. I would give the London and Frankfurt exchanges just over a year to start doing the same," Mr Amanat says.
It is still not possible to trade electronically on the Irish stock market, nor is it possible to conduct real time transactions on other exchanges which offer electronic platforms. The Irish Stock Exchange (ISE) says it will move to electronic dealing by the end of the year, and general manager Mr Tom Healy anticipates immediate benefits. "Electronically-conducted transactions will be faster, and reduced human intervention should eventually lead to reduced costs. But there are still implications for the banks in facilitating realtime trading, where client accounts can automatically be debited," he says.
He adds that the average US investor is on a lower income and tends to invest significantly lower amounts. "The average portfolio is generally worth around $10,000, and the average trade is between $1,000 and $2,000. The Internet is proving attractive to these investors because the cost of a trade on a smaller investment is proportionately greater."
Mr Healy says it is uncommon to invest less than £5,000 (€6,349) in stock here, but he acknowledges that may be because it is the preserve of a privileged few. The stockbroking houses echo this sentiment. There is a view that the European culture of investing in the stock market is quite different from that of the US, and there are greater limitations.
"Anyone can get on the Nasdaq and start trading, but to trade Irish stock the transaction must be held in the name of a licensed broker," says Mr John Maguire, a private client broker at Bloxham Stockbrokers. "And then not everyone wants to trade and make up their mind through a machine, people still want to talk to somebody."
However, Mr Amanat says: "That's what they said to us a year ago. Merrill Lynch was saying the value of a broker is always going to stay in order to bear the burden of risk."
Now Merrill Lynch and Goldman Sachs are actively seeking technology companies and capabilities to boost their online offerings. Tradescape has come under attack from traditional US broking houses as they try to exert regulatory pressure on the new venture. However, Mr Amanat remains confident. "You can't regulate away technology. This is a natural development, so we are always going to be on the right side of the argument."
NCB Stockbrokers in Dublin has been quick out of the stalls in recognising the perceived threat or opportunity the Internet poses. Already it has an award-winning website in place, complete with market information and specialist information for registered NCB clients.
NCB broker Mr John Kielty says the company is adopting a staged approach, but it hopes to offer a real time dealing service to approved clients by the end of the year.
"We're not a 100 miles away from such a service now. We've developed online order-routing facilities, allowing NCB brokers automatically deal shares with market makers." he says.
"The next link is to provide that service to our customers. The technology is there, but we have to look at the issue of control and credit limits," says Mr Kielty.
It is likely there will be upper limits set on such trades, and only discerning investors known to NCB will qualify initially. Mr Kielty says NCB is focusing on the Internet as an information source primarily and adopting a wait-and-see approach to demand for direct trades. The resultant savings for home traders will only be proportionate to the volumes that go online.
The general view here is that the Internet is a new tool which serves only to broaden the market, rather than threaten the role of the traditional broker. Mr Kielty envisages a more segregated service developing, where brokers can concentrate on higher value-added services for their clients, like advice and portfolio management.
According to Mr Maguire: "It's like all the talk about online shopping. It doesn't necessarily mean people are going to stop physically shopping, the market has just got bigger."
