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At a Screen Near You
More and more Asians are jumping on the day trading bandwagon. Should you?
By DAN ERCK
In tales told about day traders at the watercooler huddle, the heroes are invariably ordinary folks who have become millionaires at the speed of light. A Singapore schoolteacher quits her job to play the market over the Internet, and now she's buying a South Pacific island. A Manila housewife makes a fortune flipping stocks from her living room. A Taipei retiree doubles his nest egg overnight using nothing more than a PC and a quick modem. Urban myths? Of course. But the allure of day trading is that they all could be true.
Sadly, however, there are few such real-life successes. Talk to experts, and they'll tell you horror stories about day traders who have lost their life's savings in the blink of an eye. For every quick fortune, there are hundreds of bankruptcies. That's the nature of the beast. By the strictest definition, a day trader is an online investor who makes daily stock trades. But some take the "day" in day trading too literally, rarely holding any stock longer than 24 hours. And when you expect to make profits in a single day, you sometimes get careless. Rather than study a company's underlying fundamentals, these investors scramble for some nugget of information (often nothing more than a rumor) before other traders catch on. The trick, then, is to scoop up shares quickly--and sell them for a profit only hours (even minutes) later, when word spreads. This is possible because online brokerages allow investors to do real-time trading. Thanks to the Internet, day traders can take advantage of tiny fluctuations in a share's value, swooping in when a stock is off a few cents and selling later in the day when the price bounces back.
That's what Brett Wilson hoped to do. A Cathay Pacific pilot in Hong Kong, Wilson began investing online a year ago after becoming fed up with shoddy treatment from his broker. "I felt like a small fish in a large barrel," he says. Then he discovered Boom Securities, Hong Kong's first online trading service. Wilson was impressed by the access to real-time information, and he could trade whenever he wanted--without the frustration of trying to get his broker on the phone. Wilson felt comfortable enough with his computer setup, a Pentium PC and a 56K modem, to try day trading. He made two or three trades a day for three weeks, but at the end of it realized he was losing out on profits. It was, he says, a "zero sum exercise--you suffer small losses but also enjoy small gains and they cancel each other out." Plus, day traders miss out on longer term run-ups in a share's price.
Case in point: Wilson's experience with Hong Kong's Union Bank. He bought the stock at $0.36 a share and sold at a cent higher soon thereafter, thinking the stock was headed for a fall. It eventually soared to around $1, which would have been a healthy return--had he not been so quick to jump the gun. Says Wilson: "You tend to want to do something, to trade just for the sake of it. You've got to control yourself."
Wilson is among the early converts to online trading in Asia. In 1998, according to management consulting firm Bain & Co., online traders made up only 1.3% of the 7.1 million Internet users in Asia outside Japan. In the U.S., 23% of people with brokerage accounts are already trading online; in Asia, only 0.8% do.
But Asia is likely to catch up quickly. The number of Internet users is set to explode: International Data Corp. predicts that by 2003 there will be 57.5 million Asians online (again, this excludes the Japanese). By then, industry experts say, the quality of investment information will improve; commissions and fees will plunge; and trades will be fully automated. Moreover, Asian investors trade more frequently than their counterparts in the U.S. and tend to be more speculative. Add it all together, and "day trading is going to be huge," predicts Boom managing director Mark Duff. You don't have to wait until then. The beauty of investing on the Internet is that you don't have to be in the U.S. to swap stocks that trade there. Online brokerages like Datek, E*Trade and Charles Schwab are good options for Asian investors who want to play American markets, and minimum initial deposits can be as low as $1,000. Trading in Asia is more complicated, mostly because the necessary Internet services are a generation behind those available in the U.S. Consider these factors when deciding whether to trade online:
Hardware
Hardcore day traders generally set themselves up with two top-end PCs, two or three monitors and the fastest Internet connection money can buy. Unless you're planning on making a dozen or so trades a day, this is all a bit unnecessary, save for the super-fast modem. Pretty much any computer purchased in the past 18 months should do.
Information
Access to real-time stock quotes, extensive financial data and up-to-the-minute news is like oxygen to the day trader. For people investing in the U.S. there are zillions of fantastic Websites, many of them free. But Asia is way behind. There are some good sites out there, like Interactive Investor (www.iii-asia.com), and new ones are popping up every day. But many charge high fees, and some lack the real-time quality that day traders thrive on. Plan on investing at least $50 or more per month on fees for top sites. Otherwise you may be flying blind.
Brokers
Here, again, the choices are limited in Asia--but they are growing all the time. Boom (www.boom.com) and Celestial Asia Securities (www.cash.com.hk) are your best bets in Hong Kong. Of Singapore's six online brokers, Fraser Direct (www.fraserdirect.com.sg) generally wins high marks from experts. Taiwan has a bit more variety, with more than two dozen firms jostling for cyberspace.
Fees
Before you set out, make sure to uncover any hidden fees and study the commission structure. Many firms in Asia don't, or can't, offer discounts to online customers. Commissions in Hong Kong and Singapore are tightly regulated (at least for the time being), and brokers don't have the freedom to offer discounts to the extent that they can in the U.S. Trading online in Asia is often no cheaper than picking up the phone and calling your broker.
Service
Test your online broker's customer service system, and make sure you can reach a real live person on the phone whenever you need to. It's a good idea to make a test call or two during peak trading hours to see how quickly you get a response.
Automated Trading
At present, few online brokers in Asia can offer this facility. Fraser Direct, as a member of the Singapore stock exchange, does. Boom, on the other hand, must funnel all trades through other brokers who have a seat on the Hong Kong exchange. (This should change next year, when the exchange plans to automate trading fully.) Under normal market conditions this doesn't affect things much. But during exceptionally heavy trading, orders can pile up, and your deals may get stuck in a queue while the market churns away--and the price you're expecting might change while you're waiting. A good defensive measure is to use limit orders--specify the price at which you're willing to trade (as opposed to market orders, where you pay the going rate).
Finally, keep in mind that day trading is serious work, even if you can do it from the comfort of home. Be disciplined, and plan on a steep learning curve. Experienced day traders say it can take up to six months to learn the ropes. Start small and expect to lose money initially. Manage the risk--and don't gamble more than you can afford. The bottom line: it's stressful, and, no, you probably won't sleep well. But who knows, the next story they tell around the watercooler huddle might be yours.
Illustration for TIME Money by Liliane Tsui
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