In the News

NEW YORK Standing before a hotel conference room packed with stock-market enthusiasts, day-trading instructor Jay Yu felt compelled to remind them about the odds. "No method is going to be a 100%," said Yu, the co-founder of a trading Web site, www.undergroundtrader.com. "This is a game of probability."

Fair enough. But while there is no such thing as a sure bet, this much is certain: Over the past year, stock-market conditions have improved markedly, lifting trading activity. Lured by the turn that markets took last year - major market indexes finished 2003 firmly in the black, reversing a three-year losing streak - many day traders have returned or stepped up their trading.

Andy Gill, a senior vice president at Charles Schwab Corp. (SCH), said the San Francisco brokerage firm's active-trader business has recently seen trading activity ramp up by 80% since the early part of 2003. At E*Trade Financial Corp. (ET), revenue-producing trades from the New York company's unit that caters to active professional traders rose to an average of 42,208 a day in 2003 from 2002's daily average of 20,876 trades.

The more-bullish mood was evident at the International Traders Expo, where Yu held his seminar. This trading conference, which began Sunday in New York and closes Tuesday, was launched during the waning days of the bull market in 1999. The Traders Expo soon became known as a gathering venue for day traders and trading-industry vendors, but the show suffered during the bear market as interest in trading declined.

The concept of day trading gained notoriety during the bull market that ran rampant through the late 1990s and peaked in March 2000. Many traders profited from small, intraday moves in stock prices, making their living through speculation and market swings rather than long-term investing. To its advocates, day trading is an exhilarating and potentially lucrative approach to the stock market; to its critics, it amounts to something akin to gambling.

As its popularity rose, and despite warnings from concerned Wall Street regulators, day trading attracted many market neophytes looking to make a quick buck. Often, day traders turned to buying stock "on margin," or with borrowed funds. But when the party ended and stock prices began to fall, many traders got blown out. Regulators also tightened the rules on day-traders' margin borrowing.

Though scarred by market losses and reeling from regulatory scrutiny, the day-trading industry has survived - albeit on a smaller scale. Some large players disappeared, such as Broadway Trading and Heartland Securities, which were absorbed by a third firm, run by Schonfeld Group.

"We were able to get them for a song," said the Jericho, N.Y., company's chief executive, Steven Schonfeld, who now is contemplating taking part of his company public. "We tried to be an industry consolidator."

Gruber said conditions for traders clearly have improved. Market participants in general, including not only day traders but also other groups of investors, are once again turning to margin. And some stocks have seen sharp increases in value. Gruber points to stocks such as Taser International Inc. (TASR), a Scottsdale, Ariz., maker of stun guns whose stock has multiplied from a 52-week low of $1.22 on Feb. 19 of last year to a 52-week high of $67.75 last week.

Gruber emphasizes the importance of doing one's homework - he tracks as many as hundreds of stocks, recording their symbols on a notebook and charting their progress on a computer screen.

"My goal right now is $5,000 a day" in trading profits, Gruber said. "Sometimes you make more, sometimes you make less, but that's what I look to make these days." Though earning $5,000 for a day's work may seem like a windfall to many, Gruber said profits were often higher when the stock market was near its peak. "Back in the peak you had opportunities to make $10,000 in two minutes," he said. "But you also had opportunities to lose $10,000 in two minutes."

To be sure, day-trading remains a risky business. There is no guarantee that last year's recovery will stretch deep into 2004. What if the stock-market stumbles? "If it happens, there's money to be made on the short side," Gruber said, referring to bearish "short" bets that seek to profit from a decline in the price of a stock.

Benefiting from the market recovery, the Traders Expo conference saw its attendance numbers improve this year. Traders Expo co-founder Tim Bourquin said the New York show had just under 5,100 attendees as of Tuesday morning, compared with the 3,700 people that attended the entire conference last year.

But Bourquin said that while interest in trading had picked up, the tone was different this time. "It's not the hysteria we had in '99 and 2000, when we had people come to the show ready to quit their job and trade for a living," Bourquin said. "There's excitement about it, but it's much more grounded." Conference attendees, he said, were interested in seeing what industry vendors had to offer, but are also more skeptical than in the past.

This dichotomy was exhibited at the Traders Expo, where Gil Castillo, who operates a trading-advisory service, www.wallstreetwar.com, was casting for customers. Although Castillo only had about 10 seats, people crowded around his exhibit booth to hear him. A total of about 25 people were gathered at the booth at one point late Monday afternoon to attend one of his day-trading presentations.

The crowd hung on Castillo's words. But at one point, Castillo was quizzed by a prospective customer on what he could expect from his service. After some back and forth, Castillo told the man that while the service was valuable, he couldn't promise that it would make him rich. "I'm your best friend if you make money, I'm your worst enemy if you lose money," said Castillo. "I really can't guarantee you anything."

(Gaston F. Ceron is a special writer covering the securities industry for Dow Jones Newswires.)