Rolling The Dice With A Click Of The Mouse

You can't miss the books. At Amazon.com, three of the top 10 best-selling business books over the past year were how- to manuals for budding day traders--those glamorous New Age financial buccaneers who make a living (and retire early) buying and selling stocks over the Internet.

Nor can you miss the ads. Scores of day-trading companies have sprouted up over the past year or two, offering discount commissions, office space and training seminars that promise to turn ordinary Joes into professional traders in three or five or eight easy steps. "Count your way to huge profits," trumpets Pristine.com in its Webvertisement, touting a trading technique "so simple" that "even a six year old can employ it." Experts will scoff, the ad warns, but "astute souls will have the last laugh. At the bank." The secret? Stocks generally in an up-trend tend to stop declining on the third, fifth or eighth day. "Why? Who knows, and who cares? It works."

Actually, most of the time it doesn't. Despite the hype, regulators say that nine out of every 10 day traders lose money. When Mark Barton stormed into two separate day-trading offices in Atlanta last week after losing more than $100,000, he thrust the burgeoning industry into the nation's spotlight--just as it's coming under scrutiny from securities regulators concerned that misleading advertising is luring novices into the business. As many as 5 million Americans trade online, but the riskiest subculture is inhabited by 20,000 or so who day-trade full time. These financial guerrillas, operating from home or rented offices, buy and sell securities at often blinding speed on small, minute-by-minute fluctuations in price. Typically, they will pony up $50,000 or so to get started, and they can easily win or lose $3,000 or more on any single trade. For an aggressive trader who churns through 30 or 40 deals a day, the stakes mount quickly--along with the tensions.

The lure of this new world is understandable. Visit Broadway Trading in New York, and you plunge into an American dream. Fledgling traders sit attentively in a classroom across the street from the New York Stock Exchange, instructed by the company's top traders. There is a carpenter from Vermont, an accountant hoping to escape his ledgers, a banker seeking freedom from bosses, a college professor changing careers. Sean Sztern, 23, a recent business grad from McGill University, has taken $20,000 in savings and given himself six months to learn the ropes. Sztern is more realistic than many. "There's no free money out there,'' he says. The head of the company, Marc Friedfertig, himself a former Wall Street trader, is equally blunt. "This is a risky business," he says. "We try to give people realistic expectations."

Trouble is, too many firms don't. Marc Beauchamp, spokesman for the North American Securities Administrators Association, considers the ads on the Web "reckless and irresponsible." Even before last week's massacre, regulators around the country were mounting investigations into the new industry. Several states have brought actions against day-trading companies within their borders, most recently Texas.

All-Tech Investment Group in New Jersey, whose Atlanta office was the site of one of last week's shootings, has come under more scrutiny than most. Last December, Massachusetts investigators accused the company of deceptive marketing and violations of state securities laws. The case was settled after the company paid the state $50,000. Chief executive Harvey Houtkin blames the episode on a "rogue trader." "We stand by our ads," he says, including his own claim to have "found the key to financial independence." All-Tech has other troubles. Fred Cook, a former trader at the company's San Diego office, paid $2,000 to attend a training session, then invested his retirement fund. He says he lost everything within 10 months and is now seeking to get some money back, arguing before a state arbitration panel that All-Tech deceived him and other customers into thinking that they could succeed as professionals. Of the 60 or so traders he worked with during his time at All-Tech, he says only two actually made money. Houtkin says he knows nothing of the case.

One lesson of Atlanta may be a sense of proportion. Contrary to the promise of all those cyberads, says Philip Feigin, executive director of the North American Securities Administrators Association, "there is no shortcut to easy street. In our money-crazy culture, where the Dow goes nowhere but up, we've forgotten how easy it is to lose money--and how painful that can be." People who dream of being day traders, Feigin concedes, don't want to hear such a message. But that, not the chimera of cybergold, is the real bottom line.