Day Trading - The Impact Of Day Trading

THE IMPACT OF DAY TRADING

Day trading brought mounds of new money into the market. Moreover, this was money managed not by the traditional blue-chip investors or fund managers, but those looking to enter and exit a market quickly with only a short-term gain in mind. As a result, day trading was largely responsible for the wild dayto-day fluctuations in stock markets, particularly the Nasdaq, in the late 1990s and early 2000s. In effect, day trading altered the traditional theories about how markets work by dramatically boosting the degree of market volatility and transforming perceptions of risk exposure.

Among professional money managers, day trading was widely perceived as a form of gambling engaged in by uninformed amateurs. Still, this didn't always lead to calls for the abandonment of the practice. Gregory J. Millman, writing in the investment journal Barron's, compared day traders to a swarm of maggots, insisting that, while they may be loathsome, day traders do a good job of eating away at the market's "diseased tissue," those "inefficiencies that slow and sicken markets."

Such statements, though harboring much of the animosity still felt by traditional investment analysts, nevertheless reflect the general sentiment prevailing in the early 2000s that day-trading's existence was more or less accepted. Whatever one's feelings about the practice, day trading grew into such a force that, by the 2000s, investors of all stripes had little choice but to take day trading seriously, as its effects couldn't be denied. More positively, it was a growing source of income.