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Day Traders and Financial Markets

As 1999 came to an end, the U.S. stock market posted another bull run characterized by large capitalization, with technology stocks leading the way. Over the past five years, according to Mike Mosser (1999), the NASDAQ has "led the charge in terms of percentage gain among the indexes, followed by the Standard and Poor's 500 and the Dow with the Russell 2000 lagging behind. Technology stocks are increasing significant in this bull market, and these have been traditionally highly volatile stocks. However, as Mosser (1999) has noted, some industry analysts believe that this sector could suffer from too much supply. Internet stocks benefited from the bull market partly because the demand for them far outweighed the supply. But that problem will be reversed through new initial public offerings (IPOs) and from additional secondary offerings from existing companies.

Some industry analysts also point to the role played by "day traders" - stock market players who typically do not go through a broker and make several transactions in a day - in fostering market volatility (Lacy, 1999). Most day traders make relatively small buy and sell orders, but these small amounts of stock add up quickly. NASDAQ is ideal for day traders because it is essentially a computer that connects to dealer terminals, enabling people to buy and sell via a computer. NASDAQ's small order system (SOES) was created to give orders of around 1,000 shares the same attention and execute these orders with the same speed that larger broker-generated orders have received.

Day traders, unlike traditional investors who rely on the market's long-term capacity to produce returns, buy stocks and sell them by day's end (Nicolova, 1999). Day traders thrive on the market's volatility, hoping to cash in on dramatic changes in stock prices during the trading day. Traditional investors and brokers worry that the activities of these traders adds volatility to an increasing...

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Day Traders and Financial Markets. (1969, December 31). In Retrieved 03:13, July 07, 2020, from