With the stock market hitting new heights, people are finding new ways to make more money in it. One of the latest methods is a risky business that is revolutionizing high finance -- taking it out of the trading pit and putting it right in your living room. It's called day trading. Anyone with a computer and the right software can play the market. CBS News' Dan Rather filed this report for 60 Minutes II.
Using their personal bankrolls, they can buy and sell stocks in minutes, sometimes seconds. The rewards can be huge, but so can the risks. The result is less like Wall Street and more like the Wild West, where high stakes gamblers risk everything to try and make a killing.
Linda Carrington never knew excitement like this when she was practicing law. Linda is a day trader. Three years ago, she gave up her high-stress law career to make this a full-time living. She buys and sells stock every day from the comfort of her Miami home.
Using a laptop computer, Linda dials up her account with an Internet broker, then places an order to buy a stock. If her research pays off and the stock goes up, she will sell it. Not in a few years or a few months. In a few minutes.
The profits are a few cents on each share. Multiplied by thousands of shares, it adds up. Over seven million Americans now use Internet brokers.
Most play the booming stock market a few times a year. A growing number, like Linda, do it every day.
The man who created the blueprint for all this is Harvey Houtkin. He wants to open up electronic stock trading to everyone. "We've eliminated the broker from the equation," says Houtkin.
His method is special computer software that allows anyone to buy and sell dozens of times a day, avoiding the time it takes to contact a broker. "I'm changing an industry that needed to be changed," says Houtkin. "I've been a major proponent for market reform. I've stuck my neck on the line."
Houtkin calls himself "the father of electronic day trading," and he spreads his message through books and seminars. He urges would-be traders to use his technology to take their own personal seat on the stock exchange, without paying the high commissions that traditional brokers charge:
Big Wall Street brokers don't find Houtkin amusing. Some of them call him a bandit. They say their service and advice is valuable to customers who need professional help with the stock market.
"The only ones who have described us as a bandit has been the industry," Houtkin says. "You think the average brokerage firm wants to see the mechanism change? Do you know how much money the brokerage industry has made over the last number of years? How many billions and billions and billions of dollars?"
It's catching on. An estimated 15 percent of the daily volume on one exchange, the NASDAQ, is now attributed to day traders. And some of them are making it into a full-time occupation. Many can be fond at the New Jersey headquarters of Houtkin's company, All-Tech Investment Group. His is the largest of the day trading firms that have popped up all over the country.
Who is best suited to be a day trader? "Baby boomers who just finished 25 years on the job, who have money put away, who want to move to North Carolina, but there isn't necessarily a job for them in North Carolina," says Houtkin. "Retired people who feel that their brain is still intact, and they want to do something. They have the financial wherewithal. We're not saying you should take your last dime."
It does take a sizeable bankroll to get into the game. Houtkin's firm requires at least $50,000 to open an account. Newcomers spend another $5,000 for a month-long training course. They learn how to grind out profits of $80 or $100 on small spreads in stock prices. Sometimes as tiny as a sixteenth of a share. Houtkin suggests 30 trades a day. But unlike traditional brokers, he doesn't advise you on stocks. And he doesn't make any promises about how you'll do.
To be a successful day trader, Houtkin says, one must be disciplined, and willing to cut losses after making a mistake.
But it's not easy. "I don't want people to get the idea that it's a cakewalk," says Carrington. "Because it isn't. I've lost, oh, I don't know, probably close to $100,000 learning how not to lose money."
John Skiersch learned his lesson the hard way. A liberal arts major in college, he has never held a job paying more than $30,000 a year. Day trading at three different firms in Chicago, he lost the bulk of an inheritance worth $200,000 in less than a year. His training amounted to a few sessions on the computer and some highlighted chapters from Houtkin's book.
"You're competing against giant firms with unlimited capital," says Skiersch. "Towers full of MBAs, CPAs, PhDs, in economics, and traders with 20 years of experience. You think you're going to walk in from art school and beat those guys? Scalping second-to-second? No."
He wound up paying commissions of $120,000. Day trading firms may cut out the high commissions from traditional brokers, but they still charge for each transaction, and day trading involves a lot of transactions. "You might do 30-50-80 trades a day, at $40 or $50 a pop," he says.
But regulators want to know if the customer is making money, too. To Securities officials, day trading is like the Wild West. Massachusetts Secretary of State William Galvin is suing Houtkin's firm, charging the Boston-area branch with a variety of offenses, including fraud in the handling of customer accounts. He also accuses Houtkin of deceptive advertising, saying he targets potentially vulnerable people like senior citizens and laid-off workers.
"I used to regulate gambling in Massachusetts," says Galvin. "The rhetoric is often the same. The rhetoric is: This is going to change your life. This is going to make your drams come true. And the suggestion is somehow it's foolproof."
But it's not foolproof. In fact, state regulators checked the records of one bankrupt company, Block Trading, and discovered that 67 out of 68 clients lost money.
Now, Massachusetts wants Houtkin to open his books to show them how his clients are doing -- or risk losing his license. Houtkin says that thousands of people across the country make their living as day traders. Investigators say he has not been forthcoming with them.
Skiersch says that he became addicted to day trading. He stopped only when his two brothers intervened. Now he's thinking about taking legal steps to get some of his money back. "I was a sucker, he says. "It was calculated -- but I was a sucker."
Copyright 1999 CBS. All rights reserved.