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Day Trading: A Risky Business

No one knows for sure what made Mark Barton kill 12 people before taking his own life. One possible contributing factor: he was very involved in the stressful, risk-filled world of day trading. According to some reports, he had recently lost tens of thousands of dollars, possibly more.

Most people envision day traders as working from home and making a few relatively small trades a day. But there are also professional day-trading offices where people rack up big profits and big losses in a matter of seconds.

That was the kind of firm Barton had been involved with until April: All-Tech Investment Group.

Day traders use the increased access to the markets created by the Internet and online trading services. By logging on to high-speed computers linked to the Internet, day traders make their money by rapidly buying and selling shares of stocks on a minute-to-minute basis in hopes of turning a quick profit.

Much of their holdings are sold by the end of the day, at any one of an estimated 100 day-trading firms in the United States. Clients of day-trading companies are typically required to put up at least $50,000 to open a trading account.

Day traders have been around for a long time. But the growth of the Internet and changes in stock-market rules have given birth to thousands, if not millions, of day traders.

"In Atlantic City or Vegas, there - the odds are really against you. Here, I have two, 50/50. It's either going up or it's going down," says Dan Scrocco, a day trader. "It's a good bet."

Day-trading firms have come under fire recently from regulators who believe that the firms do not warn investors about the risks.

A vast majority of day traders were found to lose money.

"Day trading is not investing. It is speculating. It is gambling," said securities investigator Phil Feigin. "If you want to gamble, I suggest you go to Las Vegas, because the food is better."

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Massachusetts recently settled a legal dispute with All-Tech. Secretary of the Commonwealth William Galvin spoke to CBS This Morning Co-Anchor Thalia Assuras.

Galvin explained why the state had to shut All-Tech down.

He said the state felt All-Tech was not abiding by Massachusetts' securities laws.

"We were concerned about the advertising they were engaging in that was misrepresenting the risks involved in day trading. From our investigation, we discovered, at least in Massachusetts, most people who engaged in day trading lost money. That was not the representations that were being made," he said.

"Also, we were concerned about some of their practices where they were transferring monies between accounts to keep people at the table, if you will. There are minimums to participate in day trading," he added.

He said he's also concerned about day-trading firms in general.

Likening the practice to gambling or currency trading, he said that while traditional investing through a broker involves looking at the value of the investment being made, "day traders are making money off small flux situations in the stock and put at risk everything they have to do that."

Meanwhile, the Georgia secretary of state said her office is investigating Barton's day trading activities at Momentum Securities and All-Tech.
Remarks made by All-Tech's chief executive after the shootings made state securities investigators wonder whether Barton was investing alone or was trading for others, said Secretary of State Cathy Cox.

"If Barton was working with others, that leads to a formal investigation," she said Monday. "Day traders are only supposed to trade for themselves. Under the law, only competent, licensed people are supposed to trade for others."

The state Securities and Business Regulation Division has requested all documents and records involving Barton's trading at the two firms.