The way individuals think when they invest has changed with the simplification of the investing process. This change in thinking has occurred almost exclusively through the exclusion of full-service brokers from today’s transactions. It is far easier now to access the market and be fooled by its pretty charts and seemingly endless potential for profit. Brendon Seeto, on get-rich-quick schemes, reminds us that “one of the major advantages of electronic trading is that it allows…access [to] the market in seconds” (6). As it stands, this is an amazing feat. However, because it only takes seconds to trade, it takes just as little time to lose an equally amazing amount of money. Still yet, people cherish the ability to do what they wish with their own money, when they want to do it. As Collins tells us about the freedom of individual choice that people have enjoyed all their life, “after buying cars, houses, and insurance this way, they’re now moving into investing” (11). As convenient as Americans enjoy their lifestyles, those who begin investing on their own generally don’t do the research to substantiate their trading strategies. Abell, Koppel, and Johnson inform us that “from 1992 through 1998, it has been estimated that eight out of every ten people who tried “day trading” lost money-sometimes big money” (35). The phrase “day trade” implies the quick buying and selling of securities that wouldn’t be possible without the use of the Internet. What these grotesque numbers are saying, therefore, is that newbie traders need more preparation before they attempt to “day trade,” or trade at all for that matter, using the advanced resources the Internet has to offer.
The US government owes it to its citizens to protect them from unwarranted risks, in this case with regard to the financial sector and regulating the online trading of securities. Having established that most newbie investors perform incredibly poorly in the market, and that the risks of trading have multiplied exponentially with the advent of lightning fast Internet capabilities, the US government should implement a system whereby all investors wishing to invest online in monetary instruments and financial securities are required to pass a comprehensive examination covering material related to the field, before they are allowed to do so. Collins points out that “some of these new electronic do-it-yourself investors really do know what they’re doing, often as a result of having moved through the ranks from full-service broker to discount broker to today’s online discount broker” (11). This is definitely true in the case of some traders, however the overwhelming majority of new online investors have no idea where to begin in the trading arena. Collins goes on to admit that “at the other end of the experience spectrum lie the new investors who only recently acquired enough assets to invest in stocks or mutual funds” (11). For this reason, these new investors are only just beginning to invest, and have no experience in trading with or without a full-service broker, or someone to look over their shoulder. Rarely is there a new investor that understands “the analysis of economic data, statistical forecasting, stock market psychology, investor requirements and portfolio selection,” as Goodchild and Callow point out require an adequate understanding by any person wishing to be even remotely successful in the market (76).
Works Cited
Abell, Howard, Robert Koppel, and Ken Johnson. The Sixth Market. Chicago: Dearborn Trade, 2000.
Carreon, Charles. "Mutual Funds." 401KInvestor.Net: Charles Carreon's Simple Guide To Investing. 9 Apr 2007 .
Collins, Victoria. InvestBeyond.com. Chicago: Dearborn, 2000.
Goodchild, John, and Clive Callow. Double Takes. Chichester, England: John Wiley and Sons Ltd, 2000.
Masonson, Leslie N. Day Trading on the Edge. New York: Amacom, 2001.
Pasternak, Melvin. "Technicals versus Fundamentals." Street Authority. 18 Apr 2007 http://www.streetauthority.com/terms/t/technicals.as>.
Seeto, Brandon C W. The Psychology of Electronic Trading. Singapore: John Wiley and Sons (Asia) Pte Ltd, 2004.
Thomsett, Michael C. Mastering Online Investing. Chicago: Financial Publishing, Inc., 2000.
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