ILLUSTRATION BY CARL GREEN
How long have you been involved with the stock market?
I started investing in stocks in high school through an investment club.
By the time I was a junior in college, I was actively trading with my own
money. Professionally, I started out in late 1985 with a major firm, then
management. Ultimately, when I got tired of dealing with everyone else's
problems, I decided to create my own.
And that's when you switched from focusing on sales and management
to trading?
Pretty much. I wanted a lifestyle change, so I left the brokerage firm
and moved out to Denver, and I've been self-employed since. And for the
last five years, I've been trading electronically using a direct
access system.
You started your own firm?
Yes -- we are a securities broker/dealer, a member of NASD, and offer
a branch office system as well as an Internet-based electronic direct access
trading system. I have traded my own money since the start.
You're a busy guy. You also have a school?
I am president and founder of the Market Wise Trading School. We teach
a number of different methods of trading.
I would imagine the technology of electronic trading has evolved
quite a bit since you first started trading electronically. How has it?
Yes, the technology has evolved significantly. I started out trading
using the first system, SOES, which stands for Small Order Execution System,
and SelectNet. Now, with electronic comunication networks, or ECNS for
short, there are a number of other methods for making trades, like Island
ECN (ISLD), and new systems like Optimark, which are not ECNS but are revolutionary
trading systems that will change the markets. The industry has definitely
evolved.
There's a lot of talk these days about Internet trading. What are
some of the differences among the options available?
There's a real difference between online trading and true electronic
direct access trading (EDAT). Currently, there are a number of discount
brokerage services offering online trading. They have a variety of ways
of routing your order to the exchanges. They may take your order via E-mail
and then go to either a trade desk owned by the online broker, or they
route the orders through a broker's broker or stock wholesaler. It is referred
to as "payment for order flow." Or if they are not selling the order flow,
they are routing it through a trade desk. So online trading is not true
direct access trading.
What is true direct access trading?
In true direct access trading, you are going directly into NASDAQ. No
trading desk stands between you and the other side of the market. Nobody
is touching your order. Nobody is working the order flow. Nobody is selling
your order flow. As a result, with the use of ECNS, the trader has the
ability to buy at the bid, sell at the offer, and split the spread, and
those are valuable tools for arbitrage opportunities as well as buying
weakness and selling strength the way a market maker or specialist on the
New York Stock Exchange (NYSE) would do.
That's got to be quite an advantage.
It is. A lot of online traders believe that because they are trading
online, they are trading as directly as they possibly can. The attraction
of low commissions leads them into those systems, but they are not necessarily
getting the best fills available.
Without a solid education, technology will only help
you accelerate your losses. Trading is about making decisions based on
doing your homework and giving yourself a statistical edge. Many individuals
start out wanting to trade and have access to systems like electronic direct
access trading, but they don't want to invest in the education or do the
work. -- David Nassar
Excerpted from an article originally published
in the May 1999 issue of Technical Analysis of STOCKS & COMMODITIES
magazine. All rights reserved. © Copyright 1999, Technical Analysis,
Inc.
