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.