Fool Blog: Sympathy for the Retail Trader

By Tim Beyers

September 23, 2008

1 Recommendation

You'd think it was National Steal Profits From a Trader Day.

News.com reports that many angry traders were shut out of their accounts Friday as the market rallied massively. Several discounters were reportedly affected, including TD Ameritrade (Nasdaq: AMTD), Scottrade, and Zecco. It's less clear whether Fidelity, Charles Schwab (Nasdaq: SCHW), and E*TRADE (Nasdaq: ETFC) suffered similar slowness or outages.

"Ameritrade has lost my confidence, and cost me MONEY," one poster wrote at a Yahoo! Finance discussion board. "The prices spiked on several securities in my account, but do you think I could login and sell?????? By the time I got on, the prices had all retreated."

I sympathize, really. And yet I'm also compelled to ask: Who didn't see this coming? I'm talking about the volume, not the lockouts. NYSE Euronext (NYSE: NYX) and Nasdaq OMX (Nasdaq: NDAQ) saw trading on their namesake platforms reach 2.42 billion and 3.96 billion shares, respectively.

Let's put this into perspective. A normal trading day lasts from 9:30 am to 4 pm. That's six-and-a-half hours, also equal to 390 minutes or 23,400 seconds. Now do the math: More than 169,000 shares changed hands every second on the Nasdaq on Friday.

Of all those shares, how many blue-chip institutions were fighting for the prime cut, the best prices? Probably more than we can count, right? Right. So isn't it fair to say that, most of the time, retail traders were chasing scraps anyway?

I'm not saying that this is a fair system. Traders have a right to be outraged. Heck, I would be. But I also wonder if this debacle offers us more than a sob story. I wonder if it reveals the principal weakness of the trading game; it's stacked in favor of the big institutions.

So let's quit the name-calling. Friday wasn't really National Steal Profits From a Trader Day. It was National Steal Profits From a Retail Trader Day.

More bloggy Foolishness:

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Fool.com contributor Tim Beyers didn't own shares in any of the companies mentioned in this article at the time of publication. He hunts for the best of tech as a contributor to Motley Fool Rule Breakers, which counts NYSE Euronext among its holdings. Here's how to try this market-beating service free for 30 days. Get access to all of Tim's Foolish writings here.

Charles Schwab is a Stock Advisor selection. Nasdaq OMX is an Inside Value pick. The Motley Fool's disclosure policy would get some offline time if the powers that be at Fool HQ let it take a vacation now and then. No such luck.

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S&P 500	800.03	+6.32%
DJIA	8,046.42	+6.54%
NASD	1,384.35	+5.18%
Updated: 4:07:36 PM

S&P 500

800.03

+6.32%

DJIA

8,046.42

+6.54%

NASD

1,384.35

+5.18%

Updated: 4:07:36 PM

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment icon found on every comment.

On September 23, 2008, at 3:37 PM, erwinguys wrote: Report this Comment

FYI -- this article is inaccurate!
According to Keynote Systems Inc., a San Mateo, Calif.-based company that measures Web site performance and detected slowness in online brokers reported the following:
"Some online trading sites saw a slowdown from all the activity. In some cases Thursday, the sites were performing as much as 12 times slower than normal, ...
The company did not specify which sites performed the slowest, though it cited online brokerage E-Trade Financial Corp. as one that held up well.
Some trading sites' performance slowdowns meant they were operating at only 95 percent availability -- meaning 5 percent of users couldn't complete what they wanted to do. And in one case Friday morning, a trading site showed only 78 percent availability. But by later in the day, it and other trading sites with significant problems detected by Keynote were back to normal."
Just making sure the facts are set straight, carry on...
On September 23, 2008, at 4:03 PM, Wbud wrote: Report this Comment

I can't speak for AMTD & other firms mentioned as having system's problems Friday but I can speak for Schwab. We were online placing trades shortly after market open-the system was initially slow but quickly recovered. As far as the poster who lost his confidence & money - call AMTD and see what they'll do for you. I don't trade with AMTD but they seem to have a good reputation. If you do have a problem getting online to trade, pick up the phone and trade the old-fashioned way and note all the particulars of the trade: time, quote, holdtimes, etc. Noticed that quotes were out of whack that day, one placing a low-high range for the day of .01-2000.00, would seem there were overloaded systems beyond slow response times. As far as message board posts go, as a general rule, Danger Will Robinson. We all know there are people who post negative or positive comments to sway sentiment - if you have a concern or question go directly to the source: your brokerage firm. Do not rely on message boards for accurate information.
On September 26, 2008, at 4:23 PM, youcankma wrote: Report this Comment

Zecco sent an email out to all customers yesterday apologizing for the problem and saying they have already taken steps to fix the problem in regards to hardware/software upgrades.
I'm not sure if it was just a promotion or meant as an apology to all of the Zecco customers but for the entire month of October they are waiving all commissions on stock and options trades.

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Fool Blog: Sympathy for the Retail Trader

What do the unfolding financial crisis and ongoing market volatility mean for your money? The Fool's here with answers. Get the best of our daily commentary and analysis in your inbox simply by entering your email address in the box below.

Comments from our Foolish Readers

On September 23, 2008, at 3:37 PM, erwinguys wrote: Report this Comment

On September 23, 2008, at 4:03 PM, Wbud wrote: Report this Comment

On September 26, 2008, at 4:23 PM, youcankma wrote: Report this Comment

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