“Washington State Securities Director Deborah Bortner emphasized the substantial risks involved in the electronic day trading of securities while testifying recently before a congressional committee. Thousands of investors nationwide take part in the practice of day trading, which involves attempting to make a profit from the daily fluctuation of stock market prices by making multiple trades each day. Day traders often operate from host firms which provide stock trading facilities and equipment to customers in return for commissions on each trade. Appearing before the investigative subcommittee of the Senate Governmental Affairs Committee, Bortner told the senators that day trading is a very risky strategy. Just how risky, she said, was shown in a recent audit of seven day-trading firm branches in Washington state by examiners from the securities division. All of the offices inspected were located in or near Seattle. The most striking finding, Bortner said, had to do with the profitability – or I should say lack of profitability – of day trading.Of the 124 trading accounts analyzed by her staff, Bortner reported, More than three fourths – 77 percent – of the accounts examined had net losses. The sizes of the losses incurred by the day traders were found to be substantial, with an average loss of more than $36,000.Nine accounts had losses of more than $100,000, Bortner said, the biggest of which was a loss of $641,000. Twenty-three percent of the accounts were profitable, Bortner added, with an average profit of around $22,000.Only two accounts had gains of more than $100,000, with one account showing a gain of $160,000. Bortner said that last fall, when examiners from the Securities Division conducted their audit of all day trading firms with branch offices in Washington, they also looked at advertising, third-party trading, and requirements for opening day-trading accounts. Although the lack of profitability was the most striking factor, the examination team also found questionable loan arrangements between customers. Bortner said her staff believes that these loan arrangements may circumvent margin loan requirements and, in some cases, may have resulted in even greater losses by customers. Other possible violations being investigated by her office include instances of day traders making trades on behalf of other individuals. Bortner says she is also concerned about unsuitable people being allowed to day trade. Each of the firms we examined claimed to require a minimum balance to open and maintain an account, Bortner said. For most firms it was around $20,000, but in some cases we found … new accounts with opening balances far below the minimum – as low as $6,000. Bortner told the subcommittee that the North American Securities Administrators Association supports a rule proposed by the National Association of Securities Dealers to increase risk disclosure to potential day traders and require firms to determine the appropriateness of potential customers. The congressional hearing comes on the heels of the filing by the Securities and Exchange Commission of suits against two day-trading firms and nine individuals. The securities dealers group has also announced actions against eight day-trading firms.”