The young man is now deeply in debt and living with his parents. The waiter told the Subcommittee staff that many people with whom he day traded knew as little about investing as he did. State regulators have charged that the day trading industry has engaged in widespread abuses, including deceptive advertising, trading by unregistered broker-dealers, and violations of rules relating to suitability and margin requirements. Although several day trading firms settled cases brought by state regulators, the industry as a whole strongly contests these findings. We will hear testimony on these general issues today, while the Subcommittee continues to investigate the practices of specific day trading firms.
Some critics argue that day trading creates excessive market volatility.
Other observers, however, contend that day trading increases market efficiency and liquidity, while still others believe that day trading has had little impact on the markets. By the conclusion of this investigation, the Subcommittee hopes to gain a much better understanding of the economic impact of day trading on the markets and capital formation. Finally, let me add that I convene this hearing highly skeptical of day trading, but not as an advocate for banning the practice altogether. State securities regulators have estimated that more than 70 percent of day traders lose money and only about 12 percent demonstrate the capacity to be successful. I find that troubling.