Eyal Shahar simply wasn't the type of person who could stand being a passive investor, just putting money into an individual retirement account (IRA) or 401(k) and expecting good things to happen. After a successful stint as a diamond importer, Shahar decided to sell his business in 1990 and open a day trading company where he worked with several traders to invest the capital he had accumulated through the sale of his import business.
Naturally, Shahar wanted the traders -- who earned a cut of every dollar they made -- to be as profitable as possible. So at the end of each trading day, they gathered together and shared what happened; those who did well explained how and mistakes were identified by those who hadn't fared as well [source: Harkey].
This collective learning forum worked perhaps too well, since many of the traders Shahar hired left to invest their own money. However their leaving led Shahar to an insight -- and a new business, the Online Trading Academy, which Shahar founded in 1997 in Irvine, Calif. "What he concluded was he's better at teaching people how to trade than running a day trading floor," says Tony Harkey, the vice president of marketing at the Online Trading Academy. "So he decided to change the business and focus on educating the average individual investor or trader how to trade like a professional."
Thus the Online Trading Academy was born, a business that has grown from one brick-and-mortar location in California to 38 locations around the world -- including cities like Vancouver and Toronto, as well as Singapore and Mumbai -- with plans to expand to Jakarta, Indonesia and Hong Kong [source: Harkey].
Each location is an individually owned franchise that receives support in the form of marketing and other services from corporate headquarters in California. Using the original lessons generated from the teaching sessions at the end of each trading day as the foundation of its curriculum, the Online Trading Academy offers a wide variety of courses in trading different financial instruments, such as options, foreign currency and stocks. The company has offered its instruction on how to trade like a professional to around 20,000 students -- many of whom express great satisfaction with what they've learned -- though both the Securities and Exchange Commission (SEC) and other investment professionals urge great caution to individuals considering trading, warning that losses can be steep and quick (more about that later).
Keep reading to find out exactly what trading is -- and isn't.
What is trading, anyway?
For many people, the guiding principle of successful investing is "buy and hold." The logic behind the strategy is basically this: The market for stocks, bonds and other financial instruments is inherently volatile over the short-term, which means that investments can fluctuate in value from day to day and week to week in such a way that those movements can expose someone buying and selling over a truncated timeframe to substantial risk. Those who advocate a buy-and-hold investment approach, however, argue that long-term investing allows investors to take advantage of the overall historic trend upward in the market while avoiding the gyrations and risk apparent in the short-term movements of the market.
Active investors, on the other hand, see an opportunity for profit in those short-term movements. Rather than purchasing a mutual fund, which contains a basket of securities, and holding it for a long period of time, active traders buy and sell individual financial instruments with the belief that they can anticipate whether they will go up or down, thus enabling them to profit from that movement. The concept is that it is possible to gauge market trends in such a way that allows individual investors to make larger profits than would be possible from using a buy-and-hold approach.
There are many so-called active trading "styles." Day trading is probably the best known, and many people mistakenly believe that day trading is the only kind of active trading. As the name indicates, day trading involves an investor buying and selling securities in the course of one trading day; for example, a day trader who buys a share of Exxon-Mobil in the morning will sell it by the end of the day. In other words, day traders do not hold onto securities overnight or, in trading parlance, it is said that they do not hold onto a "position" from one day to the next. There are other active trading styles, each of which involves different time horizons and strategies. Other active trading styles include swing and position trading and scalping.
Active trading became especially popular during the dot-com boom of the late 1990s, fueled both by the seemingly inexorable rise of just about all stocks, as well as the proliferation of Internet access allowing individuals to buy and sell stocks easily. Not surprisingly, an entire industry has swelled up around servicing individuals interested in trading. Companies like E*TRADE and Charles Schwab, for instance, not only provide traders the necessary access to markets for buying and selling securities, but also boast of having the in-depth research tools needed to trade profitably. Countless books and magazine articles and newsletters -- not to mention TV shows like Jim Cramer's "Mad Money" -- provide an avalanche of tips and strategies for beating the market.
Click ahead to read about who attends the Online Trading Academy and what they're learning.
Online Trading Academy Information
Before he came across the Online Trading Academy, Gordon Peldo had never done any trading. "I was an investor. I had a 401(k) and stocks," he says. "I was with Gulf Oil Corporation and bought their corporate stock." But Peldo, who lives less than 10 miles from Online Trading Academy's corporate headquarters, decided that he wanted to start trading in 2006. "Because of the action," he says.
But Peldo, who is now retired, knew he wanted to educate himself as much as possible before he actually started putting his hard-earned money at risk [source: Peldo]. He came across the Online Trading Academy on the Internet, went to a presentation and signed up on the spot. Five years later, it's a decision he doesn't regret. "I'm making money," says Peldo, who is a day trader. "I show a net profit month after month."
In many respects, Peldo is a fairly typical Online Trading Academy student. Although Harkey, the company's vice president of marketing, says that it has had male and female students of all ages, fully 70 percent are men and the average age is 60 [source: Harkey]. "A lot of students discover us because they retire and have life savings and time to think about how to make their money work better for them," he says.
Like Peldo, many Online Trading Academy students have little or no experience with trading. Even if they do, they want to do it better and more profitably. At least that is the notion that drives the company's advertising. "I target people who are actively consuming information to improve their investing or trading performance," says Harkey. These sorts of people, he says, can be reached by advertising on CNBC, Bloomberg Radio, stock picking services, newsletters and other venues offering information about better trading and investing.
Those who, like Peldo, attend a workshop sponsored by the Online Trading Academy and subsequently sign up for courses typically take a seven-day Professional Trader Course first. Other classes offered run the gamut, including ones on trading futures, options, commodities and many others. The academy also offers what it calls the Extended Learning Track, which gives students the opportunity to participate in live online tutorials with instructors and other students where they explore market trends and try to identify trading opportunities [source: Harkey].
Regardless of the classes taken, students do not earn any sort of degree or certificate that has any use in finding a job; it's all about managing one's own money more effectively. And the courses aren't cheap: They average about $1,000 per day, although students are allowed to retake courses as many times as they'd like for the rest of their lives at no additional cost.
Read on to learn about the teachers and their approach.
The Teachers and Their Philosophies
The Online Trading Academy has around 60 instructors worldwide. In order to qualify to become an instructor, says Harkey, an individual must be able to document at least two years of profitable trading experience. Some of the teachers, he says, come from trading floors at places like the Chicago Mercantile Exchange while others are actually former students.
No matter the background of individual instructors, the core philosophy each imparts is the same -- that a buy and hold investing mentality is mistaken and that there are opportunities for profits if one can identify the factors that cause markets to rise and fall. Although many students, like Peldo, are interested in day trading, Harkey contends that the skills learned in classes are applicable for investing over any time horizon and any asset class.
On a tangible level, students learn how to use the TradeStation Platform, which allows direct access to markets -- as opposed to trading via an online brokerage service. But those who attend also learn how to identify "market turning points," which Harkey says provide opportunities for profits. "At the simplest level, if more people are buying than selling, then prices go up. If more people are selling than buying then prices go down," Harkey says. "Identifying the points at which there's an imbalance of buyers and sellers and the price or market direction is likely to change is the point at which there is a buying or selling opportunity."
The initial Professional Trader Course involves a weekend of lectures, where teachers attempt to show students how to identify those turning points through studying stock charts and other tools while also imparting a so-called rules-based methodology for guiding their trading [source: Koomey]. For the remainder of the course, students do actual trading using Online Trading Academy accounts, giving them the chance to implement what they have learned while still under the guidance of an instructor.
Is the Online Trading Academy a scam?
Online Trading Academy alum Gordon Peldo no doubt sums up exactly what every individual investor and trader is looking for when they decide to go it alone in the market. "There isn't a trader alive who isn't looking for the Holy Grail," he says, meaning a can't-miss approach to being consistently profitable. But whether such a Holy Grail exists or whether it's worthwhile to even consider trading at all -- let alone to fork over the thousands of dollars to get trained at the Online Trading Academy or anywhere else -- is questionable given the amount of research and study that shows active trading to be a losing proposition. Indeed, Larry Swedroe, the author of numerous books on investing, including the upcoming "Investment Mistakes Even Smart People Make," puts it bluntly. "Only a fool would do it," says Swedroe, who is also a principal and director of research for the Buckingham Family of Financial Services.
In particular, Swedroe points to wide-ranging research conducted by University of California professors Brad Barber and Terrance Odean, including their recently published study, "The Behavior of Individual Investors." In a nutshell, Barber and Odean found that individual investors do just about everything wrong: They underperform standard benchmarks, like low-cost stock index funds even before the costs of trading, such as commissions, and taxes are factored in; they sell profitable investments while holding onto losers; and they are overly influenced by past performances and tend to hold undiversified portfolios that have more risk [source: Barber and Odean]. "[Barber and Odean] found that people who traded the most -- day traders going online -- underperform the market by 10 percent per annum on a risk-adjusted basis," Swedroe says. "They're earning the equivalent of a non-interest checking account with all of the risks of stocks."
Nor do investment and trading success correlate with intelligence, says Swedroe. In fact, in his book "The Quest for Alpha," Swedroe talks about the woeful performance of an investment club made up of the high-IQ members of MENSA. Over a 15-year period, the club underperformed the S&P 500 stock index by 13 percent. "They should have had a book club," he says.
Swedroe cautions those who are interested in active trading to consider who else is in the market. Swedroe says that 90 percent of trading is done by institutional investors such as pension and hedge funds and just 10 percent by individuals, which means that most of the times individuals are buying or selling a security, there isn't one person on the other side of the trade but rather an institution. "They only sold that stock to you because they think it's going to underperform and you think it's going to over-perform," he says. "Looking at yourself in the mirror, who do you think is likely to be right?"
By no means is Swedroe the only person cautioning against active trading. The U.S. SEC has a publication titled "Day Trading: Your Dollars at Risk," which enumerates all of the reasons this sort of active investment is a bad idea. "Most individual investors do not have the wealth, the time, or the temperament to make money and to sustain the devastating losses day trading can bring," writes the SEC. Among the points the SEC makes are to doubt any claims of easy profits from trading, and to be leery about the objectivity of any so-called "educational" classes, seminars and books about trading because the people behind them stand to profit from you [source: SEC].
All of this is to say that despite the fact that Online Trading Academy has plenty of satisfied students -- although some prospective students have complained online about high-pressure sales tactics -- it is always wise to carefully consider whether trading is the right investment approach for your bank account [source: Ripoff Report].
- Anderson, Thomas. "Our Man Goes Undercover and Tells All." Kiplinger's Personal Finance magazine. March, 2010. (Oct. 5, 2011) http://www.kiplinger.com/magazine/archives/our-man-goes-undercover-and-tells-all.html#ixzz1ZNSQYUoI
- Harkey, Tony. Vice president of marketing for Online Trading Academy. Personal correspondence. (Sept. 29, 2011)
- Koomey, Chris. Owner of Baltimore and Washington DC Online Trading Academy campuses. Personal correspondence. (Sept. 29, 2011)
- Odean, Terrance and Barber, Brad. Professors in University of California system and authors of numerous papers on individual investing, including "The Behavior of Individual Investors." Social Science Research Network. Sept. 7, 2011. (Oct. 9, 2011) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1872211
- Online Trading Academy. http://www.tradingacademy.com/about-us/ (Sept. 27 - Oct. 9, 2011)
- Peldo, Gordon. Online Trading Academy student. Personal correspondence. (Oct. 5, 2011)
- Ripoff Report. Complaints about Online Trading Academy. http://www.ripoffreport.com/directory/Online-Trading-Academy.aspx (Oct. 6, 2011)
- Securities and Exchange Commission. "Day Trading: Your Dollars at Risk." (Oct. 7, 2011) http://www.sec.gov/investor/pubs/daytips.htm
- Swedroe, Larry. Author of "Investment Mistakes Even Smart People Make" and numerous other investment books. Personal correspondence. (Oct. 7, 2011)