| By :
Mark Etinger
Day trading got its start in the 1990s, when a man by the name of Harvey Ira Houtkin began keeping track of the delays between breaking stock news and the adjustment of prices by dealers. Using the Nasdaq Small Order Execution System, or “SOES,” the “father of day trading” found fame and fortune by forming a day trading strategy that took advantage of the delays and used them to make a profit. A native of Brooklyn, New York, Houtkin was the leading figure during the early years of the day-trading craze. Known to be extraordinarily charismatic, Houtkin was found to be relatable by a public that seemed to share his enthusiasm for trading. “It's very exciting,” Houtkin once said. “People love to play games, love to wager. And with trading, most of the statistic disadvantages have basically been eliminated.” The SOES was the first automated execution system ever used on Wall Street. Coincidentally, it was set up as a response to the Crash of 1987, a market drop that destroyed the risk and convertible securities firm Houtkin originally worked for. Trading on SOES instantly became popular, and it wasn’t long before Houtkin discovered he was legally able to trade auto-ex on SOES without a market maker. Instantly his business, All-Tech Investment Securities, began to rapidly grow due to Houtkin’s day trading advice. Imitation is the most sincere form of flattery, and like any success story, Houtkin’s day trading techniques had many copycats. Companies such as Broadway Trading, Momentum Securities, Tradescape.com and Cybercorp all made money using smart-routing technology. All of them would learn day trading based off the techniques of Houtkin and All-Tech Investment Securities. Houtkin’s invention of day trading was not his only claim to fame, however. He played a major role in a series of articles in the Los Angeles Times that exposed market makers colluding on prices. The Times reported that both the Securities & Exchange Commission and U.S. Department of Justice were deeply investigating Nasdaq trading. These investigations concluded with the 1997 SEC’s Order Handling Rules, which gave investors access to the best price amongst market makers. “He wanted a level playing field, and that’s what he fought for,” said Mark Shefts, his brother-in-law and longtime partner. “He wanted full exposure, and that’s what we have today.” Houtkin would later write two books advising readers on his success, entitled The SOES Bandits Guide: Day Trading in the 21st Century and Secrets of the SOES Bandit: Harvey Houtkin Reveals His Battle-Tested Electronic Trading Techniques. On July 25th, 2008, Houtkin received emergency surgery at Sharp Grossmony Hospital in San Diego. He died several hours following the procedure. The cause of death was initially listed as natural, due to acute respiratory failure caused by a severe airway obstruction. His family would later sue the hospital, claiming Houtkin’s death was avoidable and due to mismanagement on the part of the facilities caregivers. Houtkin’s innovative day trading tips, coupled with the U.S. bull market of the 1990s and the development of the Internet lowering the cost of trading created an unfathomable amount of new interest in the world of stock trading.
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