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Online investors who play the market by consistently relying on their own counsel must be ever vigilant, experts say. In order to make a short-term profit in today's complex, fast-paced global markets, they need sophisticated knowledge along with the ability to execute lightning-quick moves.

"It means you have to have a much edgier focus on the markets - more sensitive, more nimble, more sharp, because you're presumably looking for much thinner returns that could be there one minute and gone the next," says Warren Baldwin, regional vice-president of T.E. Financial Consultants Ltd. in Toronto, a national fee-only financial planning firm.

"Active trading requires a fairly intense focus and scrutiny of market movements and market actions, so it can really become quite a job," he adds. In contrast, investors with a long-term, buy-and-hold strategy do not face the pressure to check their portfolios minute by minute through the day.

Constant monitoring

Even something as simple as going to a doctor's appointment and being away from the computer for an afternoon - not to mention taking a vacation out of the country for a week - could throw this strategy off, Mr. Baldwin notes.

Online investors engaged in active stock trading must diligently monitor their portfolios, says Connie Stefankiewicz, the Toronto-based president and chief executive officer of BMO InvestorLine, an online brokerage firm and wholly owned subsidiary of Bank of Montreal.

Doing so will enable the investor to limit losses and take timely advantage of positive movements in price.

Investors must also be knowledgeable about securities they hold - including their trading patterns and the underlying market conditions affecting prices. Thus, a fairly large time commitment is required, she says.

"Without those three things in play, the chances are they're not going to be successful," says Ms. Stefankiewicz, who notes that the vast majority of online clients view their investments as part of a long-term portfolio strategy.

Dim view of day trading

Retail investors might do better at short-term trading if they focus on one market area, such as Canadian or U.S. equities, Mr. Baldwin says.

Eric Kirzner, a professor of finance at the University of Toronto's Rotman School of Management, isn't bullish on the prospects of retail investors who are constantly buying and selling, even those who are considered to have a level of sophistication.

"I haven't found very many, if any, people who practised short-term trading for a long period of time and are still at it," he says.

"Many investors grow out of it - some quickly, fortunately, and some not so quickly, with a painful lesson."

In theory, short-term trading "violates all the right principles of investing," says Prof. Kirzner.

"The whole idea of investing is to get a nice portfolio structure, select solid investments [with] the right mix of safety income and growth, and adjust it as your circumstances change."

Online amateur traders are also handicapped by virtue of having to compete against professionals who are much better informed than they are, he adds.

Moreover, retail traders tend to react with their emotions, which leads to a greater likelihood they are going to start doing foolish things.

Valuable data online

But even critics concede that short-term investors can find valuable information online if they are willing to work hard at keeping on top of it.

They also have quicker access to information compared with those who read newspapers or market newsletters, notes Mr. Baldwin.

Most professional managers, however, "don't operate that way.

"They have teams of people and very deep structures [in their organizations] to monitor every change in the market and keep a close eye on all their positions."

The growing amount of helpful information provided by companies to their investors has minimized the advantage that large institutional players once had over ordinary retail investors, says John See, president of TD Waterhouse Discount Brokerage, a subsidiary of TD Waterhouse Canada Inc. in Toronto.

Companies provide a plethora of electronic information, and that data is more user-friendly than ever before, he says.

Lower transaction costs

Mr. See notes that TD Waterhouse, which services more than 1 million online accounts in Canada, offers independent research and streaming real-time information to make investors aware of major announcements and reports.

Another factor that makes online trading easier is that transaction costs for online investors have come down dramatically over the past couple of years, says Mr. See.

"Today, with trades as low as $7 flat, they almost become not relevant to the decision process," he says.

Tax issues may also factor into the equation.

Experts note that buy-and-hold investors tend to accumulate more tax deferrals by virtue of not making transactions as frequently, which could figure into their investment strategy.

"If you're transacting frequently during a year, any gains you're making are definitely being forced onto your tax returns," says Mr. Baldwin, "whereas the buy-and-hold person may have 15 per cent, 20 per cent, or sometimes even as much as 30 per cent of their portfolio value embedded in capital gains."