How does day trading affect the stock market?

I'm doing my junior project on how online stock exchange has affected the stock market. For one of my body paragraphs, I'm focusing specifically on day traders. I would assume they have a great impact on the stock market, but I need to know a lot more info. It's a little hard to find. Even if you could just give me links, that would be great. I've gotta pound the rest of this paper out tonight.... Thanks in advance!

Public Comments

1. It has little to no impact since most day traders end up bankrupt in a short time.

2. Simple answer is that day traders can't move the market. This is for two main reasons; First, that they deal in such tiny amounts of money and, second that they are unlikely to trade with the momentum of the market as they cannot compete with the major banks and brokerages on news supply and access to market analysts and leaders.

There is no obvious way to see the number of day traders putting on positions in a market, but you could try to assess the volume of day trades by comparing brokerages that deal in retail investors versus institutional brokerage firms.

3. Day traders keep the market running efficiently. Without them, the market would be very inefficient. Of course, the long-term buy and hold investors yield more on average than the day traders (simply because the day traders pay more commissions on average) but nevertheless, day traders are an essential part of our modern day market system.

4. Day traders have truly been marginalized by the big traders and today have very little effect on stock prices. Market makers do get to see the activity of small lot traders, and in a way, they can affect market direction in theory by giving market makers a contrary indicator to trade against. In other words, if they see day traders piling on shorts at a temporary top, and they know they have the demand to push prices higher later in the day, market makers will use those shorts as fuel to run the market higher than it might have normally gone without shorts. So, the answer is yes, and no. Short term, yes, day traders can affect small movements in markets. But long term, no.