Average Rate of Return for Day Traders

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Dan Blystone

24 Nov, 2017

in Day Trading & Scalping

It's the question at the tip of every aspiring day trader’s tongue: how much money can I earn from day trading?

Since most day traders do not disclose their trading results to anyone but the tax authorities, an exact answer to how much money an average day trader makes is impossible to answer. However, there are numerous sources of information, including reliable academic studies, that offer clues on average earnings. The majority of available information does not shed a positive light on day trading. The research typically indicates that, in fact, most day traders lose money.

Day traders make money by buying stock and holding it for a short period of time--anywhere from a few minutes to a few hours--before selling it off again. Day traders usually enter and exit trading positions within the day and rarely hold positions over night. The focus is on profiting from short-term price fluctuations. They often use leverage to give themselves greater power to buy and sell.

Significant Start Up Costs
Getting started in day trading is not like dabbling in investing. Anybody would-be investor with a few hundred dollars can buy some stock in a company they believe in and keep it for years. Under FINRA rules, pattern day traders in the equities market must maintain a minimum of $25,000 in their accounts and will be denied access to the markets if the balance drops below that level. This means day traders must have enough capital on top of that to realistically make a profit. And because day trading is more than a full-time job, it is not compatible with keeping a day job. That means the day trader must live off his profits from trading as well as risk his own capital every day to make those profits. In addition to the minimum balance required, prospective day traders must consider the cost of equipment such as computer hardware and fast internet access. Brokerage commissions and taxes on short-term capital gains can also make a big dent in profits.

A University of California, Davis study published in 2000 by Brad Barber and Terrance Odean titled “Trading Is Hazardous to Your Wealth,” showed a correlation between active trading and poor performance among individual investors. The study pointed to overconfidence as a cause of high-volume trading and the resulting poor performance. 

A 2004 academic study by Brad Barber, Yi-Tsung Lee, Yu-Jane Liu, and Terrance Odean examined the transaction history of the Taiwan Stock Exchange from 1995 through 1999. Day trading among individual investors is common in Taiwan and accounted for over 20 percent of total trading volume during the period of the study. The research showed that while high-volume traders were sometimes able to earn gross profits, the profits were usually not enough to cover transaction costs. In a typical six-month period more than 80 percent of day traders lost money, and only 1 percent of them could be called predictably profitable.

An important factor that can influence earnings potential and career longevity is whether you day trade independently or for an institution such as a bank or hedge fund. Traders working at an institution have the benefit of not risking their own money. They are also typically far better capitalized and have access to advantageous information and tools. Unlike independent day traders, they are also compensated with benefits such as health insurance, retirement funds, sick leave, and vacation days.

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paramaniac;2991072
Day trading is definitely mug money. Why would you risk so much for so much hard work for so little reward? The appeal is of course that it provides easy answers that people want to hear. Evidence of the pathetic growth rates to be made is simply ignored lest it burst the bubble of lying on the beach with the yacht in the background earned after 2 or 3 years in day trading.
The reason the data for growth rates in day trading is so vague is quite simply because itís probably non-existent. If someone out there was making Stella growth rates weíd probably hear about it, but we donít.
On the other hand there is someone who has all the books, accounts, data etc to prove their annual average growth rate and thatís the fourth richest guy in the world, Warren Buffet. Absolutely no vagueness there, this guy has returned an average annual growth rate since 1965 of circa 20%.
Now, if warren buffet is making 20% a year we can safely say thatís a good growth rate. Any trading system or investment system that is beating the stock market return of 8% a year and getting near 20% per year return is doing very well. All you need then is capital and compound interest will do the rest.
If thatís not what you want to hear then stick to day trading.



If youíre proficient at day trading you will earn money .....if you are bad at it you will lose money

Thatís it.......

Dec 12, 2017

Member (34106 posts)

Average rate of return for day traders

Day trading is definitely mug money. Why would you risk so much for so much hard work for so little reward? The appeal is of course that it provides easy answers that people want to hear. Evidence of the pathetic growth rates to be made is simply ignored lest it burst the bubble of lying on the beach with the yacht in the background earned after 2 or 3 years in day trading.
The reason the data for growth rates in day trading is so vague is quite simply because itís probably non-existent. If someone out there was making Stella growth rates weíd probably hear about it, but we donít.
On the other hand there is someone who has all the books, accounts, data etc to prove their annual average growth rate and thatís the fourth richest guy in the world, Warren Buffet. Absolutely no vagueness there, this guy has returned an average annual growth rate since 1965 of circa 20%.
Now, if warren buffet is making 20% a year we can safely say thatís a good growth rate. Any trading system or investment system that is beating the stock market return of 8% a year and getting near 20% per year return is doing very well. All you need then is capital and compound interest will do the rest.
If thatís not what you want to hear then stick to day trading.

Nov 26, 2017

Member (7 posts)

T2W Bot;2990744
We've just published a new T2W article called "Average Rate of Return for Day Traders" by Dan Blystone.

Quick Summary: Dan Blystone looks at the evidence to determine how successful day trading is.

PS. Don't forget to rate the article after you've read it and share your comments on this thread.


Actually I do like this article...

Nov 24, 2017

Member (477 posts)

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