As a day trader, how much can you make?

How much money can daily traders make on average? This question is impossible to answer. Except for the Internal Revenue Service (IRS), few day traders disclose their results to anyone. In addition, considering the myriad of trading strategies, risk management practices, and the amount of funds available for day trading, the results vary widely.

To be sure, it is easy to lose money in day trading. A research paper by University of California researchers Brad Barber and Terrance Odean found that many individual investors hold undiversified portfolios and are actively and speculatively To deal with them locally, which caused damage to themselves. Day traders may also incur high brokerage fees, so it is important to choose the best broker and develop a manageable trading strategy with appropriate risk management.

Key points

  • Day traders rarely hold positions overnight and try to profit from intraday price changes and trends.
  • Day trading is a high-risk activity, and the vast majority of day traders are losing money-but for those who succeed, it can be profitable.
  • When determining the potential upside for intraday trading, several factors play a role, including the initial capital amount, the strategy used, your active market, and luck.
  • Experienced day traders tend to take their work seriously, maintain discipline and stick to their own strategies.

What do day traders do

Day traders usually target stocks, options, futures, commodities or currencies (including cryptocurrencies) and hold positions for hours, minutes or even seconds before selling again. Intraday traders enter and exit positions within a day, so they are called intraday traders. They rarely hold positions overnight. The goal is to profit from short-term price changes. Day traders can also use leverage to amplify returns, which can also amplify losses.

Setting stop-loss orders and profit-taking points—and not taking too much risk—is essential to survival as an intraday trader. Professional traders usually recommend that the risk of a single transaction does not exceed 1% of your investment portfolio. If the portfolio is worth $50,000, the maximum risk per transaction is $500. The key to managing risk is not to let one or two bad transactions ruin you. If you stick to a 1% risk strategy and set strict stop-loss orders and profit-taking points, you can limit your losses to 1% and your gains to 1.5%, but this requires discipline.

Examples of intraday trading strategies in operation

Consider a strategy for intraday trading of stocks, where the maximum risk is $0.04, the target is $0.06, and the risk/reward ratio is 1 to 1.5. Traders holding $30,000 have decided that their maximum risk per transaction is $300. Therefore, 7,500 shares (300 USD/0.04 USD) per transaction will keep the risk within the upper limit of 300 USD (excluding commissions).

Here is how this trading strategy might work:

  • 60 transactions are profitable: 60 × 0.06 USD × 7,500 shares = 27,000 USD.
  • 45 trades are losers: 45 × 0.04 USD × 7,500 shares = (13,500 USD).
  • The gross profit is 27,000 USD-13,500 USD = 13,500 USD.
  • If the commission for each transaction is 30 USD, the profit is 10,500 USD, or 13,500 USD-(30 USD × 100 transactions).

Of course, this example is theoretical. There are several factors that can reduce profits. The risk/reward ratio of 1 to 1.5 is used because the number is quite conservative and reflects the opportunities that occur every day and every day in the stock market. The start-up capital of $30,000 is only the approximate balance of the stocks traded during the starting day. If you want to trade higher-priced stocks, you will need more.

Gain potential and career life in intraday trading

An important factor that affects income potential and professional life is whether you conduct day trading independently or for institutions such as banks or hedge funds. Traders working in institutions will not take risks with their own money. They are usually more capitalized and have access to beneficial information and tools. At the same time, some independent trading companies allow day traders to access their platforms and software, but they require day traders to bear their own capital risks.

Other important factors affecting the profit potential of day traders include:

  • The market you trade: Different markets have different advantages. Stocks are usually the most capital-intensive asset class. Compared with other asset classes (such as futures or foreign exchange), individuals can start trading with less capital.
  • How much capital do you have: If you start with $3,000, your income potential is nowhere near that of someone who starts with $30,000.
  • time: Few day traders succeed in just a few days or weeks. Profitable trading strategies, systems and methods may take years to develop.

Day trader salary

Whether you are trading for yourself or working in a trading shop and using part of the company’s funds, day traders usually do not receive a normal salary or salary. Instead, their income comes from their net profit. These profits include trading fees and commissions, trading software or the cost of connecting to the exchange, and the remainder after any “seat fees” paid to trading companies.

Because day traders may experience exhaustion periods or fluctuations in earnings, many trading companies provide traders with a “tie” instead of salary. This is usually a modest amount of money used to pay for daily living expenses and is withdrawn every month. Then, any excess income is paid in the form of bonuses. This also means that if you don’t get enough trading profits to pay for your lottery, you may end up owing money to the company.

All in all, Glassdoor reports that by 2021, the average annual income of day traders is about $74,000-although there is a big difference from this average, some day traders earn six-figure income, while others lose money. .

How to start day trading

Starting day trading is not like getting involved in investing. Any potential investor with a few hundred dollars can buy stock in a company and keep it for months or years. However, the Financial Industry Regulatory Authority (FINRA) defines rules for it as a model day trader (a person who performs four or more intraday transactions in the same account within five working days). These rules require margin traders who trade frequently to maintain at least $25,000 in their accounts. If their balance is below this level, they cannot trade.

This means that day traders must have enough capital beyond 25,000 USD to truly make a profit. And because day trading requires focus, it is not compatible with maintaining daily work.

This rule allows traders to trade more than $25,000 in maintenance margin on the model day.

Most day traders should be prepared to take risks with their capital. In addition to the required minimum balance, potential day traders also need to access online brokers or trading platforms and software to track positions, conduct research, and record transactions. Brokerage commissions and short-term capital gains taxes can also be added up.

Aspiring day traders should take all costs into account in their trading activities to determine whether they can achieve profitability.

The mode day trading rules apply to stocks and stock options trading, but not to other markets such as foreign exchange.

How many trades can a day trader make in a day?

Depending on the strategy adopted, many day traders make an average of tens to hundreds of trades per day. With the advent of algorithms and high-frequency trading (HFT) systems, some day traders can conduct tens of thousands of personal transactions in one day (with the help of computers). However, to be marked as a model trader by your broker, the regulator requires you to trade for only four days within five working days.

What is the success rate of intraday traders?

The success rate of intraday trading (that is, making money) is actually very low. According to sources, only about 5% to 20% of day traders continue to make money-which means that up to 95% of day trades fail and lose money.

What are the financial risks of intraday trading?

The most obvious risk of intraday trading is loss-sometimes loss. Since few day traders continue to make profits over time, your time and money are best spent on more productive activities.

Bottom line

If you are serious about trading to make money, day trading is not a hobby or occasional activity. Although there is no guarantee that you will make money or be able to predict the average rate of return for any period of time, you can master some strategies to help you lock in gains while minimizing losses.

Becoming a successful day trader requires discipline, capital, patience, training and risk management. If you are interested, check out the best stock brokers for day trading, because the first step is to choose a broker that suits your needs.


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