I see your point, but the stats are showing the average income, including the profitable ones (4%), and the losing ones (96%). It's my understanding that it includes the average income of the ones who had left the party (96%). Unless the stats are only showing the ones making money.
Longtime prop trader says 4% of day traders made decent money
- Thread starter Slope Trader
- Start date
Yep. I'm suprised it's 4%. I bet only 1% make a decent living mean at least over $100K/yr. Anything less than go get a fckin' job! Even new grads at top tech companies get close to $200K/yr(base+bonusm, benefits, RSUs, etc.) risk free.
It is also important to realize that this is not a random sample. When you give people money to trade and give them a little education you have limited your study. There are many successful traders, myself included, who laugh at this and would never be part of that crowd. We aren't being counted.
No new grad earns 200k out of the gate other than the top 5% or so that hail from top schools and learned to code at age 7 and are extremely proficient at age 18 or 19. Starting salary for most jobs is still in the 45k-65k range. That pre-tax. Why do you think it is so enticing for many to live the bohemian lifestyle in mom's basement?
I am very sure that those stats do NOT include failed traders. Same with market return. When we speak of market returns we need to define some sort of benchmark, often times the SPX for example. The SPX returns do not account for bankrupt companies. It measures performance of those companies that are included in the SPX, hence operating entities, and weak ones are removed and replaced by those with higher market cap. Equally here, bankrupt traders are most likely not included by the definition of OP.
It's 4% of prop trader, which is only a subset of all types of trader.
%%Some interesting studies about the percentage of (consistent) profitable traders here. I have attached the corresponding studies.
The Cross-Section of Speculator Skill.pdf 522 KB
This paper seeks to understand the differentiating factors between successful and unsuccessful day traders in Taiwan. The authors received comprehensive trading data from the Taiwan Stock Exchange from 1992 through 2006. They defined day trading as the purchase and sale of the same security, by the same individual, on the same day, which accounts for approximately 17% of the overall volume on the Taiwan Stock Exchange. On average there were 450,000 individual day traders during each year, of which about half (277,000) traded in amounts larger than $20,000 USD-equiv each day. The key findings were:
- Any given year, only about 19% of the > $20k day traders made positive abnormal returns (i.e., did better than the market) net of fees. That's 1 in 5.
- Only 4,000 individuals (less than 1% of the population of day traders) were able to consistently profit, net of fees.
- The top 500 traders were remarkably consistent and generated outsized profits, earning net +37.9bps per day.
- The "bottom" 440,000 traders (the overwhelming majority of the 450,000 population) lost about 25-29bps per day.
- While the overwhelming majority of traders lost money - data showed a consistent trend that highly active day traders outperformed occasional day traders.
- Trader performance was statistically more consistent and non-independent than random luck would predict. That is, the profitable traders (of which there were exceedingly few) were not just getting lucky.
- Profitable day traders performed especially well trading few volatile stocks near earnings announcements - suggesting that the source of profits comes from their superior trading judgement and expertise in those stocks, and not from just providing liquidity to the market.
- Insider trading may be attributable to some of the profits, and cannot be ruled out, though the consistent profitability of the highest performing day traders, even outside of earnings announcement periods, suggests this is not entirely the case.
- The evidence suggests that profitable day traders "react more quickly to public information signals in their trading strategies" than the unsuccessful traders.
In conclusion, the paper finds strong evidence that day trading is consistently and highly profitable, even net of fees, to those with 1) the best information/strategies, 2) the best systems/access to trade quickly, and 3) the highest conviction/discipline. However, this accounts for fewer than 1% of all traders. In all likelihood, these are career professionals with great connections and highly sophisticated trading tools and systems. The overwhelming majority of day traders lost money, consistently, and worse than random luck would predict.
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SSRN-id3423101.pdf 170 KB
This study is an analysis of all new day traders on the Brazilian equity futures market from 2012-2017. (Futures are particularly compelling for day traders in the USA as well, as they are highly liquid markets and exempt from particular PDT taxes that apply to day trading most other securities).
The distinction here of only using new day traders is interesting, since it very likely weeds out the highly sophisticated professionals referenced in the Barber study above. Rather, this study is probably a more realistic view of what an 'everyday' person can expect if they quit their day job and start day trading. Highlights and findings from the study:
- The study covers about 20,000 individual investors who began day trading in 2013, 2014, and 2015, defined as an investor who did not have any day trades in the prior calendar year.
- Returns clearly show that probability of being profitable goes down proportionally with the volume of trades made. That is, the most profitable cohort of day traders were those who only made a single day trade all year.
- Of the most active traders (1,500 of the 20,000 population), data shows performance did not improve over time. I.e., those individuals did not learn or improve their skills in subsequent trades.
- Of the most active traders, only 17 individuals (1.1% of the active group) earned more than Brazilian minimum wage, net of fees.
Overall, the paper concludes that "it is virtually impossible for an individual to day trade for a living, contrary to what brokerage specialists and course providers often claim."
[a] GREAT South American study\
i think they meant made only one[ daytrade] trade per day, in a years time[Quote ='' made only a single day trade all year/LOL]
WOW on the much smaller net %
; but that is good for the Daytrade Co[z]I cant prove this, but i figure the few millionaire day traders, trade more than once a day or. year
Easily proved, the many more millionaire investors in stock market, buy more than than once a year.
