Question for DEF: % profitable traders?

[traderob]

Hi Def,
there have been so many threads on ET about what percentage of traders are profitable. Some say 5% , some 10%. Some that if they last one year or 2 years 70% are profitable.
You are in a unique position - as an exec. in one of the largest active trader brokers - to know the facts.
Could you give us some idea. I know details would be confidential, but rough ballpark figures.

 

[Nana Trader]

Why do you care to know? Does it make any differance
to your trading? How long you have been in this business
and expecting to become profitable?

Your sixth sense will tell you when to quit only, because
"time" will say if are "MADE" to be a trader?

I am not pretending to be profitable and i am actually not,
but i should believe i can make among top 20%.

I believe what you heard and hear on related statistic is
100% truth. Btw apologize since i'm not the one you need
to hear from, but i replied that some other new traders may
benifit from it

 

[def]

Quote from roberk:

Hi Def,
there have been so many threads on ET about what percentage of traders are profitable. Some say 5% , some 10%. Some that if they last one year or 2 years 70% are profitable.
You are in a unique position - as an exec. in one of the largest active trader brokers - to know the facts.
Could you give us some idea. I know details would be confidential, but rough ballpark figures.

Sorry, I wouldn't/couldn't comment on IB figures even if I knew them.

I do recall reading a recent study in the Nov/Dec 2003 edition of the "Financial Analysts Journal" (a publication of the Association for Investment Management and Research) concluding that
- twice as many day traders lose money as make money
- about 1 in 5 are significantly profitable

http://www.aimrpubs.org/faj/issues/v59n6/toc.html

Given that we tend to attract a more sophisticated clientele (which doesn't always show on these forums ) and offer direct access to the global market place, I'd be surprised if our clients didn't perform better than the norm.

 

[QdzResurrection]

Def, hats off to you for handling the sensitive question well. See you and your colleagues in Bahamas in the New Year holidays of 2005.

Quote from def:

Sorry, I wouldn't/couldn't comment on IB figures even if I knew them.

I do recall reading a recent study in the Nov/Dec 2003 edition of the "Financial Analysts Journal" (a publication of the Association for Investment Management and Research) concluding that
- twice as many day traders lose money as make money
- about 1 in 5 are significantly profitable

http://www.aimrpubs.org/faj/issues/v59n6/toc.html

Given that we tend to attract a more sophisticated clientele (which doesn't always show on these forums ) and offer direct access to the global market place, I'd be surprised if our clients didn't perform better than the norm.

 

[traderob]

Quote from def:

Sorry, I wouldn't/couldn't comment on IB figures even if I knew them.

I do recall reading a recent study in the Nov/Dec 2003 edition of the "Financial Analysts Journal" (a publication of the Association for Investment Management and Research) concluding that
- twice as many day traders lose money as make money
- about 1 in 5 are significantly profitable

http://www.aimrpubs.org/faj/issues/v59n6/toc.html

Given that we tend to attract a more sophisticated clientele (which doesn't always show on these forums ) and offer direct access to the global market place, I'd be surprised if our clients didn't perform better than the norm.

Def,
Thanks for the comments. I ordered the article, just received it.

It seems that it was written as a challenge to a study done by NASAA in 1999. That study found that less than 5% of daytraders were profitable and that most eventually lost all their stake.
This study suggests that, as you said, 20% of daytraders make good profits from daytrading. However, all data was taken from 1999. This was done to match up with the earlier study, but remember that 1999 was a halcyon time for daytrading.
The most profitable trader in the study (of 324 traders) made $197,000. The top loser lost $748,000.
The authors also concluded that transaction costs (i.e. commissions)were the biggest factor in daytrading net losses. Perhaps as commissions continue to decrease we can look at better years in the future.
Overall a positive sounding study - but somewhat limited in its approach and the data used.

 

[ktm]

Quote from roberk:

The authors also concluded that transaction costs (i.e. commissions)were the biggest factor in daytrading net losses.

You know who pocketed a huge amount of those commissions?

Don Bright.

While all these hedge fund wannabes here might be "only interested in the 2%" according to Don, he has no problem getting fat off all those failing daytraders. Does anyone think for a second that his take from all that forced churning did NOT exceed 2% per year? It's just sad the poor newbies are still falling for that pitch.

The house always wins.

 

[50 cent]

20% are significantly profitable? That's a lot!

 

[mrmoose]

a trader is basically a small business man. I doubt that day trading has a significantly lower failure rate the say the restaurant business and that people fail at traders primarily for the same reasons that they do as restaurateurs; being under capitalized and not responding to changes in market trends.

 

[nitro]

Quote from roberk:

...The authors also concluded that transaction costs (i.e. commissions)were the biggest factor in daytrading net losses. Perhaps as commissions continue to decrease we can look at better years in the future...

It is so critical that it cannot be underestimated, and the lower comissions are a dream come true.

But here is the rub. Commissions seem to have two components to them: One seems to be a function technology improving and allowing us more for less. That is good. But the second component of comission price is based on opportunity in a given market. Less demand for a product means they have to lower the comission (put on sale) to entice people to "come into their store."

This component of commission is not good, because it means that the market(s) are getting closer and closer to being efficient. Trade a market that is completely efficient, and your expentacy loss is at leat the comission plus the spread.

nitro

 

[traderob]

Quote from 50 cent:

20% are significantly profitable? That's a lot!

Yes, I was surprised. As I said all the data was from 1999, and many of the techniques that were highly profitable then no longer work, so what the % is now only the bigger brokers like IB really know (Hi DEf )

But even if it is now 10 or 15% that is still better odds than I had thought.
Off forum I have been talking with some of the traders on ET and there are certainly a number here making a good and consistent living as professional traders.

As a side issue the authors note that the Pattern daytrading rule was justified on the basis of the earlier study (that found only 5% of traders are profitable), and could be challenged now that their study showed better results.