Trading Profits: The amount of money that traders save
Wondering how much trading profits a day trader can make is normal with the amount of popularity it has gained recently. If you are wondering about this, here is the answer now.
Only a few traders disclose their earnings to the people around them. Moreover, trading profits and results differ from one trader to another since there are countless trading strategies and risk management practices that traders can choose from. This is in addition to the amount of capital available to each individual trader.
Losing money in day trading is certainly easy and possible. A research paper completed at the University of California found that many retail investors own portfolios that are not diversified and actively trade on a speculative basis. In the world of trading, choosing the right trading strategy that will enable you to manage risk is essential.
Quick info:
Day traders rarely hold the purchased assets for a whole day, as trading is based on making a profit from the rapid price movements during the day.
Day trading is a very risky activity and most of the traders lose their money in it.
Despite the high risks of trading, it can be profitable for those who know how to manage it.
Many factors play a role in determining the potential upside of day trading, including the amount of initial capital, the strategies used, and the markets in which you are active.
What do traders do?
Day traders, or sometimes called speculators, usually target stocks, options, futures, commodities, or currencies including cryptocurrencies, and hold their positions for hours, minutes, or even seconds before selling again. Day traders enter and exit their positions during the day, hence the term day traders because they rarely hold positions for more than one day. The goal of trading is to quickly profit from short-term price movements. Day traders can also use leverage to magnify returns, Which can also magnify losses.
Setting stop loss orders, take profit points and not risking too much are essential and vital to survive as a day trader. Professional traders often recommend that you risk trading no more than 1% of your portfolio in a single trade. If the portfolio is worth $50,000, the percentage allocated to trading should not exceed $500. The key to risk management is not to let one or two bad trades kill you. If you stick to a 1% risk strategy and set strict stop-losses and exact take-profit points, you can limit your losses to 1% and capture your gains at 1.5%, but this takes a lot of discipline.
An example of a day trading strategy in action
You should consider implementing a day stock trading strategy in which the max risk is at $0.04 and the target is $0.06, which means a risk/reward ratio of 1 to 1.5. A trader with $30,000 decides that the maximum risk per trade is $300. Therefore, 7,500 shares per trade ($300 / $0.04) would keep the risk within the $300 cap (this does not include commissions).
Here is how this trading strategy can work:
60 profitable trades: 60 x $0.06 x 7,500 shares = $27,000.
45 losing trades: 45 x $0.04 x 7,500 shares = $13,500.
The total profit is $27,000 – $13,500 = $13,500.
If the commissions are $30 per trade, the profit is $10,500, or $13,500 ($30 x 100 trades)
Of course, this is just a theoretical example. There are many factors that can reduce profits. A risk/reward ratio of 1 to 1.5 is used because the number is fairly conservative and reflects the odds and opportunities that can happen all day, every day, in the stock market. The initial capital of $30,000 is also just a rough balance to start day trading stocks. You will need more if you want to trade higher priced stocks.
Trading profits
Employment longevity and earning potential
An important factor that can affect potential earnings and career longevity is whether you day trade independently or for an institution such as a bank or hedge fund. Institutional traders do not risk their own money and are usually better capitalized, with access to useful information and tools that enhance profit opportunities. At the same time, some independent trading firms allow independent day traders to access their own platforms and software and take advantage of a large number of useful tools, but require day traders to risk their own capital.
Other factors that can affect a day trader’s profit-taking potential include:
Markets in which to trade: Different markets have different advantages. Equities are generally the most capital-intensive asset class. Individuals can start trading with less capital than other asset classes, such as futures or forex.
Amount of Capital Dedicated: If you started with, say, $3,000, your earning potential is much lower than someone who started with $30,000.
Time: Few day traders achieve success in a few days or weeks, as developing profitable trading strategies, systems and methods can take years.
Daily trader salary
Whether you are trading for yourself or working for a trading organization and using some of the company’s funds, a day trader does not usually earn a regular salary or wage. Instead, their income is derived from the net profits they make. These profits include what is left after deducting trading fees and commissions and the cost of trading software or connections to the stock exchanges.
Since a day trader can suffer some losing trades or experience volatility in their earnings, many trading firms offer traders a “drawdown” instead of a salary. This is often a modest amount of money, set aside for daily living expenses and withdrawn on a monthly basis. After that, any excess winnings are paid out as bonuses. If you do not make enough trading profits to cover the withdrawal, you may end up owing money to the company.
When all is said and done, Glassdoor reports that the average day trader makes about $74,000 per year in 2021. Although there is a significant degree of variation from this average, some day traders may be able to make big profits while others can. Others lose a lot of money.
Start day trading
Starting day trading is not the same as starting investing. Any potential investor with a few hundred dollars can buy shares of a company and hold them for months or years. However, the Financial Industry Regulatory Authority (FINRA) sets rules for those it defines as day traders, and the definition of a day trader under it includes a person who executes four or more day trades within five business days in the same account. These rules require margin traders who trade frequently to keep at least $25,000 in their account, so that they cannot trade if their balance drops below that level.
This means that day traders must have enough capital above $25,000 to really make a profit. Because starting day trading from scratch and learning to trade for beginners requires a lot of focus, those who want to take advantage of trading opportunities must put in a lot of effort to learn the basics and build up a good knowledge of how the market works.
On the other hand, most day traders must be willing to risk their capital. In addition to the required minimum balance, prospective day traders need access to an online broker or trading platform and software to track positions, perform research, and record trades. Brokerage commissions and taxes can also add to short-term capital gains.
Aspiring day traders must take all costs into account in their trading activities to determine if profitability is achievable.
How many trades can a day trader complete in a day?
Depending on the strategy used, many day traders make trades averaging dozens to hundreds of trades per day. With the availability of Algorithmic and High Frequency Trading (HFT) systems, some day traders can make tens of thousands of single trades per day (with the help of computers). In order to be classified by your broker as a typical trader, the regulators stipulate that you only need to make several four-day trades over the course of five business days.
What is the success rate of day traders?
The success rate (i.e. how much money you make) from day trading is actually very low. Only about 5% to 20% of day traders make money consistently, which means that up to 95% of traders fail and lose money in day trading, rather than making it.
What are the financial risks of day trading?
The most obvious financial risk of day trading is losing money. Since only a few day traders make a consistent profit from trading over time, it is best to use your time and money for more productive activities.
Summary
Day trading is not a hobby or a casual activity if a trader is serious about trading and wants to make money. While there is no guarantee that you will make money or that you will be able to predict your average rate of return over any given period of time, there are strategies you can master to help you achieve gains while minimizing losses.
It will take a lot of discipline, capital, patience and constant practice with the ability to manage risk in order to be a successful trader. Before you take any step, you should educate yourself about trading and how the markets in which you will trade work so that you are able to enter into this experience knowingly and consciously. Also, be sure to choose a reliable broker who will help you meet your needs and make it easier for you.
Disclaimer: The content of this article is for informational purposes only. The information provided should absolutely not be considered as investment advice or a recommendation. No warranty is made, express or implied, as to the accuracy of the information or data contained herein. Users of this article agree that Money Secrets does not accept responsibility for any of their investment decisions. Not every investment or trading strategy is suitable for anyone. See the risk warning statement.