Day trading has witnessed a surge in popularity, particularly during 2020 and 2021. The rise of internet trading platforms and social media platforms has played a significant role in its ascendance. Additionally, the COVID-19 pandemic, with its push for work-from-home models and market volatility, has led to a noteworthy uptick in retail trading activity.
Day trading, a prevalent investment approach, offers potential rewards but comes with its own set of risks. Grasping the numbers behind day trading is important for making smart choices. This article delves into the essential statistics related to day trading, such as average ROI, the probability of success, failure rates, effective risk management techniques, and much more.
Additionally, we’ll emphasize the significance of understanding these figures to optimize your day trading endeavors. By the article’s conclusion, you’ll gain deeper insight into the metrics of day trading and how to leverage them for your benefit.
We started day trading full-time in 2001 and regard ourselves as veterans. We have seen traders come and go, and unfortunately, this is a business where very few succeed. Failure is the norm, mainly due to the nature of the game: day trading is mostly a zero-sum game.
However, while day trading has undeniable allure, it’s imperative to delve into the statistics to glean a more nuanced understanding. Let’s start digging for some numbers, facts, and statistics:
How long does the average day trader last?
To begin with, persistence seems to be a rare commodity among day traders. A striking 40% exit the scene within a month, and by the end of three years, a scanty 13% stick around.
Given the challenging nature of day trading, these numbers might not be wholly surprising. As we mentioned, the game is “rigged” so only a few prosper and make money.
As a matter of fact, we were surprised as many as 13% are still around after three years.
Source: Tradeciety.com – Scientists discovered why most traders lose money – 24 surprising statistics
Are day traders men or women?
It’s a man’s game:
On a gender-based analysis, the field appears to be male-dominated, with men constituting 90.5% of day traders in the USA. In contrast, women account for 9.5%.
Are women better day traders than men?
We have not found any research on the subject, but we know that women tend to be better traders (overall) than men.
Women trade longer time horizons, are more diversified, trade equities instead of crypto, and take fewer risks.
We also know that women fare better when it comes to long-term investing. Women are not trying to be smart and make fewer decisions.
A 2021 Fidelity Investments study found that women earned higher returns than men when investing (typically 40 basis points more). Data from Vanguard covering the first quarter of 2020 showed that even though women traded less frequently than men they still got better results.
How many day traders make money? What percentage make money?
Now, this is an interesting topic: money and how to get rich quickly (which don’t mix well, by the way). Is day trading a quick and easy way to get rich?
Studies, including one from the University of California, indicate that a mere 13% managed to maintain consistent profitability over six months.
Stretching the timeframe, the results become even more daunting, with only 1% of day traders consistently making profits over five or more years, according to another survey.
Furthermore, a report by the Financial Industry Regulatory Authority (FINRA) in 2020 conveyed that a whopping 72% of day traders ended the year in a financial deficit. This data point illustrates the risky and competitive nature of day trading, where even the best-laid plans can lead to significant losses.
Do prop day traders make money?
Do prop traders fare better? After all, proprietary trading attracts traders who supposedly treat day trading much more like a business than retail traders do.
In 2008, the trading firm Tuco Trading came under scrutiny by the SEC. The agency alleged that Tuco’s proprietary traders were essentially “masked customers.”
As the legal proceedings commenced, Tuco was compelled to disclose the trading data for their traders. Based on the records presented during the trial, it becomes evident that even “prop” traders struggled with day trading:
- Out of 206 traders active as of December 31, 2007, only 33 were profitable, representing a mere 16%.
- A significant majority, 173 traders, or 84%, were not profitable.
- Just seven traders managed to earn profits exceeding $50,000, accounting for 3%.
- Conversely, 57 traders, or 28%, sustained losses surpassing $10,000.
Such statistics underscore that even among those who approach day trading professionally, a high proportion face challenges and end up with losses.
A renowned study titled “Day Trading For A Living,” conducted by three scholars, followed 1,600 Brazilian day traders for more than a year. Astonishingly, a mere 3% turned a profit! These figures could potentially be more dismal, considering the study only took into account traders active for over 300 days.
Additionally, it’s significant to mention that a scant 1.1% of these day traders earned an income surpassing the minimum wage.
A commonly referenced study, “The Cross–Section of Speculator Skill Evidence from Day Trading,” was undertaken in Taiwan from 1992 to 2006.
The findings from this research can be summarized as:
- A limited number of day traders, approximately 15%, managed to secure profits that exceeded commissions and associated costs.
- The diversity in investor proficiency significantly impacts financial markets.
Subsequently, the same authors released another study in 2013, asserting that under 1% of day traders consistently achieve profits that predictably surpass fees.
On the other hand, a few traders make a lot of money and the potential earnings from day trading can be monumental. In 2020, reports emerged of a day trader pocketing over $100 million in profits from trading Tesla stock alone. Robinhood, a popular day trading platform, made headlines in 2021 when it reported that one of its users amassed over $30 million in a single day of trading.
But these are just one of tens of thousands who try. While such stories inspire and draw people into the world of day trading, it’s essential to remember that these are the exceptions, not the norm.
The average day trader, contrary to popular belief, doesn’t make staggering amounts of money. For perspective, in 2020, the median profit for day traders was around $13,000, as reported by FINRA. We are surprised by FINRA’a number, and believe they are too high and suffer from survivorship bias.
As you can understand, there are wide differences in what is reported. But you can be sure that day trading is difficult, and you are not likely to get rich day trading!
Sadly, we believe day traders are significantly more likely to experience a 50% loss than a 50% gain!
What Percentage Of Day Traders Fail And How Many Make Money?
We have covered how many day traders fail and how many make money in a separate article (including a video):
Day trading and leverage
When we were day trading full-time from 2001 to 2018, we used a lot of leverage. But we were quantitative and algorithmic traders and traded based on numbers and statistics. Leverage helped us a lot to make this a good business for us (we traded proprietary).
Leveraging margin can amplify gains, but it can also amplify losses. Day traders who use margin for leverage suffer an average return of -4.53%.
The average return of -4.53% indicates that day traders who use margin for leverage are more likely to experience losses than gains.
It is an important statistic to consider when evaluating the potential of day trading as an investment strategy. Only use leverage if you “know” you have a positive expectancy.
Source: Charles Schwab – Active Traders: Beware the Pattern Day Trader Rule
How many are day trading?
As per a survey by Charles Schwab, the percentage of American stock traders increased from 15% in 2019 to 25% in 2021, reflecting data from the nation.
Day trading demographics
The demographic tilt in day trading is towards the younger generation. Young people are optimistic and still don’t carry many negative experiences.
For instance, 65% of online traders in the UK now fall in the 18-to-34-year age bracket. Meanwhile, the presence of traders above 45 has seen a decline.
This trend points towards an evolving digital-savvy trading populace. Interestingly, the number of women identifying as active traders has grown from 27% to 41%, suggesting a narrowing gender gap in this arena (not necessarily day traders).
Source: Zippia.com – Day Trader demographics and statistics in the US
What is the success rate for day traders? What are the odds?
Diving into the successes and losses further, different strategies yield different results.
For instance, a trader who holds a position for less than a day can expect a success rate of about 47% (statistically, in the stock market). However, this figure jumps to 73% for those holding for more than a year.
This is data based on random entries at the open and exit at the close for S&P 500.
Source: Own research
How much of the daily volume is day trading?
That varies from market to market.
Within the broad spectrum of traders and investors, those who succeed in day trading form a modest fraction of all active market players. Yet, their swift and dynamic trading approach contributes significantly to the total volume of day trading.
A 2010 report indicated that active day traders were responsible for roughly 12% of the daily trading activity.
Source: NYSE – Trading and Data
Where do day traders live?
The surge in online trading has opened the doors for anyone with internet connectivity to engage in financial market activities. Currently, a mere 5% of all digital traders reside in prominent financial hubs such as New York, London, Tokyo, or Singapore. The vast majority, 95%, hail from various parts of the globe, with approximately half of these traders based in Asia. Europe holds the next significant share, followed by Africa.
Mind you, we were day trading ourselves far from any major financial hub.
Source: DayTradeReview – Day Trading Statistics-10 Interesting Facts
Day traders trade more when winning
The typical day trader often becomes more engaged in the markets and amplifies their position sizes following a series of wins. Humans tend to relate success to abilities and downplay the elements of luck and randomness.
This response is rooted in human nature, as our brains instinctively project our latest successes into future expectations.
However, the markets don’t consistently adhere to predictable patterns. It’s often after such victorious runs, when traders feel on top of the world and believe they’ve mastered the market’s rhythm, that they face the steepest losses.
Trading is a numbers game. Follow the plan and trade the plan (if you know you have a positive expectancy).
Source: DayTradeReview – Day Trading Statistics-10 Interesting Facts
Why do day traders day trade?
Eight out of ten day traders highlight trade control as a primary reason they find the activity appealing.
Day trading is often approachable for those with limited funds, given that numerous brokers provide low starting balances and significant leverage.
In a Charles Schwab survey, a notable 83% of day traders indicated that day trading had enhanced their discipline and organization.
Do day traders trade crypto or traditional assets?
The burgeoning interest in cryptocurrencies and their impressive price surges continue to attract new traders daily.
A significant number of traders, particularly among millennials, are now actively day trading digital currencies such as Bitcoin, Ethereum, and Ripple. This growing enthusiasm for crypto trading has prompted retail brokers to incorporate the most sought-after cryptocurrencies into their roster of available assets.
But do crypto traders fare better than stock traders?
We have not managed to find any hard statistics on the matter. But our gut feeling tells us crypto fares worse due to more newbies and amateurs.
How many day traders use a stop loss?
Research indicates that 88% of day traders implement stop-loss orders in their risk management approach.
A study from the trading platform Etoro revealed that day traders typically employ a risk-to-reward ratio of 1.43:1, suggesting that traders often accept a marginally higher risk compared to the prospective reward.
According to TD Ameritrade, 62% of day traders confirmed their use of position sizing within their risk management practices.
Is a stop loss useful? We don’t think so. Please read our take on the pros and cons of using a stop loss.
Do day traders have a plan?
A survey from the brokerage Charles Schwab revealed that 70% of day traders have established a trading strategy.
Around 45% of traders dedicate 1-2 hours daily to trading, whereas a mere 14% invest over 6 hours daily.
Data from the trading platform Etoro indicates that 89% of day traders incorporate technical analysis into their trading methods.
Two-thirds of traders, or 66%, utilize daily charts for market observation and analysis.
An impressive 71% of day traders emphasize their continuous commitment to learning and enhancing their trading proficiency.
That said, on a purely anecdotal basis, our experience is that those who use some quantitative analysis are MUCH more likely to succeed. Our faith in technical analysis is close to zero.
How long does a day trader lose before they quit?
The typical individual day trader faces financial losses for half a year before quitting.
Achieving success in this day trading demands immense commitment and persistence; it’s not a shortcut to wealth. Those contemplating day trading should know that it doesn’t guarantee success and requires substantial effort and patience.
How many day traders “blow up” and lose it all?
A widely-circulated adage among the online trading community suggests that 90% of day traders shed 90% of their funds within their initial 90 days. New traders often fall into the trap of overtrading and downplaying risk management, mainly from an overall deficiency in trading insight.
To sidestep significant losses and protect your account, managing risk effectively is crucial. Allocate only a modest portion of your trading balance to each transaction, ensuring your successful trades outweigh your average setbacks.
You need to be diversified. Trade many asset classes and also trade many different time frames – not only day trading. On the contrary, we believe day trading should be only a small part of your business.
In conclusion, day trading offers the allure of substantial returns and the excitement of the financial markets.
However, the odds, as statistics show, can often be daunting. While the potential rewards might seem very tempting, they come with their fair share of risks and challenges. Aspiring day traders need a plan, they need to be disciplined, and they need to make estimations of their expectancies of the trading strategies. Without the latter, you are trading blindly.
This article’s day trading facts and statistics should provide some basic knowledge of the risks and what lies ahead if you start day trading.