When people consider the idea of trading assets, they naturally think about the profits they can make by trading. They want to know how much money the world’s top traders make. They are eager to dig deeply into their secrets, and if possible, implement their strategies to create wealth of their own.
The exact amount a day trader make per day or per month depends on a number of factors such as trading philosophy, research, lifestyle, trading strategy, and trading style. Most of them do not tell you how much they earn; a few post their profit and loss statements on social networking sites such as Twitter.
So nobody, except maybe the tax authorities, can tell you exactly how much day traders made per day or month.
- How Day Traders Make Money?
- Factors Influencing Day Trading Earnings
- Day Trading Salary – How Much You Can Earn
- Day Trading as a Job
- Day Trading for Proprietary Firms
- Independent Day Traders – How Much Do They Earn?
- Why You Shouldn’t Worry About Salaries
- 5 Traders Who Turned Small Amounts into Big Money
- Conclusion –What’s Your Next Step?
How Day Traders Make Money?
Day traders earn profit by purchasing tradable securities such as currencies, commodities, and stocks, holding them for anywhere between a few minutes to a few hours, and then selling them. They enter and exit multiple trade positions in the course of one day. You will hardly see them rolling over their positions for the next day, unless they are trading currencies. Their focus is on taking advantage of the fluctuations in the price of the securities they have purchased.
Day traders use risk management techniques such as stop/loss orders to protect their profits and minimize their losses. The best of them advise not to risk more than 1% of your capital on each trade. For example, if you have a capital of $50,000, you should not spend more than $500 per trade. This simple risk-management technique saves day traders from losing their entire capital on one bad trade.
All this may sound very easy, but in reality, it is fraught with risks. If you are a beginner, you should never start with day trading. Instead, you should focus on training, practice, and learning.
Factors Influencing Day Trading Earnings
Several factors influence a day trader’s daily or monthly earnings, and some of them are as follows:
- Earnings vary depending on whether a day trader is trading independently or for a financial institution.
- Traders working for hedge funds or banks don’t have to risk their own money. Also, they have access to sophisticated tools and insider information. But they do not get to keep all the profits they make. Moreover, they will find themselves out of the job if they under perform.
- Several independent trading firms give day traders the opportunity to use their software and platform, but these traders have to invest some of their own money as well.
- The markets traded also have an important role to play as each market has its own advantages and disadvantages. Day traders who have more capital end up trading stocks, but some of them trade currencies or futures even with a smaller capital. The earnings depend on their starting capital and the markets they trade.
- Day traders who start with a smaller capital tend to earn lesser than those who start with a larger capital. If you have only $3,000 to spare, you will earn lesser than your fellow day trader who has a starting capital of $30,000.
- The top earning day traders are usually the ones who are willing to learn. Most of them spend hundreds and thousands of hours getting the required training and education. In other words, they are committed to trading.
- If you don’t have the time to get educated, you will just not become a successful trader. If you dedicate only a few hours a day to trading, you may have to wait several years to see any real profits.
Millions of day traders all over the world work from home and easily earn a living. Some earn enough to pay off a bill or two. A few have become millionaires.
But there is no guarantee that you too can earn a living or become a millionaire from day trading. It all depends on your commitment, the number of hours you are willing to invest in your education, training, and practice, the trading strategies you have developed, and the way you handle risks.
Day Trading Salary – How Much You Can Earn
Information about day trading salaries available online is inconsistent. If you do a simple Google search, you will come across hundreds of videos and blog posts about traders who have churned out millions in the shortest period of time.
Needless to say, you cannot trust them all. If you do some in-depth research on the subject, you may get an estimate of how much day traders make based on their employment status, starting capital, and locality.
Day Trading as a Job
Day trading as a job or day trading for a bank, proprietary firm, or any other investment company has its own advantages and disadvantages.
To list the advantages, you gain access to sophisticated trading strategies and tools, which you will never get if you trade on your own. You don’t have to identify winning systems and create strategies on your own as they are easily available.
At the same time, you are not your own master. Since you are using someone else’s capital, you have to follow someone else’s rules. This may turn out to be a disadvantage especially if you are an independent spirited trader who likes to follow your own instincts.
But the biggest advantage is that you will get a regular pay check for doing your job, which is something you can’t expect when you are on your own.
If you want to work for a trading firm and trade its clients’ funds, you have to get a Series 7 and a Series 63 license. Passing the former gets you the license you require to trade. Passing the latter gets you the license to trade within the boundaries of the laws of a particular state. The firm will then expect you to undergo an in-house training program.
As a stock trader working for an investment firm, you could earn anywhere between $50,000 and $70,000. If you want to make more money, you have to earn a bonus. This comes in the form of anywhere between 10% and 30% of the profits you make by day trading for the firm.
Also, you need to perform well to hang on to your job. If you underperform, the investment firm will have nothing to do with you. On the other hand, if you do perform well and make around $300,000 in profits for the company, you could get a salary of $100,000.
The biggest benefit of trading for a company, other than the regular pay check, is that you can trade risk free. You will not be risking your own capital. Top traders who are skilled at handling multiple funds can make up to $576,000 per year; and average traders can take home pay checks of $100,000 to $175,000. Below average traders will find themselves out of a job.
The above salaries apply to New York. If you research further, you will find that the average salary for day traders across the US is $89,496. A lot also depends on which investment firm, financial institution, or bank you are working for.
As a top trader for Citi, you can earn as much as $435,000. If you trade for Bank of America, you can earn up to $275,000; and trading for Morgan Stanley will give you as much as $276,000. Your salary shoots up as you get promoted to higher ranks. For example, you can earn more as a fund manager. But to begin with, you just have to prove that you have a talent for raking in profits through day trading.
To sum up, as a day trader employed by a reputed public or private firm, you can enjoy the benefits of a regular salary, health benefits, and the honour of being a day trader at a reputed firm. Besides not having to risk your personal capital, you can grab the opportunity to climb to a higher corporate rank and earn fatter pay checks.
On the downside, you have to deal with clients and handle office politics. If you work for a public firm, you can keep only up to 20% of the profits you make for the company. But you get a bigger slice of the profit cake if you work for a private firm.
Day Trading for Proprietary Firms
Day trading for proprietary firms is a different cup of tea. The prop firm gives you access to its systems, software, and capital only after you undergo in-house training. But you don’t get any annual review, base salary, paid time off, and health benefits. Instead, you get to split profits with the proprietary form; and this split could be anywhere in the range of 20% to 50%.
You will make less money working for a prop firm than you would make for a public firm simply because the starting capital is highly limited. You can make anywhere in the range of $150,000 to $250,000 per year by working for a prop firm.
Average traders earn lesser, in the range of $60,000 to $100,000. If you are an underperformer, you will most likely quit as you will hardly be making any money.
To sum up, you can enjoy benefits such as larger shares of profits and low commission rates. You don’t have to put up with a boss. But you have to use your own capital to get started, and this could result in loss of wealth.
In addition, nobody will take the trouble to give you the training and practice you require. Also, you cannot progress in your career and get promoted to higher, better paying positions.
You make money only if you bring in the profits. If you don’t bring in the profits, you lose your job.
Independent Day Traders – How Much Do They Earn?
Everybody is excited with the idea of becoming an independent day trader and making millions of dollars from the markets. The simple truth is that independent day traders hardly get to enjoy the benefits of a steady income. Day trading is highly uncertain; you cannot expect a profit even if you work more.
The earning potential of a day trader is in direct proportion to his/her monthly expenses and starting capital. If your starting capital is less than $50,000 and you have to pay bills every month, you will find yourself broke in 6 – 24 months.
The SEC requires day stock traders to have a minimum starting capital of $25,000. Day traders with a starting capital of just double that can risk only $25,000. Trading on a starting capital of less than $50,000 simply won’t give you a trading salary.
Even if you have a starting capital of $100,000 – $250,000, you still won’t make enough money day trading if you have bills to pay every month. If you are an average day trader getting an annual return of 20%, it translates into an annual salary of $20,000 to $50,000.
If you are an above average trader who gets returns of 50% every year, it translates into a salary of $50,000 to $125,000. Top traders can get returns of more than 100%, translating into trading salaries ranging from $100,000 to $250,000 and more.
To get any trading salary by day trading on your own, you need to have a substantial starting capital. If you have to pay bills worth $2000 every month, you need a starting capital of at least $100,000 to earn the trading salary you require.
You can, of course, start with a smaller capital, but only if you have another source of income. If you have no monthly bills to pay or a partner who is willing to pay the bills and handle the monthly expenses, you can get started with a smaller trading capital.
You will read several articles on the Internet about how traders converted a few hundred dollars into a few million dollars through day trading. But you simply must understand that these are the exceptional cases.
Your starting capital should be at least fifty times more than your monthly expenses if you want to see any success. Also, you should remember that you have to pay your taxes. Any income you make with day trading is taxable.
If you are a resident of the US and get an annual return of 20% on a starting capital of $100,000, you may be able to bring home a salary of only $70,000 after paying your taxes. And that translates into a monthly salary of only $5,800.
On the brighter side, if your starting capital is higher, you will be paying less commission to your broker. Most brokers allow you to choose from two ways to pay the commission. You can either pay them a flat fee or a certain amount per share. Most traders choose to pay flat fees to cut costs as they would be trading hundreds and thousands of shares.
As you increase the value of your account, you will have to pay smaller percentages of your profits as commission to the online broker. Most brokers start giving out this offer to traders with an account value of $250,000.
To sum up, you can earn a trading salary of $0 after paying your monthly expenses if you start with a capital of less than $50,000. Your trading salary will be in the range of $50,000 to $125,000 with a starting capital of $250,000. If you can put up a starting capital of $500,000, you can earn anywhere in the range of $100,000 to $250,000 or even more. And all the above-mentioned will happen only if your annual returns are in the range of 20% to 50%.
But, is it possible to turn a little money into a lot of money?
Yes, it is possible. A number of traders have done it, and it is always good to start small. But you should make sure that you can make a profit. If you cannot make a profit out of $5,000, there is a small chance of you making a profit out of $500,000.
The key to success, however, is to stop worrying about day trading salaries. You just cannot afford to blow up all your savings in the market. Instead, you should be thinking in terms of learning, developing strategies, and making profits. You should be thinking in terms of how much you are willing to lose in order to learn and achieve the desired level of success.
Why You Shouldn’t Worry About Salaries
Here is more on why you shouldn’t worry about salaries.
Trading is not a get-rich-quick scheme. It is just like other careers and requires years of commitment, training, hard work, patience, and passion. Of course, a pinch of luck also helps.
Thinking of day trading as a lottery game or a get-rich-quick scheme is the worst mistake you can make. The toughest thing about day trading is the learning part of it. Unfortunately, most beginners are least bothered about the learning part of it, but are only interested in knowing how much money they can make as day traders.
Before you even think of earning a trading salary, you should be willing to put in hundreds and thousands of hours in education, training, and practice. It is similar to spending several years in law school before actually becoming a lawyer. And even after becoming a lawyer, you cannot expect to make as much as your seniors do. Trading is similar to that.
You have to get started as an eager and committed student. And when the time is ripe for you to start trading with real money, you have to think about making small profits, perhaps enough to pay a bill or two. Don’t be in a hurry to earn as much as the top trader who makes more than $250,000 per year.
Learn how to handle risks in such a way that you never blow up your trading account. Think about how much you are willing to lose because you will definitely lose during your initial days as a day trader.
According to an Autorite des Marches Financiers study on the profitability of French Forex traders (2009 – 2012), only one out of ten traders were able to make a profit. The study was on 14,799 traders. Only 11% of these traders, and that is only 1,575 traders were capable of making a profit, and they made a total profit of $17.51 million trading Forex.
When you get started with trading, don’t get overexcited and expect huge trading salaries right away. On the other hand, you should be willing to lose in order to learn and become a successful trader. That’s how all successful traders started their journey.
5 Traders Who Turned Small Amounts into Big Money
The Internet is full of tales of day trading success, and a lot of them are genuine tales of traders who spent years learning day trading and finally succeeded in converting small amounts into major fortunes.
The following are the stories of five such traders who converted their small capital into huge profits:
Park’s Success Story
Market Watch tells the story of how a retail trader named J. Park turned a meagre amount of $600 into a huge sum of $100,000.
Park told Market Watch about how he started by making some easy money through luck alone and then blew up two accounts. Then he began all over again with a starting capital of $600 and recently reported overall profits of $100,000. He said that he used Twitter to learn about trading.
What is more interesting is that he wasn’t a trader by profession. He had to work for a living, but watched the moves of the market between the hours of 9:30 a.m. and 4:00 p.m. He had to do a lot of work outside market hours in order to learn as he hardly knew anything about trading.
He advises beginners never to give up, but warns them that they have to deal with a number of obstacles. He said that, although hindered by lack of knowledge, high commissions, small accounts, and other obstacles, he did not give up. Instead, he used those obstacles as stepping stones to success.
Park is also one of those traders who post their profit and loss statements on Twitter. He started doing so in the middle of 2016 in order to self motivate and to connect with other traders. He says that his Twitter activities have a major role to play in his success.
He also warns new traders not to make the same mistakes that beginners usually make—focus on profits and losses instead of the interesting process of learning. Beginners also tend to blindly copy systems and strategies instead of tweaking and modifying them to suit their personalities, starting capital, and trading goals.
Takashi Kotegawa’s Success Story
Timothy Skyes introduces a successful trader called Takashi Kotegawa on his trading blog. Kotegawa is a Japanese day trader who boosted his account value from 1.6 million yen to 18 billion yen trading stocks for a period of eight years.
When Tokyo’s market collapsed, he turned into a wait-and-watch trader, a decision he regrets to date. He feels that he could have easily earned 500 million yen during those days. When FOMC slashed its interest rate, he sold his stock for 400 million yen. He said that since he only trades short term, he cannot say anything about the future of the Japanese stock market.
Kotegawa neither spends a lot of money on expensive things nor carries a lot of cash around. He feels that the sight of too much cash may hurt his abilities to make informed day trading decisions. He also eats cup ramen most of the time, not only to save time, but also to stay awake and alert.
Harouna Traore’s Success Story
Harouna Traore built a position worth $5 billion thinking that he was on a demo account. He opened a demo account at Valbury Capital to practice trading as he was taking a day trading class in Paris.
The Financial Times tells the story of how he opened a Valbury account with €20,000 and later started practising on what he thought was a demo account. He made more than €1 billion before realizing that he was actually not on a demo account, but a live one. Still, he continued trading and created a position of $5 billion, raking in a profit of €10 million.
Later, he called Valbury and explained the situation to them, but the firm stated that he had breached his contract and therefore could not withdraw his winnings. The trader has sued the firm for $11.6 million, accusing them of negligence and breach of contract.
Tim Skye’s Success Story
Next Shark reports the story of high school senior Tim Skye’s who converted $12,000 into a huge amount of $4.3 million. He did it by trading penny stocks in 1999.
When he was a high school senior, he received $12,415 as a birthday gift from his parents. He used it to trade penny stocks. His parents supported him as they believed that it would be a learning experience for him. They never expected him to make any profits from the money. Rather, they felt that he would lose it all.
Skyes said that he could invest only in penny stocks as he had already invested in big companies when he received his birthday money. Despite investing only in penny stocks, he grew his account to more than $100,000 by the time he finished high school. When he was a freshman in college, his account had become worth $700,000. By the time he was a senior in college, he had made millions of dollars.
He says his success is because he studied stocks almost continuously from day one. He never went out with friends and took night classes in college so that he could learn more about stock trading during the day. He is of the opinion that a trader never really stops learning.
Today, at the age of 34, Skyes has close to $15 million in his bank account. But his focus has now turned to teaching others to become successful traders. He is well-known as a trading guru and runs a program that teaches beginners to make a profit trading stocks.
Tim Grittani’s Success Story
CNN Business relates the tale of Tim Grittani who converted a tiny capital of $1500 into $1 million over a period of three years. The $1500 comprised his life saving at that time, but today, his trading account exceeds $1 million in value.
Interestingly, Tim Grittani did not build his wealth by trading stocks of large companies. Instead, he focused on penny stocks, which are stocks trading for less than a dollar per share on over the counter exchanges. Trading penny stocks is extremely risky and most traders steer clear of them.
He told CNN Business that he traded daily for nearly three years and that the entire process was quite slow and tedious. Grittani spends most of his waking hours glued to a computer as penny stock traders have to be alert enough to enter and exit trade positions at the correct time. Sometimes, he does not hold stocks for more than a few minutes. Very rarely does he hold stock for a few days.
Grittani is one of those rare individuals who capitalized on a market that is extremely volatile, unpredictable, and inefficient. He knows exactly how to pick his stocks. He not only knows how to identify pump and dump scams, but can also make a profit out of them without actually pumping or dumping any stock.
Conclusion –What’s Your Next Step?
Success stories are highly inspiring, but walking in the footsteps of a successful trader is far from easy. It is just not something that everybody can do.
If you decide to get a job as a day trader for a public or private firm, you will definitely get a good salary, but that is a small salary when you compare it to the bonus you can receive if you turn in huge profits for your company.
You won’t exactly get a salary as an independent trader, but you definitely get profits if you trade in the right way. Nobody will give you a salary in the traditional sense of the term for the number of hours you put in. You are on your own, an investor making returns on your own capital or creating income on the basis of investment decisions you take independently.
Exactly how much you make as an independent day trader is entirely up to you. Many traders are happy making around $500,000 every year and don’t want to do more. Some traders make just enough to pay a few bills. Many just struggle, blowing up their accounts and moving away from the markets in disappointment. And there are many traders who are just not happy with the profits they make every year, irrespective of the amount they make.
If you want to make day trading your job, you have to first decide whether you would like to trade for someone else or trade on your own. Your aim is to make enough to enable you to not only continue trading, but also fund your lifestyle.
The exact amount you make by day trading depends on your starting capital and your ability to convert your starting capital into profits on a regular basis. And make sure that your focus is not on earning a salary, but on generating consistent profits.