Let’s face it, this is what day traders and potential day traders want to know–”How much money can a day trader make?” Obviously there is a massive range of income potential when it comes to day traders. It is quite possible that some will still need to work another job, but manage to a pull a little money of the market each month through day trading. There are those who can live comfortably on what they make day trading, and there is the small percentage that make a lot.
How much money you make as a day trader will be largely determined by:
–Which market you trade. Each market has different advantages. Stocks are generally the most capital intensive asset class, so if you trade another asset class such as futures or forex you can generally start trading with less capital.
–How much money you start with. If you start trading with $25,000 your income potential is less than someone who starts with $40,000.
–How much time you put in to your trading education. To get to the level of trading discussed in the scenario below–where you have a solid trading plan and are able to implement it–it will likely take a year or more if you dedicate yourself to it full-time. If can only apply yourself to trading part time, it may take several years to get to this level.
Your income potential will also be determined by your personality–are you disciplined, patience, etc–and the strategies you use. Although, these issues will not be our focus here.
Now, let’s go through a scenarios to answer the question, "how much money can a day trader make, trading the stock market?"
The scenario assumes you'll never risk more than 1% of your account on a single trade. Risk is the potential loss on a trade, defined as the difference between the entry price and stop price, multiplied by how many units of the asset you are holding.
There is no reason to risk more than 1% of your account. Even with keeping risk very low, you can earn a good income from day trading.
How Much Money Can a Day Trader Make, Trading Stocks?
Day trading stocks is probably the most well-know day trading market, but it is also the most capital intensive. To day trade stocks you’ll need more than $25,000 to effectively day trade. And in the USA you are required to have at least that much in your day trading account, otherwise you can’t trade (see: How to Become a Day Trader).
So assume you start trading with $30,000. And you are leveraged at 4:1, which gives you $120,000 in buying power. You utilize a strategy that makes you $0.18 on winning trades and you limit risk to $0.12 on losing trades. With slippage or being forced to exit some trades early to due to news coming out or the market closing, let’s assume over the course of a month, your average winning trades actually end up being $0.16 and your average losers actually end up being $0.13.
With a $30,000 account, the most you can risk on each trade is $300. Since your stop is $0.12, you can only take a position of 2300 shares, even though you could purchase more with your current buying power (but we want to risk less than 1% of account). To attain these sorts of day trading figures, you’ll likely need to trade stocks that are $30+, with volatility and lots of liquidity.
A good trading system will win 60% of the time, or more. You average 5 trades per day, so if you have 20 trading days in a month, you've made 100 trades.
60 of them were profitable: 60 x $0.16 x 2300 shares = $22,080
40 of them were unprofitable: 40 x $0.13 x 2300 shares = ($11,960)
You make $10,120, but you still have commissions and possibly some other fees. Assume your cost per trade is $15 (this is fairly high). Therefore, your commission costs are: 100 trades x $15 =$1500. If you pay for your charting/trading platform, or exchange entitlements then these fees must be added in as well.
Therefore, with a decent stock day trading strategy, and $30,000 (leveraged), you can make roughly:
$10,120 – $1500 = $8,620/month
As your account grows slowly, so can your share positions (in proportion to the account growth) and thus the larger your income will become.
Remember, you are actually utilizing about $75,000 to $100,000 in buying power on each trade since you are leveraged. This means your monthly return is about 8.5% based on your buying power. Some will consider this very high, and for a hedge fund which needs to find places to invest billions of dollars this is a huge return. But for a day trader that can slip into and out of opportunities with ease, and with a disciplined strategy, this is an attainable return.
How Much Money Can a Day Trader Make? – Final Word
Notice how your winners were only slightly bigger than your losses, and you only win a bit more than you lose? Yet, when you add it all up at the end of the month it turns out to be a great income. Successful traders don’t try to hit home runs when they trade. They trade a simple system that allows them a slight edge. Once you realize this, your account will grow and can exploit this slight edge with more shares to increase your monthly income.
The problem is that most traders can’t handle losing 40 to 45% of the time. They think they are doing something wrong and keep switching strategies. This constant lack of discipline and flip-flopping of strategies results in losing even more often.
Keeping risk in check is also imperative. Never place a trade right before a major news announcement, as your loss could end much bigger than anticipated–even if you have a stop in place.
Maintain discipline, keep your wins slightly bigger than your losses, and strive to win 55%+ of your trades. Do this, and you can make a livable income from day trading.
Increase your win rate or profit per trade and your income will increase. Decrease your win rate or increase your loss per trade and your income will drop.