Average income of a day trader

Written by kevinr
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Average income of a day trader
Day Traders' Income (office details image by .shock from Fotolia.com)

The vast majority of people who try to trade for a living go bust. This isn't to say that it is impossible because trading is essentially what successful hedge funds do, and their management teams make huge fortunes. However, even the vast majority of hedge funds fail in their first few years. Thus trying to put an average figure on the income of a day trader is an impossible task since you'd have to balance the huge salaries of the successful, against the losses of the failures.

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Taiwan Study

A 2004 study of Taiwanese day traders conducted by U.C. Berkeley found that 8 of 10 high volume traders lost money in a six month period. Whatever profits they earned were eaten up by their transaction fees. Nevertheless, a very few were found to be extremely successful.

Some people have an innate talent for trading or are simply born lucky. Since day-trading is a form of gambling, we should expect that a few people will be successful at it, just as a few people make money as professional poker players.

Traders at Firms

People who can trade successfully are in demand at hedge funds and investment banks and can command enormous salaries. The 2008 Hedge Fund Compensation Report found that the average salary for junior traders was around £130,000, when bonuses and other compensation were factored in.

If you're good at trading, a hedge fund is probably the place to do it.

Home traders

The average income for day traders using their own money from home is almost certainly negative, and probably wouldn't be enough to support yourself.

Consider that an annual income of £19,500 would require a person to have an account worth £65,000, and earn a 30% return after taxes, which is extremely unlikely. Having less money would require you to do even better. Note that you would be living off of your paltry returns, so the value of your account would not benefit from the growth of compound interest.

Day Trading Programs

Lots of websites out there claim to have systems that will help you make tons of money. They claim 90 per cent effectiveness or the like. This is all probably baloney. Just like the people who sold things to gold miners in the 1850s were the ones who made all the money, the people selling programs to day traders are the ones profiting today.

Day Trading is a Fool's Game

For most people, trying to time the market or make tons of trades to beat the market is going to bite you. Most people would be better off in low-cost index funds with their assets allocated to protect against market downturns. Use your time to learn something more valuable than how to be a better gambler.

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