Do Day Traders Make Money?

Some people envision making thousands of dollars per day while day trading, but that’s much harder than it sounds. To succeed as a day trader, you need to understand and be able to predict the small market fluctuations that happen day by day — or even hour by hour. 

Day trading demands significant knowledge of the market, impeccable timing, tolerance for risk and a little (or a lot of) luck. But do day traders make money?

What is Day Trading?

Day trading is a high-risk form of investment. Most traditional investors purchase stocks, hold them over the long term and eventually sell them for a profit. If you’re patient, this strategy can give you fairly reliable returns.

On the other hand, day trading is a strategy where investors attempt to profit from short-term industry fluctuations. Day traders will usually buy and sell the same stock on the same day.

So is Day Trading Profitable?

The short answer is that it can be — but it often isn’t. A 2019 study published in Financial Analysts Journal found that the number of day traders who lose money is roughly double the number of day traders who make money.

That study isn’t an anomaly. Most research into day trading suggests similar results — some traders make money, and many more do not.

That doesn’t mean you should rule out day trading if you’re interested in it. But if you want to maximize your chances of success, take a close look at the pros and cons of this trading strategy before you begin.

Financial Pros of Day Trading

Lots of people are drawn to day trading. And when you take a close look at the potential advantages, it’s easy to see the appeal.

High Earnings Potential

The promise of massive returns is one of the main factors making everyday people want to be day traders. You may have seen social media posts boasting about making six-figure profits in a single day. Earnings like this are certainly possible, although six-figure profits aren’t an everyday occurrence.

Independent Working Environment

Not everyone likes working in an office environment. If you choose to be a day trader, you can select your own hours and your own workspace. You can create a home office or even work in a park or coffee shop as long as you have a strong internet connection.

The freedom to make your own schedule is also a major plus. You can choose your working days and days off, and you can schedule breaks and holidays without worrying about running it by a supervisor first.

Control Over Investment Decisions

Day trading might be risky, but it allows you plenty of agency in your trading decisions. With this type of trading style, you don’t need to follow orders or guidelines from anyone. That being said, it might be a good idea to get some advice from an experienced day trader or two if you’re new to the field.

Financial Cons of Day Trading

No trading strategies are unilaterally good or bad. Day trading has a lot to recommend it, but you should still take a close look at the potential downsides before you begin.

High Risks Involved

Risk is a fact of life when it comes to investment, but day trading amplifies that risk. Success depends on making fast, accurate predictions about volatile markets, and even highly skilled traders experience major losses from time to time. 

The risk goes up when you use leverage, too. If you use a lot of leverage on a trade and lose, you won’t just lose the money you put in — you’ll also be in debt.

Costly Mistakes Can Lead to Significant Losses

Even something that seems like a minor error in judgment can lead to financial loss. Day trading also has a substantial learning curve, and many traders lose a significant amount of money in their first month or two of trading. Some never recover those losses.

Constant Monitoring of the Markets

This is one of the most stressful aspects of the job. If you want to spot and take advantage of emerging trends, you need to be able to focus on the fluctuations of multiple tickers for hours at a time.

Popular Day Trading Strategies

If you want to succeed as a day trader, you need a solid strategy. Doing some in-depth research and practicing with a demo account can help you build your day trading strategy even before you put money on the line. Here are some common methods:

• Scalping: You sell your shares right after selling will generate a profit.
• Pullback trading: You wait for a high-performing stock to decline and then buy.
• News trading: You keep an eye on the news, use it to predict trends and buy or sell accordingly.
• Momentum trading: You find a stock whose price is moving dramatically upward and purchase it as soon as possible.

These are merely introductions to a few strategies — books, courses and other resources for traders can help you gain more complete knowledge. 

Tips for Making Money as a Day Trader

Do day traders make money? Yes, but it’s not guaranteed. Day trading is a challenging endeavor for anyone. To maximize your chances of turning a profit, check out these helpful tips.

Research and Develop a Plan

A deep, thorough knowledge of the market and how it works is essential. Reading a few quality books for day traders is a good place to start. So is taking a course for aspiring day traders.

When developing your plan, you can also lean on your knowledge from other trading experiences — if you’re new to the stock market, day trading isn’t a great place to start.

Create a Risk-Management Strategy

Risk management is important for any type of investment but especially for day trading. Deciding on quantifiable risk tolerance and making use of stop losses can help protect you against catastrophic losses.

Control Emotions and Stay Disciplined

For most people, dealing with money — especially during the high-stress process of day trading — inspires a range of emotions: fear, elation when winning and despair after a loss. 

One of the key traits of successful day traders is their ability to not let their decisions be influenced by their emotions. Stick with your strategy, and don’t make impulse buys or sales based on a loss or a win.

Stay Up to Date with News and Market Trends

Some day trading strategies revolve around the news and how it impacts stocks. Even if that isn’t your chosen strategy, keeping up with news and trends will help you to better predict the market. Day trading involves plenty of split-second decisions, so the more useful information you can internalize, the better.

Start Day Trading with These Top Brokers

Choosing the right broker makes a huge difference when trading. Check out Benzinga’s picks for the top brokers to start trading with.

Ready to Embark on a New Adventure?

Do day traders make money? The best ones do. If you have a high risk tolerance and love a good adrenaline rush, day trading just might be right for you. As long as you are prepared for losses and have a willingness to learn, you may find that you become one of the relatively few day traders who make money.

Building your knowledge will give you a better chance at success. Benzinga offers courses, guides, articles and other resources to help traders of all experience levels find success.

Frequently Asked Questions