day trader
Verfasst: Di 28. Nov 2023, 14:31day trader
A day trader's income varies and depends on the myriad trading strategies, risk management practices, and amount of capital available In March 2023, the average day trader's annual salary ranged between $34,000 and $96,500 1
Whether choosing stocks, options, futures, commodities, or currencies, day traders enter and exit positions within the same day Losing money is common for day traders as many individual investors hold undiversified portfolios and trade actively, speculatively, and often to their detriment 2
Day traders commonly incur high brokerage fees, so selecting the best broker and creating a manageable trading strategy with proper risk management is essential
What Day Traders Do
Day traders typically target stocks, options, futures, commodities, or currencies (including crypto) They enter and exit positions within the same day (hence the term day traders) They hold positions for hours, minutes, or even seconds before selling them They rarely hold positions overnight
The goal is to profit from short-term price movements Day traders can also use leverage to amplify returns Of course, leverage can also amplify losses 3
Setting stop-loss orders and profit-taking levels—and avoiding too much risk—is vital to surviving as a day trader Professional traders often recommend risking no more than 1% of your portfolio on a single trade If a portfolio is worth $50,000, for example, the most to risk per trade is $500
The key to managing risk is to prevent one or two bad trades from wiping you out If you stick to a 1% risk strategy, set strict stop-loss orders, and establish profit-taking levels, you can limit your losses to 1% and take your gains to 1 5% or above However, this takes discipline
Stock Strategy
Stock trading Strategy
Example of a Day-Trading Strategy in Action
Consider a strategy for day-trading stocks in which the maximum risk is 4 cents and the target is 6 cents, yielding a risk/reward ratio of 1-to-1 5 A trader with $30,000 decides that their maximum risk per trade is $300 Therefore, 7,500 shares on each trade ($300/4 cents) will keep the risk within the $300 cap (not including commissions)
Here’s how such a trading strategy might play out
60 trades are profitable 60 × $0 06 × 7,500 shares = $27,000
45 trades are losers 45 × $0 04 × 7,500 shares = ($13,500)
The gross profit is $27,000 - $13,500 = $13,500
If commissions are $30 per trade, the profit is $10,350, or $13,500 - ($30 × 105 trades)
Of course, the example is theoretical Several factors can reduce profits A risk/reward ratio of 1-to-1 5 is fairly conservative and reflects the opportunities that occur all day, every day, in the stock market The starting capital of $30,000 is also just an example of a balance with which to start day-trading stocks You will need more if you wish to trade higher-priced stocks
Earning Potential and Career Longevity in Day Trading
An important factor that can influence earnings potential and career longevity is whether you day- trade independently or for an institution such as a bank or hedge fund Traders working at an institution don’t risk their own money and are typically better-capitalized They have access to advantageous information and tools
Some independent trading firms allow day traders to access their platforms and software, but they require them to risk their own capital
Stock Strategy
Stock trading Strategy
Other important factors that can affect a day trader’s earnings potential include
Markets in which you trade Different markets have different advantages Stocks are generally the most capital-intensive asset class Individuals can start trading shares with less capital than with other asset classes, such as futures or foreign exchange
How much capital you have If you start with $3,000, your earnings potential is far less than someone who starts with $30,000
Time Few day traders achieve success in just a few days or weeks Profitable trading strategies, systems, and approaches can take years to develop
4×
The maximum that rules permit a pattern day trader to trade in excess of the $25,000 maintenance margin 4
Day-Trader Salary
Whether they're trading for themselves or working for a trading shop and using the firm’s money, day traders typically don't get paid a regular salary Instead, their income is derived from their net profit These profits include what’s left over after deducting trading fees and commissions, the cost of trading software or connections to exchanges, and any “seat fee” paid to a trading firm
A day trader can have dry spells or experience volatility in their earnings As a result, many trading firms offer instead a draw in lieu of a salary This is often a modest amount of money meant to cover everyday living expenses and is drawn monthly Then, any excess earnings are paid out in the form of bonuses This also means that if you don’t make enough trading profits to cover your draw, you may end up owing the company money
A day trader's income varies and depends on the myriad trading strategies, risk management practices, and amount of capital available In March 2023, the average day trader's annual salary ranged between $34,000 and $96,500 1
Whether choosing stocks, options, futures, commodities, or currencies, day traders enter and exit positions within the same day Losing money is common for day traders as many individual investors hold undiversified portfolios and trade actively, speculatively, and often to their detriment 2
Day traders commonly incur high brokerage fees, so selecting the best broker and creating a manageable trading strategy with proper risk management is essential
What Day Traders Do
Day traders typically target stocks, options, futures, commodities, or currencies (including crypto) They enter and exit positions within the same day (hence the term day traders) They hold positions for hours, minutes, or even seconds before selling them They rarely hold positions overnight
The goal is to profit from short-term price movements Day traders can also use leverage to amplify returns Of course, leverage can also amplify losses 3
Setting stop-loss orders and profit-taking levels—and avoiding too much risk—is vital to surviving as a day trader Professional traders often recommend risking no more than 1% of your portfolio on a single trade If a portfolio is worth $50,000, for example, the most to risk per trade is $500
The key to managing risk is to prevent one or two bad trades from wiping you out If you stick to a 1% risk strategy, set strict stop-loss orders, and establish profit-taking levels, you can limit your losses to 1% and take your gains to 1 5% or above However, this takes discipline
Stock Strategy
Stock trading Strategy
Example of a Day-Trading Strategy in Action
Consider a strategy for day-trading stocks in which the maximum risk is 4 cents and the target is 6 cents, yielding a risk/reward ratio of 1-to-1 5 A trader with $30,000 decides that their maximum risk per trade is $300 Therefore, 7,500 shares on each trade ($300/4 cents) will keep the risk within the $300 cap (not including commissions)
Here’s how such a trading strategy might play out
60 trades are profitable 60 × $0 06 × 7,500 shares = $27,000
45 trades are losers 45 × $0 04 × 7,500 shares = ($13,500)
The gross profit is $27,000 - $13,500 = $13,500
If commissions are $30 per trade, the profit is $10,350, or $13,500 - ($30 × 105 trades)
Of course, the example is theoretical Several factors can reduce profits A risk/reward ratio of 1-to-1 5 is fairly conservative and reflects the opportunities that occur all day, every day, in the stock market The starting capital of $30,000 is also just an example of a balance with which to start day-trading stocks You will need more if you wish to trade higher-priced stocks
Earning Potential and Career Longevity in Day Trading
An important factor that can influence earnings potential and career longevity is whether you day- trade independently or for an institution such as a bank or hedge fund Traders working at an institution don’t risk their own money and are typically better-capitalized They have access to advantageous information and tools
Some independent trading firms allow day traders to access their platforms and software, but they require them to risk their own capital
Stock Strategy
Stock trading Strategy
Other important factors that can affect a day trader’s earnings potential include
Markets in which you trade Different markets have different advantages Stocks are generally the most capital-intensive asset class Individuals can start trading shares with less capital than with other asset classes, such as futures or foreign exchange
How much capital you have If you start with $3,000, your earnings potential is far less than someone who starts with $30,000
Time Few day traders achieve success in just a few days or weeks Profitable trading strategies, systems, and approaches can take years to develop
4×
The maximum that rules permit a pattern day trader to trade in excess of the $25,000 maintenance margin 4
Day-Trader Salary
Whether they're trading for themselves or working for a trading shop and using the firm’s money, day traders typically don't get paid a regular salary Instead, their income is derived from their net profit These profits include what’s left over after deducting trading fees and commissions, the cost of trading software or connections to exchanges, and any “seat fee” paid to a trading firm
A day trader can have dry spells or experience volatility in their earnings As a result, many trading firms offer instead a draw in lieu of a salary This is often a modest amount of money meant to cover everyday living expenses and is drawn monthly Then, any excess earnings are paid out in the form of bonuses This also means that if you don’t make enough trading profits to cover your draw, you may end up owing the company money