How Much Money Can a Day Trader Make? (Employee or Independent)

Trading concepts

How much traders make

Perhaps everyone familiar with the world of trading is curious about one thing. How much do day traders make? Questions about returns for day traders often arise. But, it is next to impossible to answer those questions. A very few day traders disclose their income. Trading results also vary given trading strategies, risk management techniques, and available capital amounts vary from trader to trader.

  • How much can traders make?
  • Is it better to day trade your own money or join an investment firm as an employee?
  • All the answers are below!

People see numerous claims daily on social media platforms that traders make thousands of dollars a day. Even some traders claim to make hundred plus thousands in a single day. Although these numbers lie outside the realm of the norm but are certainly not out of reach. Day trading is highly unpredictable. How much can you make from trading as an independent trader? Let us say it depends on how efficient and effective your trading strategies and techniques are. 

What if traders are working for some finance companies or banks? How much money do they make when working as an employee? These are some questions this article aims to answer. 

What is day trading and what do day traders do?

Day trading is a type of trading where traders enter a trade, hold their positions for a few minutes or hours, and exit their positions. Its timeframe ranges between a few minutes to hours. Day traders never hold their position overnight. They capitalize on the small fluctuations in prices of stocks, currencies, futures, options, or commodities. 

Day traders make the best use of stop-losses and profit-taking levels to avoid excessive risk. Successful day traders advise not to take risk more than 1% of the portfolio on one trade. The key here is to be always on the safe side and don’t let a single bad trade consume all your capital. Thus, day trading requires discipline and tight control over your emotions. 

Is it profitable to be a day trader? 

The “Is it profitable to be a day trader?” question is a question that has no straightforward “yes” or “no” answer. It depends on the following key factors. 

  • How much knowledge, skills, and experience do you have for day trading? Remember that it takes a lot of time to master trading and understand financial markets. Even the most successful traders like Marty Schwartz took 10 long years to start making profitable trades.
  • How much time do you have to invest? Start making profitable trades also depends on how much time do you have for trading. 
  • How effective and efficient your trading strategies and trading techniques are?
  • Are your risk management and money management techniques good?

How much can you earn from day trading? 

How much do day traders make and how much can you earn from day trading? Let us dig a bit deep to get answers to those questions but first things first. Are there any factors that decide how much can you earn from day trading even before you commence trading? Yes, there are a few factors that directly affect your earning prospects. 

  1. How much money you have to start day trading? Your earning potential depends more on your capital than anything else. For example, you have $3000 to invest and your friend has $30,000. Your friend has more earning potential than you because he has more money to trade.
  2. In which market do you want to trade? Different markets have different earning potentials. So, your earning potential will vary depending on the market type.
  3. How much patience do you have? We have already mentioned that it takes years to start making profitable trades. Do you have that much patience and time? Haste makes waste. Once you develop a profitable strategy, system, and approach, you start making money.

Now, let us consider a scenario to give a rough answer to frequently asked questions about returns for day traders. Remember that you do not need to take too much risk to be profitable and make money. Don’t go beyond the 1% threshold of taking a risk. Even with keeping risks at the lowest, you can earn significant money. (Note: The scenario is just for making you understand how much can you earn from day trading. It is an example designed to show the earning potential and doesn’t mean you will also make that much money.)

Consider a strategy that has a maximum risk level of $0.10 and the profit target is $0.15. So, the risk/reward ratio is 1:1.5. A trader with $20,000 decides the maximum permitted risk per trade is $200 (1% of $2000). Thus, to keep the risks within the $200 limit, 2000 shares on each trade are enough. If you make 100 trades in a month, you can win at least 50 trades with a good trading strategy. So,

  • 50 successful trades will yield: 50×0.15×2000 = $15,000
  • 50 unsuccessful trades will cost: 50×0.10×2000 = $10,000
  • The gross profit will be $5000

But, such a theoretical example can only become a reality when you reach a level where you can earn living from day trading. Moreover, figures taken in the scenario are just supposed for comprehension purposes. 

How much money traders make when working as an employee?

Just like the rest of the jobs, traders’ salaries also vary from trader to trader. Their salaries depend on factors like job position, trader’s role, 

seniority, the company they are working for, and even the city of their company. It is difficult to know the exact numbers of traders’ salaries. However, there are a few sources that can give an idea to draw conclusions. 

According to Indeed, an average basic salary of a trader in the United States of America is $85,091 per year plus $25000 commission per year. Performance Radiator is the highest paying company in the USA that pays a trader $302,242 per year. Indeed also reports that Boston is the highest paying state with a $140,253 per year average salary of traders. According to Payscale, an average salary of an equity trader is $82,731. Glassdoor quotes an average salary of $100,283 per year in the USA. These are some figures to give you a rough idea of how much traders earn through jobs. 

Final thoughts

How much do day traders make? Or, How much can you earn from day trading? Such questions have no clear-cut answers. We can’t give you exact numbers. But, we assure you that day trading has a lot of earning potential. As the above scenario indicates, you can earn a good amount of money even if you keep risks at the lowest. 

There is no guarantee that you will make profitable day trades. You cannot predict either how much money you can make. However, there are day trading strategies you should master, manage your risks properly, be patient, and be disciplined to make money. 

Traders who prefer to work as an employee rather than being independent trader also make a lot of money. Their average salaries are in the range of $85,000 to $100,000 per year. However, salaries of trading jobs vary significantly and depend on a lot of factors. Their salaries continue to rise as their experience and efficiency improve.

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