As someone who has been day trading professionally now for over a decade I've become used to getting a LOT of questions about what I do. Being a day trader is just one of those things that seems to pique peoples' curiosity. One question in particular comes up a lot though, how much do day traders make? Since this is something I cover fairly often I thought it would be a good idea to put together a detailed article on the subject to look at potential day trader income, some of the costs and fees involved with trading, and how profits (and losses) occur in typical trades.
Understanding Trading Risk and Limiting Losses
Before we get going it's important to mention that trading can be a risky endeavour and you should make sure that you have a good plan and educate yourself before getting started. There's some good disclaimers here and at the bottom of this page that you should read before you get started to ensure you know what's involved.
Although trading can be risky the best part about it is that it doesn't have to be as you can fully define your own risk on a single trade which keeps your downside limited while the income potential can still be very, very high. Trading becomes risky when a trader works without stop losses and no limits on risk but any informed trader should keep a firm cap in place for account risk on a single trade or during a single day which keeps them safe and is the first step to achieving consistent profitability.
Remember, even though day trading profits can be extreme the number one priority of any day trader is protecting their account!
Wins and Losses
Before we get started with the answer to the question of how much do day traders make, we should take a look at a couple typical trades so we know where and how that day trader income is built. For the purposes of this article I'm going to base our analysis around the goals of the STA Day Trading System which is to make 10 to 15 points per week while keeping our risk on any single trade limited to just 1.25 points.
Example of a Winning Trade
This is an example long trade that we commonly see in trends and that you'll see hundreds of times throughout the Samurai Trading Academy website in Recaps and Student Updates as it repeats multiple times most days. In this case our rules define a 2 point profit target with a 1.25 stop loss in place. As I mentioned earlier, it's CRITICAL to define our risk and we do it on every trade to limit the size of losses. In this case we are only looking for a couple of points but sometimes we aim for 3 to 5 points on a single trade which means that we can keep losses small and wins much larger by comparison.
In futures trading you can decide how many contracts you want to trade whether it's just one, ten, or even hundreds. If this trader went long and bought a single contract they would win $100 in this example as they made 2 points and each point is worth $50 for one contract. In the case of a more experienced trader who is trading 10 contracts they would see a profit of $1,000 in the eight minutes that it took for this trade to reach its target.
Example of a Losing Trade
It's only reasonable that we also take a look at a losing trade to understand its impact on the bottom line as well. This short is similar to our prior example but just in the opposite direction. Trading both long or short isn't an issue in futures trading (unlike trading stocks) and often short trades have the highest profit potential.
However, in this case we missed our 2 point profit target by a couple of ticks (there are four 0.25 ticks to a single point) and ended up taking a loss. If going by the defined trading plan in the STA Day Trading System we will bring our stop in tighter in cases like this so instead of our initial 1.25 point risk (5 ticks) we would be risking only half a point (2 ticks).
As we discussed in the last example, each point for a single futures contract is worth $50 so in this case we would take a loss of $25 for the half point move against us. Although this example shows a case where our system would limit our loss it's important to note that if this weren't the case our maximum loss on this trade would have been $62.50 on a single contract if it hit our stop loss at 1.25 points (5 ticks). Of course, just as in our long example the loss would be multiplied if you were trading multiple contracts.
Notice that in these examples of common STA trades our wins are much bigger than our losses. Making sure this is the case is a critical component to having a highly profitable system with limited drawdown!
So How Much Do Day Traders Make?
So now that we've looked at how a day trader would typically trade and how wins and losses break down we can properly address the question at the core of this article. While it's true that day traders can potentially make hundreds of thousands of dollars per year or even millions, it's important to note that it usually takes time to build up to that level. Those higher income levels aren't just about having a large account and being able to take on big positions. It's about building up a tolerance for risk and the emotional stability to manage positions well when thousands of dollars are on the line. That takes time and effort to achieve for most people.
More realistically a new trader is going to begin his live trading career with somewhere between 1 to 5 contracts traded at a time. This limits his income potential initially but it's important not to take on too much risk too early until you've built your skills to a high level and have established a track-record of consistently profitable results. Only then should you be looking at trading a much higher contract load which can be 10 contracts or even far more.
It's also crucial that a trader keeps their overall trading account risk low which is why I generally recommend only risking 1 to 2% on any single trade.
An Income Breakdown
In the chart above we see the gross trading profits for three traders over the course of a week, month, and year. These are based around the goals of our STA methdology as outlined above where an intermediate trader will aim for weekly profits in the 10 to 15 point per week range as this is something that can be achieved with a high degree of consistency over time.
Fees and Commissions
Since these are gross trading profits there will also be some commissions and fees deducted. For most traders opening a new account, their round-trip fees (entering and exiting a trade) will be around $4 for a single contract. As a trader becomes more established there are numerous ways to reduce these fees and costs as many brokers offer discounts to those who are trading a high contract volume each month.
How much your costs take away from your gross trading income depends on how often your strategy trades. Some traders will take dozens of trades every single day which can really hurt their bottom line as those fees and commissions will quickly add up. A more sustainable day trading approach with a large positive trading expectancy, such as the STA trading system, will only trade a handful of times (usually 3-6 trades per day) which keeps your costs as only a small percentage of your overall trading income.
Like any other business it's important to keep your costs low as a day trader to ensure you are as profitable as possible overall.
The Potential for Personal Growth and Profit
The breakdown above gives you a fair look at what you can expect in the early to intermediate stages of your day trading career after consistent profitability is achieved but it's by no means the upper limit. If there's one thing that I consider to be the best aspect of this business it's that there's always room to continue growing personally and professionally and unlike most careers you will actually see that growth reflected by your bottom line.
As day traders continue to improve their skills and their ability to understand and tolerate risk it opens up possibilities far beyond the chart above. Some of the graduates of the STA Training Program have regularly traded 20, 50, or even more contracts at a time. Because the Emini S&P 500 (ES) futures market is so large and there's so much liquidity available there's even the potential to trade hundreds of contracts at once. You don't need much much skill to look at the chart above and see what that would mean for a day trader's income.
For many traders who have been consistently profitable for years they find their income eventually balances with their risk tolerance. What this means is that some traders find they can build up to something like 20 contracts per trade and make an excellent income which is very stable but when they go beyond that they find the extra risk makes them less comfortable and they aren't as profitable. Some reach this balance of profitability and emotional tolerance at ten contracts, some at hundreds, but what matters is that they are trading within their comfort zone in a sustainable way for the long term.
As mentioned earlier in this article, the key to unlocking these high levels of day trading income are following your trading plan with consistency and protecting your account by limiting losses. By taking a slow and steady approach to account growth, income generation, and skill development a trader can unlock nearly limitless potential both professionally and personally.
There's no doubt in my mind that trading is one of the most fascinating careers out there. Every day presents its own challenges to conquer and opportunities to grow. The financial rewards and personal freedom are rarely matched even in other entrepreneurial endeavors. It really is an amazing business and my decision to become a day trader over a decade ago is without a doubt the best one I've ever made.
