How Much Money Can I Make As a Day Trader? – Here we’ll look at income potential for stock, forex and futures day traders.
Let’s face it, this is what traders and potential traders want to know–“How much money can I make as a day trader?” Obviously there is a massive range of income potential when it comes to day traders. It is quite possible that some people will still need to work another job, but manage to pull a little money of the market each month through day trading. There are those who can live comfortably on what they make day trading, and there is the small percentage who will make a lot. There is also a large group of want-to-be traders who will fail, and never make any money.
How much money you make as a day trader is largely determined by:
- Which market you trade. Each market has different advantages. Stocks are generally the most capital-intensive asset class, so if you trade another asset class such as futures or forex you can generally start trading with less capital.
- How much money you start with. If you start trading with $2,000 your income potential (in dollars) is far less than someone who starts with $20,000.
- How much time you put in to your trading education. To create consistent day trading income–where you have a solid trading plan and are able to implement it–will likely take a year or more if you dedicate yourself to it full-time. If you only practice part-time, it may take a number of years to develop real consistency and attain the type of returns discussed below.
Your income potential is also determined by your personality (are you disciplined and patient?) and the strategies you use. These issues are not our focus here. If you want trading strategies, trading tutorials or articles on trading psychology you can visit the Trading Tutorials page, or check out my Forex Strategies Guide eBook.
Income potential is also based on volatility in the market. The scenarios below assume a certain number of trades each day, with a certain risk and profit potential. In very slow market conditions you may find fewer trades than discussed, but in active market conditions you may find more trades. Over time, the average number of trades balances out, but on any given day, week or month you could have more or fewer trades than average…which will affect the income that month.
Now, let’s go through a few scenarios to answer the question, “How much money can I make as a day trader?
For all the scenarios I will assume that you never risk more than 1% of your account on a single trade. Risk is the potential loss on a trade, defined as the difference between the entry price and stop loss price, multiplied by how many units of the asset you take (called position size).
There is no reason to risk more than 1% of your account. As I will show, even with keeping risk low (1% or less per trade) you can potentially earn high returns.
The numbers below are based purely on mathematical models, and are not meant to indicate you will make this much. The numbers below are used to show the potential, but are not intended to reflect typical returns. As indicated in the first paragraph, most traders fail.
How Much Money Can I Make Day Trading Stocks?
Day trading stocks is probably the most well-known day trading market, but it is also the most capital-intensive. In the USA you must have at least $25,000 in your day trading account, otherwise you can’t trade (see: How Much Money Do I Need to Become a Day Trader). To stay above this threshold, fund your account with more than $25,000.
Assume you start trading with $30,000. You use 4:1 leverage, which gives you $120,000 in buying power (4 x $30,000). You utilize a strategy that makes you $0.21 on winning trades and you lose $0.12 on losing trades. With slippage, or being forced to exit some trades early to due to news coming out or the market closing, let’s assume over the course of a month your average winning trade actually ends up being $0.20 and your average loser ends up being $0.13.
With a $30,000 account, the absolute most you can risk on each trade is $300 (1% of $30,000). Since your stop loss is $0.12, you can take a position size of 2300 shares (the stock will need to be priced below $50 in order to take this position size, otherwise you won’t have enough buying power). To get those types of stats from a trade, you’ll likely need to trade stocks that are $30+, with some volatility and lots of volume (see How to Find Volatile Stocks for Day Trading).
A good trading system will win 50% of the time. You average 5 trades per day, so if you have 20 trading days in a month, you make 100 trades per month.
50 of them were profitable: 50 x $0.20 x 2300 shares = $23,000
50 of them were unprofitable: 50 x $0.13 x 2300 shares = ($14,950)
You net $8,050, but you still have commissions and possibly some other fees. While this is likely on the high-end, assume your cost per trade is $20 (total, to get in and out). Your commission costs are: 100 trades x $20 =$2000. If you pay for your charting/trading platform, or exchange entitlements then those fees are added in as well.
Therefore, with a decent stock day trading strategy, and $30,000 (leveraged at 4:1), you can make roughly:
$8,050 – $2000 = $6,050/month or about a 20% monthly return.
Remember, you are actually utilizing about $100,000 to $120,000 in buying power on each trade (not just $30,000). This is simply a mathematical formula, and would require finding a stock where you could make this reward:risk ratio five times a day. That could prove difficult. Also, you are highly leveraged, and there is a chance of catastrophic loss if a stock where to move aggressively against you and your stop loss became ineffective. You could face a significant loss or even lose your entire account if the price were to move even several percentage points against you (unable to exit at planned exit point).
How Much Money Can I Make Day Trading Futures?
To trade an E-mini S&P 500 futures contract you should have at least $7,500 in your futures trading account. That will allow you to trade one contract with a reasonable stop loss and still only risk 1% of capital (see Minimum Capital Required to Trade Futures).
Let’s assume you have $15,000 to start your trading account. Once again you only risk 1% of your capital, or $150, on any single trade.
Each tick–the smallest movement–in an E-mini S&P 500 contract results in a loss/gain of $12.50. If you risk up to $150 on each trade, that means you can trade 2 contracts and risk 6 ticks on each trade for a total risk of $150. Your risk is 6 ticks, and you will try to make 9 ticks. Of course, sometimes we need to get out of a trades a little early, so assume the average winner only ends up being 8 ticks, and the average loss is 5 ticks.
A 8 tick win is $100 for each contract.
A 5 tick loss is $62.5 for each contract.
A good trading system will win 50% of the time. Assume you average 5 trades per day, so if you have 20 trading days in a month, you make 100 trades per month.
50 of them were profitable: 50 x $100 x 2 contracts = $10,000
50 of them were unprofitable: 50 x $62.5 x 2 contracts = ($6250)
You make $3750, but you still have commissions and possibly some other fees. Your cost per trade is $5/contract (round-trip). Your commission costs are: 100 trades x $5 x 2 contracts = $1000. If you pay for your charting/trading platform, or exchange entitlements add those fees in as well (recommended trading platform for futures trading is NinjaTrader).
Therefore, with a decent futures day trading strategy, and a $15,000 account, you can make roughly:
$3750- $1000 = $2750/month or about a 18% monthly return.
This is simply a mathematical formula, and would require finding five trades a day that offer this reward:risk. That could prove difficult. Also, you are highly leveraged, and there is a chance of catastrophic loss if a market where to move aggressively against you and your stop loss became ineffective. You could face a significant loss or even lose your entire account if the price were to move even several percentage points against you (unable to exit at planned exit point).
How Much Money Can I Make Day Trading Forex?
Forex is the least capital-intensive market to trade. Leverage up to 50:1 (higher in some countries) means you can open an account for as little as $100. I don’t recommend this. If you want to make money, start with at least $3000. Only risk 1% of your capital.
Each pip of movement in the forex market results in a$10 gain/loss if you trade a standard lot (100,000 in currency). Each pip with a mini lot (10,000 in currency) is worth $1. Each pip with a micro lot (1,000 in currency) is worth $0.10. “Pip value” varies based on the currency pair you are trading, but the above figures apply to the EUR/USD, which is the recommended currency pair for day trading.
Assume your strategy limits risk to 8 pips, you attempt to make 13 pips on winners and you have a $5,000 account.
With 8 pips of risk you can trade 6 mini lots–which equals $48 of risk per trade. This is less than your maximum risk of $50 (1% of $5,000).
A 13 pip win is $13 for each mini lot.
A 8 pip loss is $8 for each mini lot.
A good trading system will win 50% of the time. You averaged 5 trades per day, so if you have 20 trading days in a month, you make 100 trades.
60 of them were profitable: 50 x $13 x 6 mini lots= $3900
40 of them were unprofitable: 50 x $8 x 6 mini lots= ($2400)
You net $1500.
If day trading forex, use an ECN broker. ECN brokers offer the tightest spreads, which in turn makes it easier for your targets to be reached. Commissions with a good ECN broker will run between $0.3 and $0.5 for each round trip trade per mini lot. Therefore, commission costs are 100 trades x 6 micro lots x $0.5 = $300.
Therefore, with a decent forex day trading strategy, and a $5,000 account, you can make roughly:
$1500 – $300 = $1200/month or 24% monthly return.
Once again this may seem extremely high, but you are actually using $60,000 in capital to generate that return. Your position size is 6 mini lots, which is $60,000. Therefore, to attain that return requires at least 12:1 leverage. Your return on your own capital is very high, but your return on buying power (60,000) is a more modest 4% monthly return. Leverage is very powerful. This is simply a mathematical formula, and would require finding five trades a day that offer this reward:risk. That could prove difficult. Also, you are highly leveraged, and there is a chance of catastrophic loss if a market where to move aggressively against you and your stop loss became ineffective. You could face a significant loss or even lose your entire account if the price were to move even several percentage points against you (unable to exit at planned exit point).
How Much Money Can I Make As a Day Trader – Final Word
All scenarios, and income potential, are assuming you are one of the few day traders who reaches this level and can make a living from the markets. At the beginning of article it was stated that a large group of day traders fail…only about 4% of people who attempt day trading will even be profitable. The very profitable traders will be an even much smaller percentage.
Each market uses different capital amounts, so don’t think one market is better than anther based solely on the dollar returns. The major distinction is simply that to get involved in stocks you need the most capital, and you need the least to get started with forex. Futures trading falls in the middle. All are great and profitable markets if you find a strategy that allows you to replicate the stats discussed above. The exact figures don’t matter…for example a $0.12 stop loss and a $0.18 target. Basically you just want to make sure your wins are bigger than your losses and you need to win about as often as you lose.
Note that you can’t perpetually compound your account at these returns. Most day traders trade with a set amount of capital and withdraw all profits over and above that amount each month. To understand why, please read Why Day Traders Make Great Returns But Aren’t Millionaires. It contains important information about managing expectations and building wealth.
Plug different numbers into the scenarios above and you’ll see infinite ways to trade…and very small changes can have a huge impact on profitability.
The scenarios are setup so you only win a bit more than you lose, and your winning trades are only a bit bigger than your losing trades. In the real world, that is typically how day trading goes.
The problem is that most traders can’t handle losing 40 to 45% of the time. They think they are doing something wrong and keep switching strategies. This constant flip-flopping of strategies results in losing even more often.
Maintain discipline, keep your wins slightly bigger than your losses, and strive to win 50%+ of your trades. Do this, and you may join the small ranks of successful traders.
Winning 50% of the time is not as easy at it sounds though, and you may not be able to find 5 valid trades per day in all market conditions, like in the examples. Expect variance in your income from month to month. And also realize, that when you utilize leverage you have a very real possibility of experiencing a catastrophic loss. Stop losses aren’t always effective, and you could lose more money that you deposited with your broker if the market moves significantly against you before you can get out of the trade.
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