How much do stock traders make?
Introduction:
After reading about the basics of trading, questions now arise about how much day trading is profitable or how much stock traders make. It is difficult to answer how much we make in trading because the results vary from day today. Other reasons to vary is the volatility in the market, trading strategies, economic and geopolitical news. You can lose money quickly, and you also have to take care of the cost of day trading. We are going to discuss how we can make money from day trading and how much day trading is profitable. Let’s dive right into it:-
How much do traders make?
Profitability and longevity depend on how you trade. Are you an individual trader or trading for some institution or bank, or you are hedging funds? Individual traders have trading platforms and tools, but they are putting a risk on capital, while trading with intuition is safer as day traders don’t have to risk their capital. They get better capital and gain access to better tools and information.
Other factors that affect day traders potential:
Market You are trading in:- Every market has its own benefits. For example, you can trade in less capital with assets like a currency exchange or forex, or you can trade in a capital intensive asset class like stocks. Losses and costs will also be different for every asset class. So choose according to your trading plan and goals.
Capital:- The amount of capital is a huge factor that comes into play when it comes to profit because the amount of capital you invest will determine how much you will earn, how much risk you are taking and other factors related to the position.
Time:– Time is an essential factor while trading because how many times you are trading defines how much risk you are taking, plus trading strategy also matters. It takes time to find the right strategy.
Example of How day trading is profitable?
Suppose a trader has $ 30000 with a 1-2 risk to reward ratio. According to your trading strategy, you have a maximum risk of $0.2 and a target of $0.5. The maximum amount a trader wishes to risk is 300 dollars per trade. So the capital without commission is $300. So it will be 7500 shares.
The result of the trading strategy will be:-
If 60 trades are profitable:- 60 X 0.05 X 7500 shares = $22,500’
If 40 trades are profitable:- 40 X 0.02 X 7500 shares = $6000’
The profit earned will be $22500- $6000= $16500
It is a hypothetical situation because there are a lot of factors involved while trading. 1:2 will be a safer ratio and $30000 is a minimum amount to start trading.
Which strategies are beneficial in day trading?
Gain knowledge:
A famous phrase named knowledge is power is very suitable if you want to succeed in trading or earn day trading profit. Knowledge will help you to find out the upcoming opportunities, and you will predict the market movements precisely and make moves according to it.
Segregate funds:
You have to be sure about how much risk you want to take. The capital you will invest in trading will come with a risk, and the reward will be according to it. Set aside funds to invest. The funds you will invest will be according to your trading plan and strategy. Fixed amounts of funds will generate a limited amount of day trading profit and loss.
Take out time:
You also need time to invest because trading requires a certain amount of time in research and study. Taking out time and observing will help you spot opportunities, and then you can capitalize on them. Quick movements and decision making will be the key here.
Small Start:
You can start slow and then build up your trading career. Start with 1-2 stocks to begin with. Focus on limited stocks will help you to trade better and earn more profit. Buying fractional stocks is common these days. Traders with limited amounts of capital buy fractional stocks.
If you want to buy shares, but the cost is 500 dollars, and you have 50 dollars, then the broker gives you an option to buy one-tenth of that share.
Ignore penny stock
Even if you wish to have a deal at a low cost, you have to avoid penny stocks because there is low liquidity and the chances of gaining day trading profit are dim. Most of the under $5 stocks are delisted and they are only available on over the counter markets(OTC). If you see genuine deals and your research is perfect.
Timing:
Ṭhe opening hours are volatile because many traders execute trade during that time. Still, a seasoned trader will be mindful of the timing and look for the right opportunities to earn profit. The middle hours are less volatile and the volatility increases near the closing bell. Beginners should observe the market and then they should execute a trade. Rush hours are luring, but beginners should avoid that in the first place.
Stay Calm
Stay calm is common jargon used on Facebook and it is a very useful mantra for trading. Trading is a rollercoaster ride because it is volatile and beginners tend to lose calm and cool. Therefore, emotional balance is essential, especially when the trade is going against you. Trading can be a nerve-wracking experience for some, but you need to have an emotional balance and put greed, fear and hope aside because decisions in trading are taken with logic.
Conclusion:
How much a stock trader makes is subjective because there are multiple factors involved. There is a risk of losing money, but the risk also depends on the facts, like if you are trading individually or trading for some institution. The level of resources differs in both types. Profitability depends on factors like markets you trade, capital you invest and timing of the trade. To be successful in day trading, You need to have an emotional balance, time trades perfectly, Avoid penny stocks, Start with a small amount, Set aside time and money and gain knowledge. You also have to take care of the cost involved with the trading. Some brokers charge high, so to avoid this research or choose a recommended broker like 101investing.
