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Almost 80% of Private Day Traders Lose Money

402 points by kabouseng 10y ago

koolba 10y ago
If you think that's bad, check out forex trading accounts. I don't have the exact stats on hand but an insane percentage of them get completely wiped out. I'm not talking about losing some of your money, I mean 100% of the money in your account and possibly owing even more.
- TDL 10y ago
  That is due to the amount of leverage used in retail FX trding. Most people don't understand how leverage works, let alone the negative impact it can have on a trading account.
- SyneRyder 10y ago
  I'd love to see some references for that if you do find them (I'm not disagreeing with you, just would be interested to read more). That's been my impression of most Forex trading too, and I've seen people running 'Forex education' courses where style/bling and motivational Instagram quotes seem to be their main selling point. Forex is so highly leveraged that even if you have some degree of success, it seems easy to wipe yourself out with a bad incident or two.
  - justincormack 10y ago
    Forex is not highly leveraged per se, but obviously you have to leverage it to help people lose money more effectively, as buying some yen or something and watching it go up and down a bit is a bit boring.
  - matwood 10y ago
    http://www.businessinsider.com/foreign-exchange-brokers-are-getting-wiped-out-by-the-swiss-francs-surge-2015-1 http://www.businessinsider.com/foreign-exchange-brokers-are-... Basically you can lose 100%+ of your money because of the leverage. When the Swiss Franc unpegged, brokers went out of the business because they could not get clients to cover losses.
igf 10y ago
Restricted to the publically-available data from one particular and rather odd site, but probably not crazy. At first it seems counterintuitive, shouldn't it be roughly 50% gaining and 50% losing? But I guess that people typically put in a modest amount of play money, and then tend to trade until either they run out or get discouraged from losses.
- danieltillett 10y ago
  I am sure someone will come here and say they have made their fortune from day trading, but every single person I know personally who has tried has lost a fortune. It is like lotto - sure someone wins each week, but nearly everybody loses.
  - acjohnson55 10y ago
    It's also like the casino in that people tend to advertise their big wins, but not so much their losses.
    - danieltillett 10y ago
      Yes this is totally true. I am not much of a gambler (outside of my investments, but at least I can lie to myself here that I know what I am doing), but I was stuck on my last visit to a casino how nobody was having fun. I saw hundreds of miserable people losing masses of money and not a single smile or laugh.
      - matwood 10y ago
        Depends on the casino and the game. European casinos are very depressing. The Monte Carlo for example should be fun, but it's extremely stuffy. The 'american' style part is a bit more fun. But, find a cheap casino in Vegas and you can have some fun. Last time I was there, Casino Royale (across the street from the Belagio) had $2 craps with 50x odds. Craps is social to play and $2 is super cheap to learn with.
  - weavie 10y ago
danieltillett 10y ago
And the other 20% just lie.
- charlesism 10y ago
  Or get rich by selling new letters with tips, and using them to pump and dump worthless stocks.
brongondwana 10y ago
It's just slot machines with a more respectable coat of paint.
- brightball 10y ago
  This is truly accurate. You try it out and make some money a couple of times, then spend the rest of your time taking small losses trying to repeat the feat.
- matwood 10y ago
  Basically. Occasionally I'll trade the e-mini futures and have likened it Vegas without having to leave my house. All the lights, sounds, charts, order flow, etc... is just like a fancy slot machine.
- pm90 10y ago
  This picture is much more accurate than I would admit. I've seen many of my older relatives "playing" the stock market all day. Basically sitting in front of their computer, buying and selling stocks like a game. And that picture looked eerily similar to when I saw them in Vegas spending all day in front of those electronic slot machines.
- mooreds 10y ago
  Agreed! _A Random Walk Down Wall Street_ convinced me that asset allocation and saving regularly were the true ways to wealth in the stock market, especially if you consider $/hour of effort.
- Someone1234 10y ago
  If we assume day trading is gambling, I wonder what the house odds look like contrasted against other forms of gambling (e.g. blackjack, poker, slots, horses, etc)? I guess what I am asking is, if we take it for granted that it is gambling (and I am happy to do so) is it gambling with the best odds around?
  - forgetsusername 10y ago
    >is it gambling with the best odds around? You can expect, on average, to perform as well as the market, less your trading fees (which for most of us small-timers are ~$10 per round trip). The problem is not knowing the odds (and hence expected earnings) ex-ante. That said, horse racing would probably be the best analogy.
akrymski 10y ago
eToro wouldn't be used by any remotely professional day trader. Most of those accounts are most likely idle and judging by eToro's target audience - highly amateur. Whilst majority of course loose money, so do majority of businesses in any industry, from startups to restaurants to hedge funds. The nature of human economics is such that there's more money chasing opportunities than the value of those opportunities. Suggested reading: "Economics in One Lesson"
- RodericDay 10y ago
  I recommend against "Economics in One Lesson". It's basically a libertarian promotional pamphlet. If one wants an economic education, something like "The Undercover Economist" is much better.
crucialfelix 10y ago
I did it for a while in the very exciting year of 2008. I see-sawed back and forth and was profitable for months at a time, but in the end I was down. I strictly kept my daily losses limited at $50/day. So really small risk. At the end of that year my day trading losses were about $1500 and otherwise I was in cash just watching the world burn. My long term funds lost more than that in a day. I've lost out on more money by not being in the market long term going up. Of course I thought I might get good at it (everybody dreams), but the main reason I did it was to learn to confront fear and to keep logical and strict to the trading plan in the face of it. I am still risk averse though, so I didn't really learn thoroughly. The other main thing I learned is that if you aren't a robot then you don't have any business out on that killing floor. The age of human day traders is over.
- yomly 10y ago
  So if you went in with an "algorithm" which baked in your own rules for trading and left it for a year, would it have performed better? Does a greater proportion of non-HFT bots make money?
  - crucialfelix 10y ago
    Developing that trading strategy is a continuous job; that's what successful traders do. They don't play stocks, they play strategies. There are going to be computers involved no matter what. Your indicators, your trading platform, what analysts you trust. So what is a bot ? A "bot" suggests to me something just trading in and out of some security at some average frequency: weeks, days, intraday, minutes, seconds and then there is HFT. These things are all just feeding off of the movement of whales: major flows of money that cause those waves that small technical traders think they can figure out just by watching the shape of them. There is really an amazing amount of intelligence involved in playing the day's game and you are taking in a lot of data, watching other markets (oil versus airlines, currencies, futures, sovereign debt) and using this to either realize the moment is now or to just scare the shit out of yourself and end the day up frazzled and $30 richer. That was my experience. Successful traders reduce their risk even further by choosing what they are trading, shortlisting things that might pop and being able to jump on those (manually or automatically) in less than a heartbeat. That's where the bots will rip an entire sector up before an amateur trader has any chance to understand what is happening let alone why it happened. But those bots are just extensions of the trader. Anyway, the whole thing is retarded and I have more fulfilling things to do on the planet. > would it have performed better? Definitely. Discipline is tough when somebody just demolished your chinese solar stock and you are down a week's earnings. The bot would've cut and run.
0xmohit 10y ago
And the primary reason is that one loses more in a single trade than what one probably earned in 5 or more trades. Humans are inherently risk-averse when it comes to protecting their profits and risk-taking otherwise. The possibility to make money increases if one acts more like a robot, i.e. acting strictly upon rules decided a priori.
- bluGill 10y ago
  > The possibility to make money increases if one acts more like a robot, i.e. acting strictly upon rules decided a priori. Only if the rules are correct, for all situations. Robots have lots vast amounts of money because there was a missing or wrong rule. Good luck figuring out in advance all the rules - remember that the situation is changing, and your robot in the mix is itself a change.
- gedrap 10y ago
  >>> And the primary reason is that one loses more in a single trade than what one probably earned in 5 or more trades. This is the key. Once in a while, on the internets, I see people who say that they developed a strategy that can profit 5% month on month, etc. Excluding the ludicrous claims of 30% and similar monthly profit. However, they are often totally wiped out by a highly unlikely outlier event that should happen once in a century, as they like to call it. Or something similar. The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb is a good book on this subject.
  - rahulrrixe 10y ago
    BTW The Black Swan book sucks!
EvgeniyZh 10y ago
Well, how else someone would earn huge amount of money in this negative sum game?
- atemerev 10y ago
  By being on the positive side, with statistically guaranteed advantage. (HFT, stat arb, volatility arb, smart automated market making etc.)
- hellogoodbyeeee 10y ago
  The stock market isn't a zero sum game (or a negative sum game for that matter). If you think it is, you are over simplifying. At the very least you need to account for traders' differing time spans on their trades.
  - EvgeniyZh 10y ago
    I'm not really game theory expert, but negative sum game is when the total gain is less than total losses, isn't it? That's exactly what happening - the only source of money are participants, and part of the money goes to brokers.
    - hellogoodbyeeee 10y ago
      Say a day trader buys a stock for $9/share and then sells it to me at $10/share a week later. I then put the stock into my investment portfolio and hold on to it for forty years and sell it at $100/share. You could make a simplistic argument that the day trader "lost" the game because he missed out on the appreciation to $100/share but you are neglecting the different investing timespans. The day trader doesn't have a job if he is holding on to stocks for 40 years. He was happy to buy and sell quickly for a small profit. I'm happy because I held on to an appreciating asset. Bankers are happy because they made a few dollars in commissions. No one losses here.
      - EvgeniyZh 10y ago
        > No one losses here. But you two are not the whole market. Someone sold a stock to a day trader and someone bought it from you. There are no other money in a stock market except those people bring (minus commission) so how everybody can win?
thedevil 10y ago
The way the math works out with that distribution: only 80% of them lose money over one year, but as time continues over multiple years, the percent losing money approaches 100%.
- dietrichepp 10y ago
  This is not how the math works, and it shows a common statistical fallacy. We cannot assume that the chance that a person loses money one year is uncorrelated with the chance that the same person loses money the next. Here is a simple model a mathematician might realistically use to model this. Given N traders, let P_1..P_N be iid Beta(α, β), and let the chance that trader n loses money during a year be Bernoulli(P_n). The nice thing about this more complicated model is that the simpler model is a limit case of it. This "first approximation" lets us use simple mathematical tools to test hypotheses like that by providing an alternative model. If our beta distribution looks more like a constant distribution (with high values for α and β) then we can conclude that the number of traders who lose money approaches 100% as time goes on. If the estimate for α and β is lower, we might reasonably conclude that there is some factor of skill involved. This is just one possible model you could use to test if there is skill involved in day trading. There are many other models which we could test which would also mean that the proportion does not approach 100%, such as a models which assume correlations between different years.
  - verroq 10y ago
    I think he was just doing a play on words with the ambiguity and you went full math on him. >only 80% of them lose money over one year, but as time continues over multiple years, the percent [that loses some] money approaches 100%.
    - dietrichepp 10y ago
      I'm probably going to continue going "full math" in the foreseeable future.
      - 10y ago
unknown_apostle 10y ago
And then there are these terrible products they promote to retailers (at least in Europe). Like CFDs and such. Orders in these things don't even go to the market, like in those bucket shops from old days.
joosters 10y ago
The Financial Times often refers to spread betting companies as 'debt collection agencies with a side interest in trading'. Emptying the accounts of users and then collecting the additional money owed is what these companies do. Then they use some of the profits to advertise for new customers to continue the cycle...
- mollmerx 10y ago
  I'm an avid FT reader and like that description, but have never seen it before. Any chance you can provide a reference?
  - osullivj 10y ago
    Suggest Alphaville's coverage of Plus500: http://ftalphaville.ft.com/tag/plus500/ http://ftalphaville.ft.com/tag/plus500/
    - joosters 10y ago
      Yes, I should have really said FT Alphaville rather than just the FT, it has a slightly less serious tone than the main paper, but equally informative and has some quality in-depth articles. The Plus500 coverage is very good, for instance.
bedhead 10y ago
Only 80%? Shocked it's not higher.
chollida1 10y ago
I re-read Michael Lewis' Liar's Poker once every few years. In new reprints he's added a prologue where he says something along the lines of "I tried to write a book about the horrors of wall street and instead it became a recruiting tool for wall street" In a similar vein whenever something like this comes up I write something that says don't try and do this and inevitable I get 10+ emails from people saying "Ok I understand but I still want to do it anyway." So if you really want to try and day trade, here is my 5 points of advice 1) You haven't done anything until you trade with real money. Ever played poker with friends that wasn't for money? You always get some jerk bluffing and going all in on Ace-7 because why not, it doesn't matter. If you want to trade you need to learn your own emotional limits. Get invested as soon as possible. Learn what kind of stress you can deal with. 2) The average successful individual algo trade looks like John Turturro charter Joey Knish in rounders. You are always grinding out a living $100 to $1000 at a time. If that isn't' appealing then stop before you start. http://www.imdb.com/title/tt0128442/fullcredits/ 3) You need money to begin. It takes as much effort to trade 2000 as it does 200,000. Above a million or so things change. A minimum amount I'd use would be 50,000. If you can't set that aside to trade then don't start. I mean if you have a great year trading 5,000 and make 20% you have made $1,000. That's not worth the effort. But at say 100,000 your 20% is starting to be real money!! Be clear to yourself that you are doing this for the money. Any other reason just gives you an easy out. 4) The most important number to look at is draw down, not sharp ratio. I see lost of people on quantopian show great backtested algos that return 200% over 5 years, but have a 70% draw down at one point. Most people don't have the psychology to loose money. At 10% down you start to question yourself. At 20% down you get really grumpy in all aspects of your life. Most people don't have the ability to let their positions fall to 30% down. If your backtest has a draw down of more than 30% you don't have a workable algo.....period. Sharpe ratio is great if you are an HFT firm trying to decide how to divvy up your money across 30 successful algos. You don't have 30 successful aglo's. You will be lucky to have one. 5) Don't use leverage....... you can break the other rules, this one you can't. I've seen people go bankrupt. Don't use leverage.
- manishsharan 10y ago
  @chollida1 , you should write a book; help drive Michael Lewis' point home. In my last project for a brokerage system, I developed features for day traders. What was most surprising to me how much money the brokerage system generated for the bank regardless of the outcomes for the day traders.
inputcoffee 10y ago
Isn't is possible that the sample is biased because you only looked at the subset of traders who were not sophisticated enough to turn off the feature that allows others to observe their trades?
- zmk_ 10y ago
  My initial issue with this analysis as well.
- TheCowboy 10y ago
  This is a good point. And we shouldn't assume this means that the number of successful traders is automatically higher due to their greater understanding. There could be a large number of people hiding their trades due to a losing record, or an unlucky streak inducing paranoia.
- gr2020 10y ago
  Not disagreeing - but it's worth noting that you _always_ want someone to take the same trade as you, right after you do.
mholmes680 10y ago
I have a serious problem with the "conclusion" of this post. This data isn't normalized against some kind of control group to show that maybe day-trading during Brexit is a different beast than index-tracking during Brexit. Or maybe its the same beast, we can't conclude anything... I'm beginning to realize the difference between "data scientist" and just looking at numbers to put them on a chart.
glippiglop 10y ago
It's an interesting stat, but the chart doesn't speak as to the levels of experience of the traders. All beginners lose money, but it's entirely possible for an amateur to become a profitable day trader with time. Speaking from experience, the real issue for me was that once I started to get good at it (after 2 years) I realised just how awfully boring it was. It's not intellectually demanding and for the investment of your time, stress and the risk involved, the rewards even if you reach profitability aren't worth it. Now that I can reflect on it, I couldn't be happier that I stuck with software development instead.
elmar 10y ago
More Comments at https://news.ycombinator.com/item?id=12330285 https://news.ycombinator.com/item?id=12330285
atemerev 10y ago
Good! Anybody who doesn't understand exactly where money are coming from and why, will be ripped off, and probably deserves it. If you want to gamble, you will be gambled. If you want to reduce your risks, you have to research accordingly.
NDizzle 10y ago
... of course, 50% will end up in the bottom half and 70% will end up in the bottom 70%. - Charlie Munger. https://old.ycombinator.com/munger.html https://old.ycombinator.com/munger.html
nicholas73 10y ago
This blog post did not answer it's own question because it's conditions were not day trading (over 3 trades in 12 months). That condition selects for people choosing individual stocks hoping for a moonshot, for which people tend to choose riskier stocks rather than stocks actually likely to make them money. So no wonder 80% lost money. On the other hand, notice that the 20% who do make money have a large power distribution curve. A better way would have been to compare performance versus frequency of trading (I don't expect this to prove one way or another though). The fact is, there are many strategies one could take, and it's how well you execute them that counts. Personally, I don't find daytrading riskier than holding stocks. By far my biggest losses come from holding the wrong stocks for a long period. It just seems riskier because you have to confront yourself with the possibility of loss each day, rather than hold "long term" and deny that you are wrong. I now take the Doyle Brunson approach. The poker champion loved to pick up small pots and felt it was critical to do by aggressively playing small hands. That way, these little wins pay for the risk of playing bigger hands over time. I've had the same experience - my daytrading tends to be small money but it stems from work done for holding long term stocks. So why not put it to use? But, to actually make good money daytrading is still really difficult. Commissions alone can make you have to be 55/45 correct, but there is also the steamroller affect where people tend to hold on to losses and double down further. So it's also about mastering yourself in addition to your market. Otherwise, there is not reason why you can't be better: you are putting in more work than others to make good decisions, and that's how you profit. Trouble is, when are you still outgunned informationally?
- bvanslyke 10y ago
  I'm curious - If you don't mind sharing, how long have you been day trading and what has your percentage return been?
  - nicholas73 10y ago
    I started actively trading around 5 years ago, and only picked longs another 5 years before that. It's difficult to give an exact % because I'm not a day trader per se. I trade around a position I know well, but do day trades when I spot an opportunity. Sometimes you know something will happen, but only on a short time frame. For example, I went into oil stocks earlier this year, and I knew that the market was panicking over the low oil price. So some days the market would bounce back right when the oil pits close at 2:30 (since the oil correlation can't get much worse then). Take a chance to ride the way back up, why not? But you can't do this all the time, which is why I gave you this esoteric example. Well, if you still want a percentage, I'd say 10-20% might be a reasonable achievement.
DrNuke 10y ago
Was all in into Barclays shares the day before it was going bust in 2008 but got out before 5pm fearing the night and the wiping out. Instead, Gordon Brown bailed them before the market reopened the next morning ("too big to fail") and I missed my once-in-a-lifetime opportunity to make the big money as an indie trader. Done.
- dan1234 10y ago
  I thought Barclays were one of the few banks who managed to raise extra capital without government help?
  - DrNuke 10y ago
    Yes they then raised from Qatar but the unfolding was dramatic http://news.bbc.co.uk/2/hi/business/7658277.stm http://news.bbc.co.uk/2/hi/business/7658277.stm and Robert Peston was having the days of his professional life eheh. Got it the link! http://monevator.com/how-fear-is-driving-bank-share-prices/ http://monevator.com/how-fear-is-driving-bank-share-prices/
    - osullivj 10y ago
      I've owned BARC for 10yrs now, and I've taken a hell of a beating. I'll never buy any kind of banking equity again.
drcode 10y ago
I suspect this is a relatively new development- I think 5 years ago I would have been pretty comfortable with my chances against AI trading bots. But in 2016, not so much. Based on my own anecdotal evidence, I think the large corps building HFT systems with AI have gone a long way towards eating the lunch of "lone wolf" day traders in the last few years.
- gedrap 10y ago
  >>> HFT systems with AI I highly doubt that it would affect you, tbh, and I suspect that it's a highly sentimental matter. Only if I did have money to buy Apple stock 10 years ago, that kind of :) no offense if I am totally wrong, it's just that you didn't provide any specific argument for your reasoning. Aren't these folks with hundreds of millions in the trading accounts in a totally different league and they do not affect you, unless you want to play in their own game (e.g. high frequency)?
  - deleted 10y ago
    [deleted]
btbuildem 10y ago
It would be interesting to know whether the gains were concentrated among a small group of same individuals over time, or equally across the large group (ie everyone getting lucky once)
HashThis 10y ago
I'd love people's opinion on this. From my understanding, HFT (High frequency trading) firms are front running stock orders. NYSE sells them data on stock orders. They buy data center space in order to front run stock orders. That is how the HFT guys make a profit when Day Traders can't make the same kind of profit. Is that true?
- idohft 10y ago
  I'm in HFT (as per my handle). Exchanges like NYSE, NASDAQ, etc. sell stock data to firms but not before they get processed. The only way you get front run is if the broker that you submit through (ETrade, Schwab, etc.) notes your order, knows that it's big enough to move the market, and then prioritizes their own action over yours (which I'm reasonably sure they do not). Buying data center space (colocation) means they can react to activity quickly, but only after said activity has happened.
  - HashThis 10y ago
    Thanks for the details
wehadfun 10y ago
80% are losing who the hell is winning and how? I fell like they are cheating or have some sort of advantage that is not easily available to private day traders and no I don't think that advantage is a PHD and fast data connection.
- 3chelon 10y ago
  The spread betting companies are winning, of course. They are the market makers and they can manipulate the market as much as they like, even pushing the price up or down temporarily to hit stop loss orders and the like. And of course they adjust the spread to suit them, esp. in equities. I always thought the safest markets are forex because the huge liquidity tends to limit the spreads somewhat, but I have no idea if that is actually true.
  - randartie 10y ago
    Okay, but there's plenty of highly liquid things to trade. For example the SPY has a spread of 1 penny, same with SPY options. You mention a potential strategy for manipulating the market like pushing prices to hit stops, well if these strategies are common then it seems there exists a potential strategy to take advantage of this. It seems like so long as the market's next tick price is not completely uncorrelated from its previous tick price, then there will always be a way to 'beat' the market. The market price is not completely uncorrelated (as you mentioned, there's price manipulation driving it to certain prices throughout the day).
gedrap 10y ago
I think the analysis could be improved by excluding people who made a couple of trades worth of a few dollars just as an experiment, etc. This way, leaving only the people who took it somewhat seriously. Even then, the data would be heavily biased - it includes only traders who decided to use eToro AND keep the history public. This is far from a random sample and very biased. However, I would not be surprised if the actual results (across all brokerages, etc) are close to that, or even more extreme.
nstj 10y ago
Ironically, it seems the HFT's have started eating their own lunch too [0] > Overall, HFT firms’ revenues in the US have slumped from about USD 7.2 bn in 2009 to USD 1.3 bn in 2014 (see chart 3) [0]: https://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000406105/High-frequency_trading%3A_Reaching_the_limits.pdf https://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD000...
- stevenmays 10y ago
  Yeah it's a race to the bottom. All HFTs are competing with each other now for yield so profit declines.
deleted 10y ago
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grondilu 10y ago
Isn't day trading a zero-sum game? If so, it's not very surprising that the majority of day traders lose money. Every dollar you make comes from someone who lost it. So unless you have a competitive advantage, such as lower brokerage fees, you should stay away. Me, I believe in https://en.wikipedia.org/wiki/Buy_and_hold https://en.wikipedia.org/wiki/Buy_and_hold. The money you'll make will come from the actual profits of the companies.
- cortesoft 10y ago
  It isn't zero sum.... the stock market has, at least so far, gone up over time; so on average, the sum of all money made on the stock market each day is positive. This means it is possible for everyone to 'win' and gain money. Fighting over that 'gain' for each day, however, is zero sum.
- neffy 10y ago
  No, actually it's not. If you take the amount of money involved in the stock market every year, and assume that as a percentage of the total amount of money sloshing around the economy it remains broadly the same, then owing to monetary expansion (~7-8% a year in the USA), there is that percentage to be extracted from the financial system every year. Which Wall Street is quite efficient at. If you factor in things like financial feedback loops essentially acting to concentrate money over long periods of time in the financial sector (well, what did you think was causing the ever increasing wealth gap?), then it's a little more than that of course.
samfisher83 10y ago
If someone is consistently good at losing money 60% of the time. Why not just do the exact opposite of whatever their initial hunch is. Then they should make money. Based on loss of 36% from the article that is more than just transaction and trade fees which are 1 to 2%of trade therefore if they just do the opposite of what they are doing they should make money.
- simo7 10y ago
  Except that the loss in not calculated on 1 transaction. If you go exactly even before transaction fees, on a big enough number of transaction you loose everything....exactly because of transaction fees.
- tomhschmidt 10y ago
  https://en.wikipedia.org/wiki/The_Opposite https://en.wikipedia.org/wiki/The_Opposite
- qntty 10y ago
  Well I guess the opposite of doing day trading is not doing day trading... it works!
- dietrichepp 10y ago
  If you lose money because you don't quite beat the spread, doing the opposite might mean that you just lose money faster. There are also fees, and the enormous risk of taking short positions (the natural opposite of long positions).
- KeytarHero 10y ago
  > Why not just do the exact opposite of whatever their initial hunch is. If your initial hunch is to buy a stock you don't own yet, you can't sell it instead.
  - enraged_camel 10y ago
    You buy stocks for two reasons. Either you think they will go up (long) or you think they will go down (called "shorting"). You can think of them as opposites.
paul_milovanov 10y ago
Furthermore, almost 100% of private day traders lose money! — from the your headline is meaningless and you should feel bad dept :P
lordnacho 10y ago
Here's a quote from a guy who runs one of these shops: "90% of the customers lose 90% of their money in 90 days." A friend of mine was chatting to him about doing some business. I would think it's more about leverage than commission. Looking at FX, you can get tiny spreads, almost comparable to what I saw in a hedge fund. It takes a while to eat up a whole account on such small percentages. Leverage, on the other hand is something you can use to demolish capital over an afternoon. Ratios like 1/200 are a formula to go broke if you haven't had a look at something like Kelly Criterion.
known 10y ago
Insider trading is not illegal; http://cnbc.com/id/43471561 http://cnbc.com/id/43471561
- wahern 10y ago
  Legislators aren't insiders. Insider trading requires being an employee, board member, or otherwise owing a fiduciary duty to the company. The crime hinges on breaking that duty. It does _not_ mean merely trading on so-called "insider information", unless you're in cahoots with an insider who will benefit directly or indirectly. If it were otherwise, trading on a "hot tip" about a stock could put anybody at risk of federal felony charges, no matter how far removed they were from the company. That would be ridiculous. Insider trading also requires trading on material, non-public information. Few employees have access to that; usually only C-level executives and board members have that kind of information before it's made public. Many of the trading window restrictions imposed on you by your employer aren't required by the law or SEC regulations. Often it's to maximize the window that large investors and stock holders (including executives, through their trusts!) can profit on big movements, without legions of employee stock option holders raining on their parade. That said, the SEC can be super aggressive about insider trading, whether or not any court would ultimately permit the charges to stick. They'll go after people with a noose in one hand and a slap on the wrist in the other; most sane people know which to choose. Racking up plea deals makes the SEC look effective at policing the market when in fact they're anything but. Which is why the decision a couple of years ago by the 2nd Circuit reaffirming the law of insider trading really upset the SEC. Honestly, I'd rather that all Congressmen's investments were made public. Unlike the law discussed in the article, it could be anonymized before publication for all I care. But transparency would make it less profitable for Congress to trade on insider information because people could follow and mimic their trades. And big corporate investors might then pressure companies to stop disclosing so much information. That'd be a far preferable state of affairs than trying to criminalize trading on non-public information. Everybody and their Uncle tries to trade on non-public information; that's exactly how the market is supposed to work--provide a profit motive to uncover non-public information and effectively make it public by pricing it into the stock. And a Congressman trying to subvert the transparency rules provides much more clear-cut culpability. Otherwise there's too much plausible deniability regarding the how, what, and why of their trades.
cloudjacker 10y ago
Almost 80% of Hedge funds lose money too
hal9000xp 10y ago
Since 2012, I'm interested in financial markets. I read some university books. I trade from time to time (mostly index ETF and futures/options for experimental reasons). I would argue that ~80% is quite optimistic estimation. I think in long-term more than 99% of retail day traders lose money. It's NOT because making money on financial markets is ridiculously difficult. It's because if you trade frequently, you get feedback from market pretty quickly. The feedback in terms of profit and loss of your money. If you become day trader, I would guess that you want beat the market (otherwise you just buy and hold index ETF). It means that you as a day trader is willing to take risks to lose money in case you are wrong that you think you are able to beat markets. What does it mean "to beat the market" in long-term? It means that you are smarter or faster or have some insider information. In other words it means that you have competitive edge. Well, obviously, average person doesn't have competitive edge against hedge funds and other institutional investors who hire people with outstanding intellectual capabilities. Just read hedge fund interview questions to see how they filter people. Other way to estimate your situation as a retail day trader: if hedge funds don't want to hire you, why do you think you are still capable to outsmart hedge funds while you can't answer their interview questions for trader role? I don't say that it's inherently impossible to beat the market as a retail investor. It's fairly possible if you are REALLY smarter than others. And in this case, you most probably are capable to impress professional traders and investors while talking about markets. If so, they will bring you their money, and incorporate hedge fund, and you are not retail investor anymore. Just like Michael Burry did. In other areas, ~99% of failed attempts is also true. For example, ~99% startups fail to make money. So it's normal state of affairs.
- steveplace 10y ago
  >if hedge funds don't want to hire you, why do you think you are still capable to outsmart hedge funds while you can't answer their interview questions for trader role? You're not playing the same "game" as hedge funds. They have different mandates and liquidity. Putting 100 million into play on a position is completely different than 10k. You can choose different strategies, different trading vehicles, and different risk management parameters as a retail trader compared to an institutional trader. So you don't necessarily need insider information or a massive technical infrastructure. You can get an edge, but it won't be the same edge you'd have running serious money.
Nihilartikel 10y ago
Did not read the article; but is anyone looking at the kooky square-wave action on SPY and DIA today? I'm totally hopping on to the next 60m cycle! Can't lose. Or... maybe not
Animats 10y ago
Even worse than day trading are "binary options". This allows betting on, for example, whether the price of gold will go up or down in the next minute. Most of those are total scams. There are about 100 binary trading firms based in Tel Aviv, Israel, and most of them are telemarketing operations for a software platform called SpotOption.[1] Features of the scam include 1) they're not brokers, they're the other party, so you're betting against the house, 2) the house controls the price info and may tweak it slightly to make you lose, 3) there's a "margin trading" system which prevents you from withdrawing until you've done a certain amount of trading volume, and 4) even if you win, they make it really hard to withdraw money. Most "investors" lose 100% of their money. Read "The Wolves of Tel Aviv" in the Times of Israel.[2] All these outfits are prohibited from operating in the US (the CFTC catches some of them trying; "Banc de Binary" was forced to return all US customer losses) but they've been able to operate in the European Union by registering in Cyprus and using that as a passport to the entire EU. [1] http://www.spotoption.com/ http://www.spotoption.com/ [2] http://www.timesofisrael.com/the-wolves-of-tel-aviv-israels-vast-amoral-binary-options-scam-exposed/ http://www.timesofisrael.com/the-wolves-of-tel-aviv-israels-...
praptak 10y ago
"Why I don't trade stocks and (probably) neither should you", a very good summary about why it is stupid(#) to try to be "smart" about stock market: https://news.ycombinator.com/item?id=6831461 https://news.ycombinator.com/item?id=6831461 (#) If it's not your full time job.
eddd 10y ago
Afaik 98% of forex day traders loose money. You can't compete with scalpers with 10ms advantage.
thomasrossi 10y ago
"80%" it's very unlikely, say it is true, you just do the opposite and you have free money. I suspect the correct overall percentage should be much closer to 50%. Finding a profitable strategy should be much more difficult than "do the opposite of day traders", right?
- cdavid 10y ago
  it is at least partly because 100 % of day traders do less than 100 % of trades. And they play against people who are vastly more intelligent, better equipped, etc... on average. As a day trader, the odds are overwhelmingly against you.
- morgante 10y ago
  What does "do the opposite of day traders" entail? If it's to not trade daily then yes, having a profitable strategy is trivial: just buy index funds. If you think it's possible to reliably trade better than day traders, you're probably just as deluded as them. That being said, this data set is unlikely the be representative. The best traders are using something like IB, not eToro.
  - thomasrossi 10y ago
    No, I was just pointing out that 80% is not very likely and is probably some sort of bias or mis-representation. In fact it would be a great compliment for them because they would be getting consistently the opposite of the market (If they overall lose money it must be that at least on the weighted average of their bets they get it wrong, maybe one big wrong and many little right ones, or mostly all moderately wrong, etc..).
pbreit 10y ago
The headline is probably close but I don't think you can reasonably extrapolate out from only eToro customers.
83457 10y ago
I looked into trading a while back after my dad lost a bunch in the market. I read a lot of info and in the end finally found someone who stated information like this in the link. In the end I learned that the vast majority of retail traders lose money, I think 85 or 90% was listed, the majority of people who get into professional day trading quit within a couple years, day traders make profit by leveraging their money many times over just to make a living, and day traders actually take an income instead of letting their money ride and losing it all in a few trades but this also keeps them from progressively getting richer. Day traders expect to lose on at least 40% of their trades which is apparently one of the biggest issues mentally with trading. None of the retail platforms explain these facts nor many other sources of info online.
JackFr 10y ago
> The data source for this post is eToro, a brokerage company that offers a feature called Social Trading, which is social network for traders. It is enabled by default and allows users to view and copy other users’ trades. Therefore, everyone’s trading performance is publicly available who have not disabled Social Trading. What if the winners are choosing not to make their trades public? That alone could introduce some serious bias.
songzme 10y ago
Here's a story of my mom's journey as a day trader: My mom got laid off in 2008. The job market was brutal and she had a hard time looking for a new job. She had to find ways to make money to support my sister and I through school so she turned to the only other place where she could earn some money - the stock market. She started with around 100k, read up about stock options, and decided that shorting calls and puts would work well. The time value decay seems to work in the investor's favor. Every time she made enough money, she would take them out and buy houses (all cash) and start from 100k again. Now, 8 years later, she has acquired a few properties in West LA and Oakland and makes more rental income per month than my salary as a senior software engineer. She still trades today.
- bsder 10y ago
  Winning the lottery always happens to somebody. Just not many.
  - kgabis 10y ago
    It doesn't sound like winning a lottery but rather like making a series of good investing decisions.
    - nibnib 10y ago
      Buying a winning lottery ticket always looks like a great investing decision in retrospect...
      - kgabis 10y ago
        I don't think it's a valid comparison. Lottery results are unpredictable, stock market to some degree is.
        stevenwiles 10y ago
        That is incorrect.
- 10y ago
Paul-ish 10y ago
>On the 1st of August, 2016, I downloaded the publicly available data through their ranking API. I selected all users who were active during the past twelve months, traded with real money, and had at least three trades. The results consist of 83.3k traders who fulfill these conditions. What may be interesting is to see a graph where the number of trades a person executes is on the x axis and on the y axis is median return. Do people who make more trades make more or less money? It would also be interesting to look at a window larger than 12 months. Do people with trades going back years do better than people with trades going back months? Is this gambling, or can some people build some skill in this?
anonu 10y ago
The smartest thing an individual investor or trader can do is put their money in extremely low-cost index funds and leave them there. I have worked as a trader at various large financial services firms for almost a decade now. Even though I believe I have more insight into the markets in general than the lay person - the moment I decide to trade for myself, I will not get the same quality of execution and breadth of services I would sitting at my work desk...
habosa 10y ago
Excuse my meta-comment, but I notice that HN seems to have an obsession with proving that active trading is bad and that we should all buy low-cost indexes. And before anyone jumps on me, I 100% agree with that investment strategy and use it myself. I'd just like to comment on the intersection of that belief and tech enthusiasts. It seems to generally come from a place of binary/analytical thinking which we're all so good at. Studies show that active investing is a losing battle for the average investor, so we assert that as fact and invest our money that way. But I think deep down in myself (and probably others) it comes from a place of wanting to justify risk aversion. It seems that many people that we all know do become quite rich as investors, and the secret to their good fortune is not apparent. Studies promising us "they'll all lose in the long run!" makes us feel good about our decision not to participate in the game. It's similar to the derision of startup equity, etc. I know many people who have become very rich at a very young age by latching on to the right startup, but I like my comfortable BigCorp job. The HN comments are a place where I can feel smart about my decision to not take risks even as we celebrate those who took risks and won. Anyway I don't know why I chose to write this comment or explore this topic at this moment, I hope someone else reads it and understands my sentiment.
- seagreen 10y ago
  It seems that many people that we all know do become quite rich as investors, and the secret to their good fortune is not apparent. Studies promising us "they'll all lose in the long run!" makes us feel good about our decision not to participate in the game. This would be a way stronger argument if the king of the buy-index-fund team wasn't Warren Buffett:)
  - streblo 10y ago
    Buffett isn't exactly buying index funds for BRK
    - seagreen 10y ago
      The parent comment said criticisms of private day traders were motivated by jealousy, and I said that's certainly not the case for the most notable of the critics. Buffett could have made his success as a rodeo clown for all it matters to my point.
sunstone 10y ago
Day trading is the perfect forum for the overly confident.

402 points by kabouseng 10y ago

If you think that's bad, check out forex trading accounts. I don't have the exact stats on hand but an insane percentage of them get completely wiped out. I'm not talking about losing some of your money, I mean 100% of the money in your account and possibly owing even more.

TDL 10y ago
That is due to the amount of leverage used in retail FX trding. Most people don't understand how leverage works, let alone the negative impact it can have on a trading account.
SyneRyder 10y ago
I'd love to see some references for that if you do find them (I'm not disagreeing with you, just would be interested to read more). That's been my impression of most Forex trading too, and I've seen people running 'Forex education' courses where style/bling and motivational Instagram quotes seem to be their main selling point. Forex is so highly leveraged that even if you have some degree of success, it seems easy to wipe yourself out with a bad incident or two.
- justincormack 10y ago
  Forex is not highly leveraged per se, but obviously you have to leverage it to help people lose money more effectively, as buying some yen or something and watching it go up and down a bit is a bit boring.
- matwood 10y ago
  http://www.businessinsider.com/foreign-exchange-brokers-are-getting-wiped-out-by-the-swiss-francs-surge-2015-1 http://www.businessinsider.com/foreign-exchange-brokers-are-... Basically you can lose 100%+ of your money because of the leverage. When the Swiss Franc unpegged, brokers went out of the business because they could not get clients to cover losses.

igf 10y ago

Restricted to the publically-available data from one particular and rather odd site, but probably not crazy. At first it seems counterintuitive, shouldn't it be roughly 50% gaining and 50% losing? But I guess that people typically put in a modest amount of play money, and then tend to trade until either they run out or get discouraged from losses.

danieltillett 10y ago
I am sure someone will come here and say they have made their fortune from day trading, but every single person I know personally who has tried has lost a fortune. It is like lotto - sure someone wins each week, but nearly everybody loses.
- acjohnson55 10y ago
  It's also like the casino in that people tend to advertise their big wins, but not so much their losses.
  - danieltillett 10y ago
    Yes this is totally true. I am not much of a gambler (outside of my investments, but at least I can lie to myself here that I know what I am doing), but I was stuck on my last visit to a casino how nobody was having fun. I saw hundreds of miserable people losing masses of money and not a single smile or laugh.
    - matwood 10y ago
      Depends on the casino and the game. European casinos are very depressing. The Monte Carlo for example should be fun, but it's extremely stuffy. The 'american' style part is a bit more fun. But, find a cheap casino in Vegas and you can have some fun. Last time I was there, Casino Royale (across the street from the Belagio) had $2 craps with 50x odds. Craps is social to play and $2 is super cheap to learn with.
- weavie 10y ago

danieltillett 10y ago

And the other 20% just lie.

charlesism 10y ago
Or get rich by selling new letters with tips, and using them to pump and dump worthless stocks.

brongondwana 10y ago

It's just slot machines with a more respectable coat of paint.

brightball 10y ago
This is truly accurate. You try it out and make some money a couple of times, then spend the rest of your time taking small losses trying to repeat the feat.
matwood 10y ago
Basically. Occasionally I'll trade the e-mini futures and have likened it Vegas without having to leave my house. All the lights, sounds, charts, order flow, etc... is just like a fancy slot machine.
pm90 10y ago
This picture is much more accurate than I would admit. I've seen many of my older relatives "playing" the stock market all day. Basically sitting in front of their computer, buying and selling stocks like a game. And that picture looked eerily similar to when I saw them in Vegas spending all day in front of those electronic slot machines.
mooreds 10y ago
Agreed! _A Random Walk Down Wall Street_ convinced me that asset allocation and saving regularly were the true ways to wealth in the stock market, especially if you consider $/hour of effort.
Someone1234 10y ago
If we assume day trading is gambling, I wonder what the house odds look like contrasted against other forms of gambling (e.g. blackjack, poker, slots, horses, etc)? I guess what I am asking is, if we take it for granted that it is gambling (and I am happy to do so) is it gambling with the best odds around?
- forgetsusername 10y ago
  >is it gambling with the best odds around? You can expect, on average, to perform as well as the market, less your trading fees (which for most of us small-timers are ~$10 per round trip). The problem is not knowing the odds (and hence expected earnings) ex-ante. That said, horse racing would probably be the best analogy.

akrymski 10y ago

eToro wouldn't be used by any remotely professional day trader. Most of those accounts are most likely idle and judging by eToro's target audience - highly amateur. Whilst majority of course loose money, so do majority of businesses in any industry, from startups to restaurants to hedge funds. The nature of human economics is such that there's more money chasing opportunities than the value of those opportunities. Suggested reading: "Economics in One Lesson"

RodericDay 10y ago
I recommend against "Economics in One Lesson". It's basically a libertarian promotional pamphlet. If one wants an economic education, something like "The Undercover Economist" is much better.

crucialfelix 10y ago

I did it for a while in the very exciting year of 2008. I see-sawed back and forth and was profitable for months at a time, but in the end I was down. I strictly kept my daily losses limited at $50/day. So really small risk. At the end of that year my day trading losses were about $1500 and otherwise I was in cash just watching the world burn. My long term funds lost more than that in a day. I've lost out on more money by not being in the market long term going up. Of course I thought I might get good at it (everybody dreams), but the main reason I did it was to learn to confront fear and to keep logical and strict to the trading plan in the face of it. I am still risk averse though, so I didn't really learn thoroughly. The other main thing I learned is that if you aren't a robot then you don't have any business out on that killing floor. The age of human day traders is over.

yomly 10y ago
So if you went in with an "algorithm" which baked in your own rules for trading and left it for a year, would it have performed better? Does a greater proportion of non-HFT bots make money?
- crucialfelix 10y ago
  Developing that trading strategy is a continuous job; that's what successful traders do. They don't play stocks, they play strategies. There are going to be computers involved no matter what. Your indicators, your trading platform, what analysts you trust. So what is a bot ? A "bot" suggests to me something just trading in and out of some security at some average frequency: weeks, days, intraday, minutes, seconds and then there is HFT. These things are all just feeding off of the movement of whales: major flows of money that cause those waves that small technical traders think they can figure out just by watching the shape of them. There is really an amazing amount of intelligence involved in playing the day's game and you are taking in a lot of data, watching other markets (oil versus airlines, currencies, futures, sovereign debt) and using this to either realize the moment is now or to just scare the shit out of yourself and end the day up frazzled and $30 richer. That was my experience. Successful traders reduce their risk even further by choosing what they are trading, shortlisting things that might pop and being able to jump on those (manually or automatically) in less than a heartbeat. That's where the bots will rip an entire sector up before an amateur trader has any chance to understand what is happening let alone why it happened. But those bots are just extensions of the trader. Anyway, the whole thing is retarded and I have more fulfilling things to do on the planet. > would it have performed better? Definitely. Discipline is tough when somebody just demolished your chinese solar stock and you are down a week's earnings. The bot would've cut and run.

0xmohit 10y ago

And the primary reason is that one loses more in a single trade than what one probably earned in 5 or more trades. Humans are inherently risk-averse when it comes to protecting their profits and risk-taking otherwise. The possibility to make money increases if one acts more like a robot, i.e. acting strictly upon rules decided a priori.

bluGill 10y ago
> The possibility to make money increases if one acts more like a robot, i.e. acting strictly upon rules decided a priori. Only if the rules are correct, for all situations. Robots have lots vast amounts of money because there was a missing or wrong rule. Good luck figuring out in advance all the rules - remember that the situation is changing, and your robot in the mix is itself a change.
gedrap 10y ago
>>> And the primary reason is that one loses more in a single trade than what one probably earned in 5 or more trades. This is the key. Once in a while, on the internets, I see people who say that they developed a strategy that can profit 5% month on month, etc. Excluding the ludicrous claims of 30% and similar monthly profit. However, they are often totally wiped out by a highly unlikely outlier event that should happen once in a century, as they like to call it. Or something similar. The Black Swan: The Impact of the Highly Improbable by Nassim Nicholas Taleb is a good book on this subject.
- rahulrrixe 10y ago
  BTW The Black Swan book sucks!

EvgeniyZh 10y ago

Well, how else someone would earn huge amount of money in this negative sum game?

atemerev 10y ago
By being on the positive side, with statistically guaranteed advantage. (HFT, stat arb, volatility arb, smart automated market making etc.)
hellogoodbyeeee 10y ago
The stock market isn't a zero sum game (or a negative sum game for that matter). If you think it is, you are over simplifying. At the very least you need to account for traders' differing time spans on their trades.
- EvgeniyZh 10y ago
  I'm not really game theory expert, but negative sum game is when the total gain is less than total losses, isn't it? That's exactly what happening - the only source of money are participants, and part of the money goes to brokers.
  - hellogoodbyeeee 10y ago
    Say a day trader buys a stock for $9/share and then sells it to me at $10/share a week later. I then put the stock into my investment portfolio and hold on to it for forty years and sell it at $100/share. You could make a simplistic argument that the day trader "lost" the game because he missed out on the appreciation to $100/share but you are neglecting the different investing timespans. The day trader doesn't have a job if he is holding on to stocks for 40 years. He was happy to buy and sell quickly for a small profit. I'm happy because I held on to an appreciating asset. Bankers are happy because they made a few dollars in commissions. No one losses here.
    - EvgeniyZh 10y ago
      > No one losses here. But you two are not the whole market. Someone sold a stock to a day trader and someone bought it from you. There are no other money in a stock market except those people bring (minus commission) so how everybody can win?

thedevil 10y ago

The way the math works out with that distribution: only 80% of them lose money over one year, but as time continues over multiple years, the percent losing money approaches 100%.

dietrichepp 10y ago
This is not how the math works, and it shows a common statistical fallacy. We cannot assume that the chance that a person loses money one year is uncorrelated with the chance that the same person loses money the next. Here is a simple model a mathematician might realistically use to model this. Given N traders, let P_1..P_N be iid Beta(α, β), and let the chance that trader n loses money during a year be Bernoulli(P_n). The nice thing about this more complicated model is that the simpler model is a limit case of it. This "first approximation" lets us use simple mathematical tools to test hypotheses like that by providing an alternative model. If our beta distribution looks more like a constant distribution (with high values for α and β) then we can conclude that the number of traders who lose money approaches 100% as time goes on. If the estimate for α and β is lower, we might reasonably conclude that there is some factor of skill involved. This is just one possible model you could use to test if there is skill involved in day trading. There are many other models which we could test which would also mean that the proportion does not approach 100%, such as a models which assume correlations between different years.
- verroq 10y ago
  I think he was just doing a play on words with the ambiguity and you went full math on him. >only 80% of them lose money over one year, but as time continues over multiple years, the percent [that loses some] money approaches 100%.
  - dietrichepp 10y ago
    I'm probably going to continue going "full math" in the foreseeable future.
    - 10y ago

unknown_apostle 10y ago

And then there are these terrible products they promote to retailers (at least in Europe). Like CFDs and such. Orders in these things don't even go to the market, like in those bucket shops from old days.

joosters 10y ago

The Financial Times often refers to spread betting companies as 'debt collection agencies with a side interest in trading'. Emptying the accounts of users and then collecting the additional money owed is what these companies do. Then they use some of the profits to advertise for new customers to continue the cycle...

mollmerx 10y ago
I'm an avid FT reader and like that description, but have never seen it before. Any chance you can provide a reference?
- osullivj 10y ago
  Suggest Alphaville's coverage of Plus500: http://ftalphaville.ft.com/tag/plus500/ http://ftalphaville.ft.com/tag/plus500/
  - joosters 10y ago
    Yes, I should have really said FT Alphaville rather than just the FT, it has a slightly less serious tone than the main paper, but equally informative and has some quality in-depth articles. The Plus500 coverage is very good, for instance.

bedhead 10y ago

Only 80%? Shocked it's not higher.

chollida1 10y ago

I re-read Michael Lewis' Liar's Poker once every few years. In new reprints he's added a prologue where he says something along the lines of "I tried to write a book about the horrors of wall street and instead it became a recruiting tool for wall street" In a similar vein whenever something like this comes up I write something that says don't try and do this and inevitable I get 10+ emails from people saying "Ok I understand but I still want to do it anyway." So if you really want to try and day trade, here is my 5 points of advice 1) You haven't done anything until you trade with real money. Ever played poker with friends that wasn't for money? You always get some jerk bluffing and going all in on Ace-7 because why not, it doesn't matter. If you want to trade you need to learn your own emotional limits. Get invested as soon as possible. Learn what kind of stress you can deal with. 2) The average successful individual algo trade looks like John Turturro charter Joey Knish in rounders. You are always grinding out a living $100 to $1000 at a time. If that isn't' appealing then stop before you start. http://www.imdb.com/title/tt0128442/fullcredits/ 3) You need money to begin. It takes as much effort to trade 2000 as it does 200,000. Above a million or so things change. A minimum amount I'd use would be 50,000. If you can't set that aside to trade then don't start. I mean if you have a great year trading 5,000 and make 20% you have made $1,000. That's not worth the effort. But at say 100,000 your 20% is starting to be real money!! Be clear to yourself that you are doing this for the money. Any other reason just gives you an easy out. 4) The most important number to look at is draw down, not sharp ratio. I see lost of people on quantopian show great backtested algos that return 200% over 5 years, but have a 70% draw down at one point. Most people don't have the psychology to loose money. At 10% down you start to question yourself. At 20% down you get really grumpy in all aspects of your life. Most people don't have the ability to let their positions fall to 30% down. If your backtest has a draw down of more than 30% you don't have a workable algo.....period. Sharpe ratio is great if you are an HFT firm trying to decide how to divvy up your money across 30 successful algos. You don't have 30 successful aglo's. You will be lucky to have one. 5) Don't use leverage....... you can break the other rules, this one you can't. I've seen people go bankrupt. Don't use leverage.

manishsharan 10y ago
@chollida1 , you should write a book; help drive Michael Lewis' point home. In my last project for a brokerage system, I developed features for day traders. What was most surprising to me how much money the brokerage system generated for the bank regardless of the outcomes for the day traders.

inputcoffee 10y ago

Isn't is possible that the sample is biased because you only looked at the subset of traders who were not sophisticated enough to turn off the feature that allows others to observe their trades?

zmk_ 10y ago
My initial issue with this analysis as well.
TheCowboy 10y ago
This is a good point. And we shouldn't assume this means that the number of successful traders is automatically higher due to their greater understanding. There could be a large number of people hiding their trades due to a losing record, or an unlucky streak inducing paranoia.
gr2020 10y ago
Not disagreeing - but it's worth noting that you _always_ want someone to take the same trade as you, right after you do.

mholmes680 10y ago

I have a serious problem with the "conclusion" of this post. This data isn't normalized against some kind of control group to show that maybe day-trading during Brexit is a different beast than index-tracking during Brexit. Or maybe its the same beast, we can't conclude anything... I'm beginning to realize the difference between "data scientist" and just looking at numbers to put them on a chart.

glippiglop 10y ago

It's an interesting stat, but the chart doesn't speak as to the levels of experience of the traders. All beginners lose money, but it's entirely possible for an amateur to become a profitable day trader with time. Speaking from experience, the real issue for me was that once I started to get good at it (after 2 years) I realised just how awfully boring it was. It's not intellectually demanding and for the investment of your time, stress and the risk involved, the rewards even if you reach profitability aren't worth it. Now that I can reflect on it, I couldn't be happier that I stuck with software development instead.

elmar 10y ago

More Comments at https://news.ycombinator.com/item?id=12330285 https://news.ycombinator.com/item?id=12330285

atemerev 10y ago

Good! Anybody who doesn't understand exactly where money are coming from and why, will be ripped off, and probably deserves it. If you want to gamble, you will be gambled. If you want to reduce your risks, you have to research accordingly.

NDizzle 10y ago

... of course, 50% will end up in the bottom half and 70% will end up in the bottom 70%. - Charlie Munger. https://old.ycombinator.com/munger.html https://old.ycombinator.com/munger.html

nicholas73 10y ago

This blog post did not answer it's own question because it's conditions were not day trading (over 3 trades in 12 months). That condition selects for people choosing individual stocks hoping for a moonshot, for which people tend to choose riskier stocks rather than stocks actually likely to make them money. So no wonder 80% lost money. On the other hand, notice that the 20% who do make money have a large power distribution curve. A better way would have been to compare performance versus frequency of trading (I don't expect this to prove one way or another though). The fact is, there are many strategies one could take, and it's how well you execute them that counts. Personally, I don't find daytrading riskier than holding stocks. By far my biggest losses come from holding the wrong stocks for a long period. It just seems riskier because you have to confront yourself with the possibility of loss each day, rather than hold "long term" and deny that you are wrong. I now take the Doyle Brunson approach. The poker champion loved to pick up small pots and felt it was critical to do by aggressively playing small hands. That way, these little wins pay for the risk of playing bigger hands over time. I've had the same experience - my daytrading tends to be small money but it stems from work done for holding long term stocks. So why not put it to use? But, to actually make good money daytrading is still really difficult. Commissions alone can make you have to be 55/45 correct, but there is also the steamroller affect where people tend to hold on to losses and double down further. So it's also about mastering yourself in addition to your market. Otherwise, there is not reason why you can't be better: you are putting in more work than others to make good decisions, and that's how you profit. Trouble is, when are you still outgunned informationally?

bvanslyke 10y ago
I'm curious - If you don't mind sharing, how long have you been day trading and what has your percentage return been?
- nicholas73 10y ago
  I started actively trading around 5 years ago, and only picked longs another 5 years before that. It's difficult to give an exact % because I'm not a day trader per se. I trade around a position I know well, but do day trades when I spot an opportunity. Sometimes you know something will happen, but only on a short time frame. For example, I went into oil stocks earlier this year, and I knew that the market was panicking over the low oil price. So some days the market would bounce back right when the oil pits close at 2:30 (since the oil correlation can't get much worse then). Take a chance to ride the way back up, why not? But you can't do this all the time, which is why I gave you this esoteric example. Well, if you still want a percentage, I'd say 10-20% might be a reasonable achievement.

DrNuke 10y ago

Was all in into Barclays shares the day before it was going bust in 2008 but got out before 5pm fearing the night and the wiping out. Instead, Gordon Brown bailed them before the market reopened the next morning ("too big to fail") and I missed my once-in-a-lifetime opportunity to make the big money as an indie trader. Done.

dan1234 10y ago
I thought Barclays were one of the few banks who managed to raise extra capital without government help?
- DrNuke 10y ago
  Yes they then raised from Qatar but the unfolding was dramatic http://news.bbc.co.uk/2/hi/business/7658277.stm http://news.bbc.co.uk/2/hi/business/7658277.stm and Robert Peston was having the days of his professional life eheh. Got it the link! http://monevator.com/how-fear-is-driving-bank-share-prices/ http://monevator.com/how-fear-is-driving-bank-share-prices/
  - osullivj 10y ago
    I've owned BARC for 10yrs now, and I've taken a hell of a beating. I'll never buy any kind of banking equity again.

drcode 10y ago

I suspect this is a relatively new development- I think 5 years ago I would have been pretty comfortable with my chances against AI trading bots. But in 2016, not so much. Based on my own anecdotal evidence, I think the large corps building HFT systems with AI have gone a long way towards eating the lunch of "lone wolf" day traders in the last few years.

gedrap 10y ago
>>> HFT systems with AI I highly doubt that it would affect you, tbh, and I suspect that it's a highly sentimental matter. Only if I did have money to buy Apple stock 10 years ago, that kind of :) no offense if I am totally wrong, it's just that you didn't provide any specific argument for your reasoning. Aren't these folks with hundreds of millions in the trading accounts in a totally different league and they do not affect you, unless you want to play in their own game (e.g. high frequency)?
- deleted 10y ago
  [deleted]

btbuildem 10y ago

It would be interesting to know whether the gains were concentrated among a small group of same individuals over time, or equally across the large group (ie everyone getting lucky once)

HashThis 10y ago

I'd love people's opinion on this. From my understanding, HFT (High frequency trading) firms are front running stock orders. NYSE sells them data on stock orders. They buy data center space in order to front run stock orders. That is how the HFT guys make a profit when Day Traders can't make the same kind of profit. Is that true?

idohft 10y ago
I'm in HFT (as per my handle). Exchanges like NYSE, NASDAQ, etc. sell stock data to firms but not before they get processed. The only way you get front run is if the broker that you submit through (ETrade, Schwab, etc.) notes your order, knows that it's big enough to move the market, and then prioritizes their own action over yours (which I'm reasonably sure they do not). Buying data center space (colocation) means they can react to activity quickly, but only after said activity has happened.
- HashThis 10y ago
  Thanks for the details

wehadfun 10y ago

80% are losing who the hell is winning and how? I fell like they are cheating or have some sort of advantage that is not easily available to private day traders and no I don't think that advantage is a PHD and fast data connection.

3chelon 10y ago
The spread betting companies are winning, of course. They are the market makers and they can manipulate the market as much as they like, even pushing the price up or down temporarily to hit stop loss orders and the like. And of course they adjust the spread to suit them, esp. in equities. I always thought the safest markets are forex because the huge liquidity tends to limit the spreads somewhat, but I have no idea if that is actually true.
- randartie 10y ago
  Okay, but there's plenty of highly liquid things to trade. For example the SPY has a spread of 1 penny, same with SPY options. You mention a potential strategy for manipulating the market like pushing prices to hit stops, well if these strategies are common then it seems there exists a potential strategy to take advantage of this. It seems like so long as the market's next tick price is not completely uncorrelated from its previous tick price, then there will always be a way to 'beat' the market. The market price is not completely uncorrelated (as you mentioned, there's price manipulation driving it to certain prices throughout the day).

gedrap 10y ago

I think the analysis could be improved by excluding people who made a couple of trades worth of a few dollars just as an experiment, etc. This way, leaving only the people who took it somewhat seriously. Even then, the data would be heavily biased - it includes only traders who decided to use eToro AND keep the history public. This is far from a random sample and very biased. However, I would not be surprised if the actual results (across all brokerages, etc) are close to that, or even more extreme.

nstj 10y ago

Ironically, it seems the HFT's have started eating their own lunch too [0] > Overall, HFT firms’ revenues in the US have slumped from about USD 7.2 bn in 2009 to USD 1.3 bn in 2014 (see chart 3) [0]: https://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000406105/High-frequency_trading%3A_Reaching_the_limits.pdf https://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD000...

stevenmays 10y ago
Yeah it's a race to the bottom. All HFTs are competing with each other now for yield so profit declines.

deleted 10y ago

[deleted]

grondilu 10y ago

Isn't day trading a zero-sum game? If so, it's not very surprising that the majority of day traders lose money. Every dollar you make comes from someone who lost it. So unless you have a competitive advantage, such as lower brokerage fees, you should stay away. Me, I believe in https://en.wikipedia.org/wiki/Buy_and_hold https://en.wikipedia.org/wiki/Buy_and_hold. The money you'll make will come from the actual profits of the companies.

cortesoft 10y ago
It isn't zero sum.... the stock market has, at least so far, gone up over time; so on average, the sum of all money made on the stock market each day is positive. This means it is possible for everyone to 'win' and gain money. Fighting over that 'gain' for each day, however, is zero sum.
neffy 10y ago
No, actually it's not. If you take the amount of money involved in the stock market every year, and assume that as a percentage of the total amount of money sloshing around the economy it remains broadly the same, then owing to monetary expansion (~7-8% a year in the USA), there is that percentage to be extracted from the financial system every year. Which Wall Street is quite efficient at. If you factor in things like financial feedback loops essentially acting to concentrate money over long periods of time in the financial sector (well, what did you think was causing the ever increasing wealth gap?), then it's a little more than that of course.

samfisher83 10y ago

If someone is consistently good at losing money 60% of the time. Why not just do the exact opposite of whatever their initial hunch is. Then they should make money. Based on loss of 36% from the article that is more than just transaction and trade fees which are 1 to 2%of trade therefore if they just do the opposite of what they are doing they should make money.

simo7 10y ago
Except that the loss in not calculated on 1 transaction. If you go exactly even before transaction fees, on a big enough number of transaction you loose everything....exactly because of transaction fees.
tomhschmidt 10y ago
https://en.wikipedia.org/wiki/The_Opposite https://en.wikipedia.org/wiki/The_Opposite
qntty 10y ago
Well I guess the opposite of doing day trading is not doing day trading... it works!
dietrichepp 10y ago
If you lose money because you don't quite beat the spread, doing the opposite might mean that you just lose money faster. There are also fees, and the enormous risk of taking short positions (the natural opposite of long positions).
KeytarHero 10y ago
> Why not just do the exact opposite of whatever their initial hunch is. If your initial hunch is to buy a stock you don't own yet, you can't sell it instead.
- enraged_camel 10y ago
  You buy stocks for two reasons. Either you think they will go up (long) or you think they will go down (called "shorting"). You can think of them as opposites.

paul_milovanov 10y ago

Furthermore, almost 100% of private day traders lose money! — from the your headline is meaningless and you should feel bad dept :P

lordnacho 10y ago

Here's a quote from a guy who runs one of these shops: "90% of the customers lose 90% of their money in 90 days." A friend of mine was chatting to him about doing some business. I would think it's more about leverage than commission. Looking at FX, you can get tiny spreads, almost comparable to what I saw in a hedge fund. It takes a while to eat up a whole account on such small percentages. Leverage, on the other hand is something you can use to demolish capital over an afternoon. Ratios like 1/200 are a formula to go broke if you haven't had a look at something like Kelly Criterion.

known 10y ago

Insider trading is not illegal; http://cnbc.com/id/43471561 http://cnbc.com/id/43471561

wahern 10y ago
Legislators aren't insiders. Insider trading requires being an employee, board member, or otherwise owing a fiduciary duty to the company. The crime hinges on breaking that duty. It does _not_ mean merely trading on so-called "insider information", unless you're in cahoots with an insider who will benefit directly or indirectly. If it were otherwise, trading on a "hot tip" about a stock could put anybody at risk of federal felony charges, no matter how far removed they were from the company. That would be ridiculous. Insider trading also requires trading on material, non-public information. Few employees have access to that; usually only C-level executives and board members have that kind of information before it's made public. Many of the trading window restrictions imposed on you by your employer aren't required by the law or SEC regulations. Often it's to maximize the window that large investors and stock holders (including executives, through their trusts!) can profit on big movements, without legions of employee stock option holders raining on their parade. That said, the SEC can be super aggressive about insider trading, whether or not any court would ultimately permit the charges to stick. They'll go after people with a noose in one hand and a slap on the wrist in the other; most sane people know which to choose. Racking up plea deals makes the SEC look effective at policing the market when in fact they're anything but. Which is why the decision a couple of years ago by the 2nd Circuit reaffirming the law of insider trading really upset the SEC. Honestly, I'd rather that all Congressmen's investments were made public. Unlike the law discussed in the article, it could be anonymized before publication for all I care. But transparency would make it less profitable for Congress to trade on insider information because people could follow and mimic their trades. And big corporate investors might then pressure companies to stop disclosing so much information. That'd be a far preferable state of affairs than trying to criminalize trading on non-public information. Everybody and their Uncle tries to trade on non-public information; that's exactly how the market is supposed to work--provide a profit motive to uncover non-public information and effectively make it public by pricing it into the stock. And a Congressman trying to subvert the transparency rules provides much more clear-cut culpability. Otherwise there's too much plausible deniability regarding the how, what, and why of their trades.

cloudjacker 10y ago

Almost 80% of Hedge funds lose money too

hal9000xp 10y ago

Since 2012, I'm interested in financial markets. I read some university books. I trade from time to time (mostly index ETF and futures/options for experimental reasons). I would argue that ~80% is quite optimistic estimation. I think in long-term more than 99% of retail day traders lose money. It's NOT because making money on financial markets is ridiculously difficult. It's because if you trade frequently, you get feedback from market pretty quickly. The feedback in terms of profit and loss of your money. If you become day trader, I would guess that you want beat the market (otherwise you just buy and hold index ETF). It means that you as a day trader is willing to take risks to lose money in case you are wrong that you think you are able to beat markets. What does it mean "to beat the market" in long-term? It means that you are smarter or faster or have some insider information. In other words it means that you have competitive edge. Well, obviously, average person doesn't have competitive edge against hedge funds and other institutional investors who hire people with outstanding intellectual capabilities. Just read hedge fund interview questions to see how they filter people. Other way to estimate your situation as a retail day trader: if hedge funds don't want to hire you, why do you think you are still capable to outsmart hedge funds while you can't answer their interview questions for trader role? I don't say that it's inherently impossible to beat the market as a retail investor. It's fairly possible if you are REALLY smarter than others. And in this case, you most probably are capable to impress professional traders and investors while talking about markets. If so, they will bring you their money, and incorporate hedge fund, and you are not retail investor anymore. Just like Michael Burry did. In other areas, ~99% of failed attempts is also true. For example, ~99% startups fail to make money. So it's normal state of affairs.

steveplace 10y ago
>if hedge funds don't want to hire you, why do you think you are still capable to outsmart hedge funds while you can't answer their interview questions for trader role? You're not playing the same "game" as hedge funds. They have different mandates and liquidity. Putting 100 million into play on a position is completely different than 10k. You can choose different strategies, different trading vehicles, and different risk management parameters as a retail trader compared to an institutional trader. So you don't necessarily need insider information or a massive technical infrastructure. You can get an edge, but it won't be the same edge you'd have running serious money.

Nihilartikel 10y ago

Did not read the article; but is anyone looking at the kooky square-wave action on SPY and DIA today? I'm totally hopping on to the next 60m cycle! Can't lose. Or... maybe not

Animats 10y ago

Even worse than day trading are "binary options". This allows betting on, for example, whether the price of gold will go up or down in the next minute. Most of those are total scams. There are about 100 binary trading firms based in Tel Aviv, Israel, and most of them are telemarketing operations for a software platform called SpotOption.[1] Features of the scam include 1) they're not brokers, they're the other party, so you're betting against the house, 2) the house controls the price info and may tweak it slightly to make you lose, 3) there's a "margin trading" system which prevents you from withdrawing until you've done a certain amount of trading volume, and 4) even if you win, they make it really hard to withdraw money. Most "investors" lose 100% of their money. Read "The Wolves of Tel Aviv" in the Times of Israel.[2] All these outfits are prohibited from operating in the US (the CFTC catches some of them trying; "Banc de Binary" was forced to return all US customer losses) but they've been able to operate in the European Union by registering in Cyprus and using that as a passport to the entire EU. [1] http://www.spotoption.com/ http://www.spotoption.com/ [2] http://www.timesofisrael.com/the-wolves-of-tel-aviv-israels-vast-amoral-binary-options-scam-exposed/ http://www.timesofisrael.com/the-wolves-of-tel-aviv-israels-...

praptak 10y ago

"Why I don't trade stocks and (probably) neither should you", a very good summary about why it is stupid(#) to try to be "smart" about stock market: https://news.ycombinator.com/item?id=6831461 https://news.ycombinator.com/item?id=6831461 (#) If it's not your full time job.

eddd 10y ago

Afaik 98% of forex day traders loose money. You can't compete with scalpers with 10ms advantage.

thomasrossi 10y ago

"80%" it's very unlikely, say it is true, you just do the opposite and you have free money. I suspect the correct overall percentage should be much closer to 50%. Finding a profitable strategy should be much more difficult than "do the opposite of day traders", right?

cdavid 10y ago
it is at least partly because 100 % of day traders do less than 100 % of trades. And they play against people who are vastly more intelligent, better equipped, etc... on average. As a day trader, the odds are overwhelmingly against you.
morgante 10y ago
What does "do the opposite of day traders" entail? If it's to not trade daily then yes, having a profitable strategy is trivial: just buy index funds. If you think it's possible to reliably trade better than day traders, you're probably just as deluded as them. That being said, this data set is unlikely the be representative. The best traders are using something like IB, not eToro.
- thomasrossi 10y ago
  No, I was just pointing out that 80% is not very likely and is probably some sort of bias or mis-representation. In fact it would be a great compliment for them because they would be getting consistently the opposite of the market (If they overall lose money it must be that at least on the weighted average of their bets they get it wrong, maybe one big wrong and many little right ones, or mostly all moderately wrong, etc..).

pbreit 10y ago

The headline is probably close but I don't think you can reasonably extrapolate out from only eToro customers.

83457 10y ago

I looked into trading a while back after my dad lost a bunch in the market. I read a lot of info and in the end finally found someone who stated information like this in the link. In the end I learned that the vast majority of retail traders lose money, I think 85 or 90% was listed, the majority of people who get into professional day trading quit within a couple years, day traders make profit by leveraging their money many times over just to make a living, and day traders actually take an income instead of letting their money ride and losing it all in a few trades but this also keeps them from progressively getting richer. Day traders expect to lose on at least 40% of their trades which is apparently one of the biggest issues mentally with trading. None of the retail platforms explain these facts nor many other sources of info online.

JackFr 10y ago

> The data source for this post is eToro, a brokerage company that offers a feature called Social Trading, which is social network for traders. It is enabled by default and allows users to view and copy other users’ trades. Therefore, everyone’s trading performance is publicly available who have not disabled Social Trading. What if the winners are choosing not to make their trades public? That alone could introduce some serious bias.

songzme 10y ago

Here's a story of my mom's journey as a day trader: My mom got laid off in 2008. The job market was brutal and she had a hard time looking for a new job. She had to find ways to make money to support my sister and I through school so she turned to the only other place where she could earn some money - the stock market. She started with around 100k, read up about stock options, and decided that shorting calls and puts would work well. The time value decay seems to work in the investor's favor. Every time she made enough money, she would take them out and buy houses (all cash) and start from 100k again. Now, 8 years later, she has acquired a few properties in West LA and Oakland and makes more rental income per month than my salary as a senior software engineer. She still trades today.

bsder 10y ago
Winning the lottery always happens to somebody. Just not many.
- kgabis 10y ago
  It doesn't sound like winning a lottery but rather like making a series of good investing decisions.
  - nibnib 10y ago
    Buying a winning lottery ticket always looks like a great investing decision in retrospect...
    - kgabis 10y ago
      I don't think it's a valid comparison. Lottery results are unpredictable, stock market to some degree is.
      - stevenwiles 10y ago
        That is incorrect.
10y ago

Paul-ish 10y ago

>On the 1st of August, 2016, I downloaded the publicly available data through their ranking API. I selected all users who were active during the past twelve months, traded with real money, and had at least three trades. The results consist of 83.3k traders who fulfill these conditions. What may be interesting is to see a graph where the number of trades a person executes is on the x axis and on the y axis is median return. Do people who make more trades make more or less money? It would also be interesting to look at a window larger than 12 months. Do people with trades going back years do better than people with trades going back months? Is this gambling, or can some people build some skill in this?

anonu 10y ago

The smartest thing an individual investor or trader can do is put their money in extremely low-cost index funds and leave them there. I have worked as a trader at various large financial services firms for almost a decade now. Even though I believe I have more insight into the markets in general than the lay person - the moment I decide to trade for myself, I will not get the same quality of execution and breadth of services I would sitting at my work desk...

habosa 10y ago

Excuse my meta-comment, but I notice that HN seems to have an obsession with proving that active trading is bad and that we should all buy low-cost indexes. And before anyone jumps on me, I 100% agree with that investment strategy and use it myself. I'd just like to comment on the intersection of that belief and tech enthusiasts. It seems to generally come from a place of binary/analytical thinking which we're all so good at. Studies show that active investing is a losing battle for the average investor, so we assert that as fact and invest our money that way. But I think deep down in myself (and probably others) it comes from a place of wanting to justify risk aversion. It seems that many people that we all know do become quite rich as investors, and the secret to their good fortune is not apparent. Studies promising us "they'll all lose in the long run!" makes us feel good about our decision not to participate in the game. It's similar to the derision of startup equity, etc. I know many people who have become very rich at a very young age by latching on to the right startup, but I like my comfortable BigCorp job. The HN comments are a place where I can feel smart about my decision to not take risks even as we celebrate those who took risks and won. Anyway I don't know why I chose to write this comment or explore this topic at this moment, I hope someone else reads it and understands my sentiment.

seagreen 10y ago
It seems that many people that we all know do become quite rich as investors, and the secret to their good fortune is not apparent. Studies promising us "they'll all lose in the long run!" makes us feel good about our decision not to participate in the game. This would be a way stronger argument if the king of the buy-index-fund team wasn't Warren Buffett:)
- streblo 10y ago
  Buffett isn't exactly buying index funds for BRK
  - seagreen 10y ago
    The parent comment said criticisms of private day traders were motivated by jealousy, and I said that's certainly not the case for the most notable of the critics. Buffett could have made his success as a rodeo clown for all it matters to my point.

sunstone 10y ago

Day trading is the perfect forum for the overly confident.