How many day traders actually make money
The largest study ever conducted on day traders analyzed fifteen years of complete exchange data from Taiwan. Result: fewer than one percent of day traders were reliably profitable over multiple years.
These numbers are unusually reliable because they don't rest on surveys or voluntary reporting, but on the complete, anonymized trading data of an entire exchange. A research group around Brad Barber and Terrance Odean has analyzed the complete transaction data of the Taiwan Stock Exchange since the early 2000s, in part spanning fifteen years and billions of individual trades.
The central finding: over the period 1992 to 2006, day traders lost roughly 24 basis points on an average day after fees and transaction tax, meaning just under a quarter percent of their deployed capital. That might sound small, but it adds up fast to substantial losses with daily trading.
Among the group of traders who were profitable at all, only a small share stayed that way consistently over multiple years. The researchers found that fewer than one percent of all day traders were reliably, meaning not just by chance, profitable over years. About five percent were profitable in any given year, but most not consistently.
Similar studies at other exchanges find comparable results. A study of Brazilian futures-market traders found that of those who stuck around for three hundred trading days, ninety-seven percent ended up with a loss.
Barber, Lee, Liu, and Odean (2014) and Barber, Lee, Liu, Odean, and Zhang (2020) analyzed every transaction on the Taiwan Stock Exchange from 1992 to 2006, a dataset spanning several billion individual trades. On an average day, day traders lost roughly 7 basis points before costs and roughly 24 basis points after costs, with aggregate performance reliably negative in fourteen of the fifteen years studied.
Especially revealing is the distribution of success within the group. Only about five percent of all active traders were profitable on a monthly average, and fewer than three percent of traders earned consistently enough profit to count as predictably profitable, with that small group responsible for only about ten percent of total trading volume. The unprofitable majority therefore generated the bulk of turnover.
The study also tracked the survival rate of new day traders over time: after one year, 44 percent were still active; after two years, 24 percent; after three years, 15 percent. This high dropout rate is consistent with the observation from the lesson on loss aversion that traders after losses more often raise their stake than quit, which distorts the selection of those remaining: whoever's left doesn't necessarily have a better strategy, more often they simply still have capital.
Summary
- Over 15 years of complete exchange data, fewer than one percent of day traders were reliably profitable.
- The unprofitable majority generated most of the total trading volume.
- Three years after starting, only 15 percent of new day traders were still active at all.
Did you get it?
What do the Taiwan day-trader figures rest on, and why are they especially reliable?
On the complete transaction data of the entire exchange over 15 years, not surveys. That rules out selection and memory biases that affect self-reported data.
How large was the average daily loss for day traders after costs?
About 24 basis points, meaning just under a quarter percent of deployed capital per day.
How many of the newly started day traders were still active after three years?
About 15 percent.
Sources and further reading
- Barber, B. M., Lee, Y.-T., Liu, Y.-J. and Odean, T. (2014), Do Day Traders Rationally Learn About Their Ability?
- Barber, B. M., Lee, Y.-T., Liu, Y.-J., Odean, T. and Zhang, K. (2020), Learning Fast or Slow?, Review of Asset Pricing Studies View source ↗
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