This article was last updated on June 10, 2022
Regardless of whether you are considering it as a career choice or just as a hobby, day trading is a great way to earn money on your own terms. The practice allows for great flexibility in your day-to-day and can easily fit around your schedule. Meanwhile, it can be a satisfying challenge that will test your mettle. If you are successful, you will be greatly rewarded a day trader salary can be one of the highest in the market. However, your success is all up to you, as there are no minimum wages, annual raises, or bonuses here. Instead, you can end up losing money just as likely as you are to gain it.
Having that in mind, if you think that day trading is for you and would like to try your hand at it, then read on. We are going to explain how you can start your journey in the world of day trading, what you need before you can do so, and what you need to be successful. We will also take a look at the various salaries and income levels for the different types of day trader.
Table of contents
- What Is Day Trading?
- Key Features Of Day Trading
- Strategies For Earning A High Day Trader Salary
- What Do I Need To Start Earning A Day Trader Salary?
- What Kind Of Day Trader Salary Can I Expect?
- Average Day Trader Salary
What Is Day Trading?
Day trading is the practice of trading stocks and other assets on the market with very short-term transactions. Most are bought and sold within the same day, thus the name. Day traders will purchase a given asset, wait for its price to rise a bit within a matter of hours, and then sell. This slight increase is how they earn their day trader salary.
As such, day trading is a very fast-paced profession and requires great commitment and focus. If you are looking to get into this space, you will also need a significant starting capital to invest and the bravery to put it on the line.
Being a day trader also means needing to be ahead of the curve on most news and current events. This is what will allow you to monitor the overall climate and predict the market’s movements. While these predictions will usually occur mere minutes before the actual movements, that is plenty of time for day traders to execute their orders. Breaking news and industry insight are invaluable tools of the trade.
Day traders will take such information, combine it with their own data, and predict what will happen next. As such, they fall under the category of speculators. Instead of doing extensive research into the fundamentals and long-term potential of a given organization or market, day traders are much more short-term focused. Their quick transactions allow them to capitalize on momentary fluctuations before too many factors can come into play. This is also why they will exit their positions prior to the end of the trading day.
Related: Beginner’s Guide To Investing
Key Features Of Day Trading
- Short-term movements are the basis of day trading. Investors will hold their positions for only hours at a time. They also aim to close most of them by the end of the trading day.
- Speculation is how day-traders predict the subtle movements of the market. They focus on current events and temporary changes. This is opposed to long-term investors who look at company fundamentals and market potential to identify undervalued assets.
- Data-reliant. Day trading is a very analytical process. It requires participants to actively gather and keep track of various metrics. Being informed of currend on time events is also crucial to executing your orders before the market reacts.
- Strategy is necessary for success in day trading just as it is with all investments. Day traders will start off by setting parameters by which they will execute orders during the day. These include calculated risk percentages, capital spread, and limit orders.
Strategies For Earning A High Day Trader Salary
There are numerous strategies and techniques you can employ in your day trading. These will allow you to manage your risk/reward ratio and give you a better idea of how you might do over the course of the day. Utilizing them will help you on your way to earning a top day trader salary.
One to Two Percent Rule
This is perhaps the most common and widely applied rule among daytraders. It states that you should never risk more than 1% of your capital on a single trade. As a margin for error, the rule allows up to a 2% investment, however, it is best to avoid anything above 1%. This will help minimize your potential losses and eliminate mistakes that can put you out of business.
The so-called contrarian investors bet against the movement of the market to capitalize on sudden changes. For example, a typical contrarian strategy will involve buying stocks that have been low for a while and short-selling stocks that have been rising. The assumption is that assets that have been appreciating in value will soon fall off, while low-valued ones will increase. Many successful traders employ this tactic, including renowned financier Warren Buffett.
Diversification is one of the simplest ways to increase success chances. This involves investing in multiple markets and companies. This way, if one of your investments fails, the others are unaffected and still have potential. By increasing the number of investments, you are also increasing your chances of one of them increasing in value.
This is basically the opposite of contrarian investing. As you might have guessed by the name, investors, in this case, will assume that trends will continue as they currently are. Meaning that if an asset is rising in price, it will continue to do so. Meanwhile, those falling in price will continue to depreciate. As such, traders will buy rising ones and short sell falling ones. To determine the feasibility of their strategies, investors will rely on highly technical data and factors.
Range trading involves identifying assets that are trading within a specific range and exploiting that. For example, if you see that a given stock has been rising in value to reach a price of $60 and then falling to $40, then that is its range. If this has occurred multiple times over the past weeks or months, a pattern is formed. Once you have identified this pattern, you can determine if it will continue for the foreseeable future. Now, you can buy the stock at the $40 low and sell it at $60. You can continue to do so until you determine that the pattern has been broken and will not reoccur.
Trading The News
Trading the news is a highly engaging and dynamic strategy. It involves keeping a close watch on the latest news as they come out. Depending on these, investors will then buy assets related to good announcements and sell ones related to negative ones. The idea is that the mainstream reaction to these news, while inevitable, will be a bit delayed. Active day traders can capitalize on this delay to execute their orders ahead of time. Industry tools like a Bloomberg terminal are great ways to get ahead of the curve on such developments. Since the general public does not have access to them, you will have an advantage as a day trader.
Nowadays, everything can be automated, even trading. In fact, according to research, over 70% of all orders are executed using some type of automation tool. Large organizations, banks, and hedge funds often use such software to gain an edge over retail traders and optimize their processes. Meanwhile, smaller retail traders can also take advantage of the technology. Over recent years, trading software has become cheaper and far more accessible. Nowadays, even retail traders can purchase it online.
Scalping is a strategy that involves performing many small trades over a short period of time. The approach capitalizes on the small variances that occur in times of volatility due to the bid-ask spread. Investors who utilize this strategy leverage factors such as tradelines, oversold and overbought assets, or resistance zones. They will open and close positions within a matter of minutes, thus maximizing gains while minimizing loss exposure.
Read Also: What’s The Difference Between Forex And Stocks?
What Do I Need To Start Earning A Day Trader Salary?
Anyone can start day trading if they have the right mindset. However, there are several factors that you need to take into account beforehand. Some are things necessary for you to start, while others are good to have as they provide you with an edge from the get-go.
Below we have outlined what you need to get you started in your day trading career.
First and foremost, you will need to have enough capital to invest in trades made over the day. The more you start with, the higher your day trader salary will be. There is a minimum here that can vary depending on the commodities and assets you have chosen to buy and sell. For example, trading in stocks requires investors to maintain at least $25,000 in their account if they want to execute more than four orders in a five-day period. This means that you will need more than that sum, as it is meant to stay in your account.
Meanwhile, forex trading does not have a legal minimum capital requirement. This means that you can start with whatever is at hand. As long as you are able to open and close positions at a profit, you are well on your way. Another example of a low entry fee investment are cryptocurrencies. They are even less regulated, and you have much more freedom in that market.
Successful day traders always have a plan of action in place. They will decide how much they want to spend, at what risk, and when to get out ahead of time. This is paramount to success. It provides you with an overall guideline for your decisions during the day. When you have pre-panned your macro strategy, you will be able to dedicate your attention to what is happening in front of you.
In order to form a good plan of action, you will need to base it on market knowledge. Before even thinking of starting to day trade, you should study up on the practice. Successful day trading requires a lot of knowledge and insight. You will need to learn the basics of how the stock market operates. What makes it move, its patterns, and how it reacts to certain events.
Day trading is a fast-paced and oftentimes stressful job. You need to be able to keep your cool and stick with the plan. If you buckle under pressure, you can end up making the wrong moves. Hasty decisions lead to premature purchases and sales. This can cost you a lot of money from your capital. Remaining composed over the course of the day and sticking to your plan is the best way to succeed.
The Right Broker
Since day traders execute multiple orders every day, commission fees can quickly rack up. This can cause a serious dent in your profit margins. Even if you are successful in your trades, a high commission can put you in the red without you even noticing. In order to maximize profits, you need to pick a good broker to facilitate your transactions. Choose one that is not only trustworthy but also charges low fees.
Webull is among one of the top trading platforms in the United States and is the go-to choice for many investors.
Day Trading Software
While not necessary, day trading software can be a handy tool to help optimize your process. Such software helps automize trades and can keep track of indicators you are unable to. A program can monitor multiple readings at the same time. This would be very difficult for a person to do. As a result, delegating such taxing work to an automated program allows you to focus on other aspects.
Day trading software can be found as a standalone service on the internet. Alternatively, many online brokers offer it as part of their platform.
What Kind Of Day Trader Salary Can I Expect?
While many people have enjoyed a long and fruitful career as day traders, many more have failed. This is a risky career choice that depends entirely on your level of commitment and persistence. If you do not falter in the face of a few losses and continue to learn and trade daily, then there is a high chance that you will succeed on time. However, do not expect to go into day trading in start winning big right from the get-go. The point in day trading is not to have losses but to have more wins than losses at the end of the day.
On average, experts believe that day traders can earn a monthly return on their investment of up to 9%. However, this is not always the case, as according to data from numerous studies, only about 1% of day traders make a profit in the long term. This makes day trading an unfeasible career choice for them.
If, however, we consider the 9% return mentioned above, with a $50,000 starting capital, you’ll have a monthly return of $4,500. The higher your starting allowance is, the higher your profits will be. You can then choose to reinvest the profit in future trading endeavors, thus increasing your income.
Average Day Trader Salary
Another option that you might want to consider when choosing day trading as a career is working for a larger institution. In such cases, you will still day trade, however, you will be doing it with someone else’s cash. As such, you won’t receive all of the profits, but only a small percentage as a monthly salary. According to data, the average yearly day trader salary in the US is around $81,000. Additionally, as an employee, you can also earn commissions and performance bonuses on top of your base salary. These can range between $25,000 and $50,0000.
Meanwhile, the funds that you are risking are not your own. This is excellent news if you aren’t that confident. You will, instead, be given an allowance that you can use to make your trades. Day trading under an organization is also a good way to subvert the $25,000 minimum balance rule. Since most companies will allow their employees to trade without that balance in their accounts, they make day trading more accessible.
Furthermore, larger institutions such as banks or hedge funds have access to better tools. They can afford professional and enterprise-level systems that provide better quality data. This will help you make the right decisions more easily and give you an edge over retail traders.
In conclusion, day trading is a feasible job option, but it is not for everyone. It is a highly competitive and dynamic field. If you want to succeed, you will need to be persistent and dedicated. You should be able to take losses in your stride and make the best of them by learning. What is important in the long run is that you have more wins than losses. This will allow you to come out on top and continue working in the field.
If you want to earn a top day trader salary, you will need to be patient as it takes time and effort to learn the nuances of how the market moves and how to profit off of that. As we discussed earlier, starting your career as a trader for a company or other organization is an excellent way to get around the steep barriers to entry. It also eliminates a lot of the risk associated with using your own funds to trade.
Related Reading: What Are Cryptocurrencies?