"I have no idea what the average trader makes, but they aim for far, far above 20% per annum."
Not sure; there seems to be some that are successful, but it also seems that most go backwards...
Anyway, my original example was just in reply to Big Johnny's Q and presented a simple scenario that may or may not apply to you, but was simply aimed at providing some quantification of trading vs investment for a particular scenario, and the tax implications for that scenario. Nothing more, nothing less.
Tax bracket doesn't apply to you? Time horizon not to your liking? Example returns p.a. "irrelevant"?? Fine, provide your own examples!!
I have no doubt there are some successful traders out there. Also some successful investors. ..and many unsuccessful, regardless of their MO!
GLTA!
“The success rate for day traders is estimated to be around only 10%, so … 90% are losing money.” Cory Michael at Vantage Point Trading is even more pessimistic (or realistic) when he says, “Only 1% of [day] traders really make money.”
You may have heard 90% or 95% of traders lose money, or some other seemingly high statistic. From what I’ve personally seen, this is accurate. While I traded for a day trading firm, about 10 people came in every couple months for trader training, or about 60 per year. For a five-year period that means about 300 people came to the trading firm and took (or at least started) the training program. Some traders I talked with think the actual number is higher; that is was closer to 400 people.
Only 14 (women and men, including myself) moved on to become regular traders, producing consistent profits for at least several years. That’s about a 3.5% to 4.5% success rate. Approximately another 10 made money, but not enough to keep them trading. If success is defined as just being negligibly profitable (for at least a couple months) the success rate is about 6% to 8%. But who wants to trade to just break even?
- One study of Brazilian futures traders found 97% of day traders lost money over a period of 300 days.
- Another study of day traders in Taiwan between 1995 and 2006 found only 5% of day traders to be profitable.
- A study by the U.S. Securities and Exchange Commission of forex traders found 70% of traders lose money every quarter on average, and traders typically lose 100% of their money within 12 months.
- A study of eToro day traders found nearly 80% of them had lost money over a 12-month period, and the median loss was 36%.
Why only a few swing traders are profitable?
One of the main reasons behind the poor success rate among traders is that most people believe that trading is easy and jump into it right away without getting prepared for what lies ahead. To the uninformed, trading is just about clicking the buy or sell button and the market prints money. They don’t bother to get the right education first.
What they don’t understand is that trading is a profession on its own, and just like any other profession, it requires proper education, training, and experience to gain the necessary skills to interpret the market data correctly, make the right decisions, and execute those decisions properly. In other words, the first reason for the high failure rate is the lack of proper trading education and training.
Another main reason for the high failure rate is that not many people have the right psychology for trading. Most of us were trained to avoid making mistakes, so we generally tend to have this mentality of not wanting to lose. Approaching the market with that mentality can be deadly.
