Please take the time to watch this video in its entirety. What you will notice is that I break down how much you can make based on trading for (1) a company, (2) prop firm and (3) yourself.
Many of you reading this article are considering striking out on your own.
After watching the video, read through the detailed write-up to see which method best suits your needs and lifestyle.
Remember, trading is not a one size fits all scenario.
Let me first start off by saying anyone that tells you a definitive range for a day trading salary is likely pulling your leg.
I might as was well be talking to one of my kids about Yo Gabba Gabba (it was one of their favorite shows on Nickelodeon).
Now, for all you corporate people that can go to sites like vault.com or talk to your friends to gauge how much you can make in a trading job, don't expect any hard numbers when it comes to day trading.
Reason being, there is a host of external factors that play into how much money you can make. In this article, I am going to rip through all the fluff on the web and get down to hard cold facts. Sit back, relax and enjoy the show.
Day Trading for Someone Else
A Decision You Should Not Take Lightly
Next, we are going to break down what it would mean for you if you decide to day trade for someone else.
You should not take this decision lightly, and you will have to weigh the pros and cons of course. For starters, trading for someone else will allow you the opportunity to utilize the tools and strategies of an outfit that is hopefully profitable.
Some of the positives of trading for someone else is removing the pressures of having to identify both a winning system and a mentor that can help you along the way.
However, if you are not profitable "enough", be prepared to have more rules thrown at you than when you were in 6th grade.
This level of governance over your trading activity is due to the fact you are using someone else's money, so make money or get used to someone telling you how to breathe.
If you decide to work for the firm and are trading client's money or potentially interfacing with customers, you will need your Series 7 and possibly your Series 63 license.
The Series 7 will give you the license to trade. Last I checked, the exam cost $305 and depending on the outfit, will be covered by the firm.
The Series 63 is the next exam you will need to take after the Series 7. This exam permits you to solicit orders for a stock within a perspective state.
A simple way of thinking about this is the 7 gives you the right to trade on a federal level, and the 63 allows you to work within the boundaries of state laws.
Day Trading for a Company - How Much Can you Make?
Trading Salaries Infographic
I don't plan on covering the topic of day trading for someone at length because I haven't lived it.
From what I do know, you are required to complete some in-house training program for the firm you represent. For investment houses, you will receive a decent base salary; enough to keep you at the lower middle-class range for New York.
Your base stock trader salary could range from 50,000 - 70,000 dollars US, which is just enough for you to pay your cable bill, feed yourself and maybe take a taxi or two. But this in no way covers dinners, cars, vacations, private schools, etc.
So, I guess you can quickly see that for you to be successful, you're going to need to make your bonus. There is just one catch; you have to make money day trading. On the surface, this sounds reasonable because you lower your risk profile by having another income stream of a base salary; however, you have to perform to stay employed, and will only get about 10-30%% of the profits you bring in from your trading activity.
Based on these numbers, you would need to make about 300k in trading profits just to break a 100k in salary.
The benefit of trading with a company is over time your buying power will increase, and you have none of the downside risks since it's the company's money. The key is making sure you have a significant amount of money under management.
As you can see in the infographic above, the key to making serious money is to start managing multiple funds. You somehow pull that off, and you will make on average 576k a year.
I know the 576k looks appealing, but remember it is nothing short of blood, sweat, and tears to get to the top of the mountain.
The other point to call out from the infographic is that the average bonus is starting to trend higher and if things go as forecast will exceed the recession peak in the not too distant future.
Therefore, if one of your goals is to make money, you are looking in the right industry.
Average Income Trading for a Company
On average, I would say a trader in New York working for an investment house can make between 250k and 500k day trading if they are above average. The middle of the road person can expect to make between 100k and 175k. Lastly, if you are below average, expect to get a pink slip.
Now, if we open up our research beyond New York, you will see the average salary for a "Trader" is $89,496.
Don't believe me?
Public Trading Firms
Well, check out this screenshot from glassdoor of over 1,692 trading salaries. The infographic data has 2 additional salaries recorded, but the average salary is still coming in at 89k.
Now, $89k is nothing to sneeze at regarding salaries.
But I can think of quite a few jobs where you can make close to $89k, and it doesn't require the level of commitment and risk taking required for trading.
You may be thinking; "this guy just told me it could go as high as 250k to 500k if I'm above average, where does $89k come into play."
Well, remember the $89k is the national average.
Let's brighten things up a bit and take a look at some of the big boys in the capital markets space.
Citi's top traders can get up to $435k.
Bank of America comes in at a nice $275k.
Morgan Stanley tops out at $276k.
Remember, these are individual trading salaries. One of the additional points of consideration is that you can rise through the ranks and become a fund manager or even a hedge fund manager.
Now, you will no longer be making day-to-day trading decisions, but your earning potential is through the roof if you can prove yourself as a great individual trader first.
Private Trading Firms
What I have discussed so far are the salaries for publicly traded companies.
Good luck trying to get accurate data for the elite world of private equity traders. What you will find is often the top traders from the Chase and Bank of America's venture out to hedge funds, because of the freedom in their trading decisions and the higher pay potential.
With the public firms, corporate goals will often drive a portion of your bonus targets.
The beauty of the hedge fund world is while there are still company goals, you have the opportunity to eat more of what you kill.
It's nothing for a top trader to out earn his or her boss if they bring enough value to the firm.
How much do you think you could make?
Benefits of day trading for a company
- Health Benefits
- Prestige of working for an investment bank or hedge fund
- No risk of personal capital
- Move up the corporate ranks to manage multiple funds
Downside of day trading for a company
- Must engage with clients
- Office politics
- On average you only get 20% of profits (Public Firm)
Day Trading for a Prop Firm
Day trading for prop firms can feel a little like living on the edge.
Similar to trading for a company, you will receive some training before the prop firm allows you to trade with their money and have access to their systems. After that, all similarities between trading for a prop firm and a company differ.
Don't expect any health care of paid time off. You will not have a base salary or annual reviews. The prop firms will require you to deposit money to start using their platform.
The benefits are the prop firm will split profits with you anywhere from a third and up to 50%. The downsides are again no salary, and you bear some of the pain when it comes to losses.
On average, I would say an above average trader for a prop firm can make about 150k to 250k a year. The average trader will do between 60k and 100k, and lastly, the below will see their account wiped clean.
The reason prop firm traders make less than those for the investment houses is access to capital. Since you are likely trading the proprietary firm owner's money, the pool of fundsyou have access to is limited.
- Split profits with Prop Firm
- Low commission rates
- No Boss
- Increase Margin
- Use your capital to start
- Loss of personal wealth
- Limited training
- No health benefits or paid time off
- No career progression
- Only make money off of what you bring in
Day Trading For Yourself - Income Potential
Let me guess; you are thinking millions right now.
As I was writing this, I almost typed out "ha ha ha ha," oh wait I just did.
As traders, we have this innate part of us that only sees the limitless possibilities I need to bring you down to earth a little. First off, trading is honestly worse than a sales job or entrepreneurship when it comes to steady income. The level of uncertainty can be unbearable if you have never gone without a steady paycheck. In sales, you can have a rough month and just commit yourself to knocking on more doors or calling more people until you land the much-needed deal. In day trading more effort does not equal greater results.
First off, trading is honestly worse than a sales job or entrepreneurship when it comes to steady income. The level of uncertainty can be unbearable if you have never gone without a steady paycheck. In sales, you can have a rough month and just commit yourself to knocking on more doors or calling more people until you land the much-needed deal. In day trading, more effort does not equal better results.
Your earning potential is in direct proportion to your starting capital and monthly expenses. I talked about the requirements for how much money you need, funny enough in the article titled 'How much money do I need to start Day Trading for a Living?' Odds are the majority of people reading this article fall into this bucket, myself included. So let's break down the numbers in layman terms.
Instead of calling out how much money you can make, we're going to give you a range of how much you can earn based on your starting trading capital.
Starting Capital of Less Than 50k
If you are attempting to day trade with less than 50k dollars and you have any monthly expenses, you will be out of money within 6 - 24 months. You are probably thinking, ouch that is harsh; well it's the truth. Our friendly SEC requires that you have a minimum of 25k to day trade. This leaves you with only 25k dollars that you can risk before you run into a road block for your trading career. This is what I love about trading and money management; the numbers don't lie. So just to be clear you will not make any salary from day trading if you have less than 50k dollars, life will simply eat you alive.
Starting Capital of 100k - 250k
If I'm a betting man most of you reading this article will fall in this bucket. This is likely the bulk of your life savings, and you are somewhere between 30 to 55 years of age. I still say if you have monthly expenses, this isn't enough money to start trading for a living. But since you have landed on a site looking for day trading salary information, let me give you some numbers.
- Average Day Trader Salary = 20% annual return. This breaks down to 20k to 50k for an annual salary.
- Above Day Trader Salary = 50% annual return. This breaks down to 50k to 125k.
- At the Very Top Salary = 100%+. This breaks down to 100k to 250k and beyond
Here we go, you all read the last three bullets, and the majority of you have placed yourself in the "At the Very Top" bucket. Assuming I have pegged you in the right age bracket, how do you think making 50k for an entire year sounds when you likely have a mortgage, young children or maybe kids heading off to college? Doesn't sound like much fun if you ask me.
Starting Capital of 500k
If you do not have any supplemental income and want to have a decent existence in this place we call planet earth; please do yourself a favor and pool together a substantial amount of trading capital. You probably are reading this and saying to yourself, why did this guy just crush my dream of becoming a day trader. Trust me, I'm not a mean guy but the again the numbers don't lie.
Just to be clear please read the below benchmarks
- If you have another form of income, you can start with less than 500k
- No bills and you can start out with less than 500k
- If your spouse is going to carry the load while you tackle your new profession, you can start out with less than 500k
For scenarios 1 - 3 above, you can use the golden ratio of 50 to 1; 50 times your monthly expenses in trading capital.
For example, if your monthly bills are 2k US dollars, you will need 100k trading capital.
If you fall outside of the three scenarios listed above, you will need a half a million dollars to make it. Let's break down why you need 500k to make it in day trading.
You will Occupy a Higher Tax Bracket
Your income will be taxed as if you worked a regular job. You will not enjoy the same low tax rates of long-term investors like Mitt Romney. If you live in the US, are married with a few kids, and make 20% on your 100k, you'll be lucky if you bring home 70k after taxes.
Take the 70k and divide that across 12 months, that leaves you with about $5,800 per month. Now, if you live south of North Carolina or out west in Idaho, this may be enough to take care of a family of 4; however, if you live in DC where I'm from, you are right on the edge.
If you are an above average or an exceptional day trader, then you will do just fine. Odds are it is going to take you a few years to get to this point. Just remember that until a Republican makes good on the no capital gain taxes, you will be paying the same taxes you did as an employee.
You Pay Less Commissions
Most brokerage firms offer a two-tier commission structure.
The trader can either elect to pay a per share transaction or a flat fee. Assuming you are trading with 500k, this will give you margin of up to 2M.
In other words, you will be trading a lot of shares depending on your strategy. Therefore, you will want to use the flat fee commission approach to reduce your trading costs.
As your account value increases, the commissions paid as a percentage of your profits will decrease. Lastly, most brokerage firms will offer lower commissions to clients depending on their account value. This sort of unique offering begins at 250k, so you would easily qualify.
Less Stress on You and Your Family
I'm telling you this from experience, it will feel much better if you have a losing month and have to draw a few thousand to cover bills, but still see an account balance of $687,585.90.
Imagine having a losing month and needing to withdraw $3,000 only to see an account balance of $45,675.87. Imagine how that will make you feel as you approach each trading day. Think about the raw emotions that will pierce through your body as you drop your kids off at school. Save yourself a headache and figure out a way to supplement your income or continue to find ways to accumulate the necessary funds to get started.
Save yourself the headache and figure out a way to supplement your income or continue to find ways to accumulate the necessary funds to get started.
Time is Not on Your Side
I strongly believe you need a minimum of 10k hours as described in the book outliers to master day trading. Remember you are trading to be an above average or at the very top relative to all day traders in the world.
For argument's sake, let's assume you are spending 50 hours a week trading and researching your strategy and only take off two weeks per year. This means you will work 50 hrs a week for 50 weeks for a total of 2,500 hours.
Now let's say you are super smart (clearly because you want to take on day trading as a profession) and only need 5,000 hours to master trading. At a minimum, we are still talking about two full years of practice to hone your skills.
What do you think your odds of success are if you only have 80k in an account for you to survive this two to three year learning period?
Now is it clear why 90% of day traders fail within the first few years? Most of it has very little to do with the type of profession we have chosen or how good we are at this game. It just comes down to do you have enough cash on hand to make it to the promise land at the very top category of day traders who beat the other 90% on a daily basis.
How Much is Enough?
For you deciding to trade may mean a pay cut. However, you will be doing what you love which will make you a much happier person to be around for your family and friends. No one can put a price tag on happiness. Just so we are clear, below are the hard salary numbers. Assuming you make anywhere between 20% and 50% a year you can expect the following as a range for your day trading salary:
Assuming you make anywhere between 20% and 50% a year you can expect the following as a range for your day trading salary:
- Less than 50k in capital - 0 after living expenses
- 250k in capital - $50k to $125k
- 500k in capital - $100k to $250k+
Pause - Wait a Minute
At this point, you are likely thinking all you need is a large sum of money, and all of your problems are solved.
If this last sentence describes how you are feeling, you are still going through the "Dreamer" phase of trading. This is where we all sit back and calculate all of the compound interest coming our way.
We've all played this game - be honest.
We say things like, "If I only make 1 percent a day I will have over 10 million dollars in my account in 3 years!"
If you are reading this article and saying that all I need is $250k to 500k and life will be grand, please pause and wait a minute.
Can You Make Money with Little Money
Before you go and liquidate your 401k and life savings, first ask yourself the question can you make money with little money?
This seems so simple on the surface, but there is a ton we need to unpack in that statement.
As a trader, especially a new trader, your level of optimism of how much money you can make will borderline on insanity in the beginning. Again, going back to our "Dreamer" example.
But, one fo the first things I tell new traders is before you do anything, make sure you can turn a profit.
If you can not make money trading 5k dollars, you will not make money trading 500k dollars. The last thing you will worry about is your day trading salary. Your mind will be focused on things like how to not waste an entire life's savings in the stock market.
If anyone says to you, "Well you need to spend money to make money," please tell them to keep their opinions to themselves.
The stock market is the one place that if you are careless with your money, it will leave you faster than any other investment vehicle known to man.
I can hear some of you saying, well how do I day trade with less than 25k?
Easy, you just do.
There are a ton of options out there, and if you want to learn more about how to do this, please read the blog post -
"How to Day Trade with Little Money and Keep Your Day Job"
Gut Check Time
Now that we have listed all of the stats and have talked through all the possible ways to make great money day trading let's ask ourselves a really important question.
Why Are You Counting Money You Have Yet to Make?
Why are you even searching for how much money you can make day trading?
Honestly, ask yourself that question.
I'm willing to bet that few, if any of you reading this article are contemplating working for a large bank or trading firm.
My gut tells me that you have landed on this article because you are thinking about venturing into the world of retail day trading.
Imagine you are responsible for someone or something. Really think about that, do not just skim over this point.
This could mean someone's college education, helping with medical bills, or just buying them food.
Now imagine that you are relying on what is completely unpredictable, the stock market, to provide support for the people that matter to you the most.
How does this make you feel? Now, I am not trying to scare you by any means. I genuinely want you to walk through this exercise with me.
How Long Are You Willing to Wait?
Now imagine that you cannot meet these demands for a month. Then a month becomes six months. Well, six months becomes five years.
Is this something you are willing to endure?
Are you willing to endure the constant questioning from the people that have every God given right to question you?
Will you be able to withstand the mental laps you will put yourself through as you go on this journey?
These are the questions that I ask myself constantly, and I believe it's ok to ask yourself these questions because it keeps the pencil sharp.
Treat trading the same way you would any other career that requires hard work, smarts, passion and a bit of luck.
No One Makes Partner Overnight
For some reason, day trading is looked at as the lottery of life. For me, learning to day trade has arguably been one fo the most challenging endeavors of my life.
It still baffles me that everyone wants to know about all the money to be made, but are unwilling to put in the thousands of hours of trade review and practice to get better.
If you heard someone joined a law firm, would you expect them to make a senior partner's salary in a year?
Of course not!
Why would your immediate earning potential for trading be any different?
Take Things Slowly
As I have stated in other articles, just learn to make enough money to cover small bills first. This could be your cable bill or gas bill. Don't worry about the person making 250k a year from their boat house off the Florida Keys.
Instead of focusing on the 250k you plan on making per year, create a path to profitability.
Do not include time in this path to profitability. Just make it about you progressing in the right direction on a quarterly basis.
If you focus on the process of making money the right way, you will be able to scale up to the targets discussed earlier in this article.
When I say the "right way," I mean no major blow ups with your account, reasonable risk taking and an equity line that keeps trending up and to the right.
How Much are You Willing to Lose?
Instead of focusing on how much you can make per year trading, you need to think of how much you are willing to lose.
I know that is a bit ironic since this entire article is based on making money. The thing is learning to trade takes time, and tuition is not free.
There are few studies that speak to the profitability of retail traders. I did find a recent study from the Autorite des Marches Financiers (AMF) that took a look at profitability across active retail currency traders in France from 2009 - 2012.
Do you have any idea how many traders were profitable?
Sadly, approximately 1 out of 10 were able to turn a profit.
The study looked a total of 14,799 customers. Out of this pool of traders, only 1,575 or 11% were profitable. This small group of investors made 17.51 million or $11,1117 per account.
Let's unpack that further.
Can anyone reading this article live on $2,779 per year?
Now I realize this is a study from France and is Forex not equities, but trading is trading.
So, one thing I wished I had done was set a not to exceed level in terms of money I was willing to lose when I first started out trading.
Therefore, before you claim your $89k payday, figure out how much you are willing to lose before you learn how to trade. I would suggest less than $10k and you never and I mean never fund this account until you make money on a consistent basis.
There is Hope
I have to give the full picture of trading - good and the bad, to paint the reality of what it will take. There are so many gurus spewing the latest trading system that I get worked up when I'm blogging, because learning how to trade is hard.
I think it's borderline criminal the way people make it seem so easy.
Just to go back to the study I cited earlier from France, the study did not track performance relative to a person's trading experience.
To say this a little simpler, let's imagine we grab 100 random people to see if they can hit a 95 mile per hour fastball.
How many do you think would make contact?
Since I played baseball for many years, I would dare to say less than .5%.
So, the same rule applies to trading. If 89 out of 100 have never traded in their lives and then fund a forex account, what do you think will happen?
The real question is how long and how many trades does it take before a trader begins to turn a profit?
Therefore, do not get caught up in these percentages, other than to know you will need to work hard for what you want.
Every Story Needs A Nice Ending
I like everyone, loves a great ending.
What I am going to share with you I cannot validate 100%, but it was posted on marketwatch.com, so it I hope it's not fake news.
This is a story of a trader that turned $600 dollars into $100,000; just take that in for a second.
That comes out to a whopping 16,600% return.
Now a couple of key points from the article you should be aware of:
- The trader has been at this for over three years.
- From the look of his profit/loss chart (shown below) March 2014 through November 2015 was pretty much a waste of time. That my friends are 21 months of basically grinding before he was able to get a hold of himself.
- He spends a tremendous amount of time reviewing his trades.
One of the main quotes J Park gave in his interview with Marketwatch is that "Traders focus too much on the P&L and not enough on the process."
What a profound statement and I hope you all pay attention to that priceless bit of information.
Don't worry about the salary or the money. Just focus on being the best trader you can be and do whatever you can to avoid losing your shirt.
If you follow these simple rules, at some point your equity curve will begin to take off and your dream will surely become a reality.
But like J Park, are you willing to put in the hard work for two years before seeing any results or will you take the easy way out like those poor souls trading the Forex in France?
The choice is yours, but if you are asking me, you need to feel a little pain to truly value the sweet.
How much money you can make in the market comes down to two simple things: (1) your ability to profit on a consistent basis and (2) your starting capital.
Please remember that you need to first put your focus on turning a consistent profit and not on your earning potential.
I hope you have found this article helpful as you continue along your path of becoming a professional day trader. Beyond the wealth of content we have on Tradingsim, our flagship product is a market replay platform, which you can use to reach your 10,000 hours of practice in order to become one of the top 10% traders. You can also use our platform to simulate how you would have performed over the last year, so you can get a hard number of how much money you would have made.