
Almost 80% of Private Day Traders Lose Money - kabouseng
http://www.curiousgnu.com/day-trading
======
habosa
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.

~~~
eldavido
Risk aversion or maybe laziness.

I've had a similar line of thinking recently. Sure, average investors lose
money on active trading. Well, let me tell you what an average investor looks
like. They have little to no accounting background, no coherent thesis for
their investments other than "it's hot", they lack even a rudimentary
understanding of 101-level finance topics like NPV/IRR/cost of capital, they
have no informational edge one gets from working in an industry, no
understanding of tax law (either personal or corporate). They're basically
gamblers. They look at stock charts, see a big line going up and to the right,
and guess / let FOMO take the driver's seat. Oh, and they probably think
watching Jim Cramer counts as "research". They also have no appreciation for
the fact that individual securities within an asset class are _highly_
correlated and misattribute the asset class's performance to their "stock-
picking" prowess.

I've been thinking, if one is willing to do actual primary research -- reading
financial statements, getting on investor calls, really thinking hard about
long-term trends, reading history, etc., there's almost certainly alpha to be
had. Do people honestly think indexing is the best way? The UK just mandated
that all coal generation will be gone by 2025. Is this really a time to be
buying coal stocks? Or cigarette companies?

For me it's about risk/reward. I was talking to a friend at a wedding two
weekends ago who manages a prop book (his own cash) of about 2-3 million. If
he can get 15%/year consistently, that's about 300-400k pretax. He lives in
Puerto Rico where there's apparently a tax loophole where capital gains of any
character -- short or long-term -- aren't taxed. I'd bet he's coming out ahead
of 95% of the people reading this thread. And yet, life isn't all about money.

I guess what I'm saying is, I also disagree with this "orthodoxy" of index,
index, index. Maybe I'll sound arrogant saying this, but I'm not an "Average"
investor. I trade once/quarter, read the Ks and Qs for every company I'm
investing in, and have written theses that guide my decisions. I'm not a
millionaire yet but I'll let you guys know how it goes after a while. I was a
pure, 10+ year indexer until about 6 months ago.

~~~
charlesdm
For most people, indexing is the best. If you are lazy or don't enjoy
investing, which is probably 95% of all people, it's better. If you have a
full time job, it's almost always better (because it's harder to plow through
SEC filings after a long at the office, etc). Proper long term investing (and
getting 15-20% returns per annum) is hard work, and there's risk associated
with it. You need to enjoy it. But it's definitely doable to beat the index
every single year if you understand certain industries well. If technology is
your industry, and you have a good understanding of the financial side, you
will be able to better assess technology and related stocks.

------
nicholas73
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?

~~~
mrchicity
I think the individual retail trader is almost always outgunned
informationally when it comes to intraday trades. Most short-term price action
is driven by order flow and cross-asset correlations, which machines are very
good at trading. They are often net trading cost earners due to rebates and
capturing bid-offer spreads. That means their win rate doesn't need to be as
high, so they can pull the trigger on a trade before you can, just by having
lower fees and superior execution. In addition to that, they're faster, more
scalable, have more access to liquidity, and are more disciplined than humans
could ever be. For the ones who trade off statistical correlations, they have
the best data and armies of PhDs working on signals.

There are some event-driven fast trades still done by humans, like after news
or responding to economic releases, but hedge funds have highly-educated
people modeling the effects of an interest rate change or earnings release as
their full-time job. This area is also becoming dominated by bots doing
sentiment analysis.

I think the retail trader could have an edge in a few ways. One would be an
illegal edge like inside information or market manipulation. Another would be
finding illiquid stocks that proprietary traders and hedge funds won't bother
with and trading using similar techniques. You could also look for extreme
situations that model-based traders can't understand well due to lack of data,
like a merger target breaking away. Those trades would be very risky though.

FWIW I'm a professional trader and never day trade my own account or pick
individual stocks. My company allows it, but I don't believe I have any edge
in doing so. I just buy and hold a portfolio of ETFs.

~~~
qznc
I believe there sometimes are opportunities you can take, because a "Hacker"
knows more about some parts of the world than most traders. My prime example:
When Apple released the iPad it quickly became a great hit. For me it was
obvious that a lot of cheap copycats would spawn soon. What would you use for
a cheap iPad knockoff? An ARM processor for sure. Strategy: Buy ARM and hold
for years. First iPad was released April 2010. ARM.F [0] at $3. By the end of
2010 it was near $6. Now near $20.

The problem is, such opportunities are rare.

[0]
[https://finance.yahoo.com/quote/ARM.F](https://finance.yahoo.com/quote/ARM.F)

~~~
jomamaxx
"My prime example: When Apple released the iPad it quickly became a great hit.
For me it was obvious that a lot of cheap copycats would spawn soon. What
would you use for a cheap iPad knockoff? An ARM processor for sure. Strategy:
Buy ARM and hold for years. F"

Do you think that Wall Street hasn't figured that out?

Apple is one of the most watched stocks in the world. To the original
commenters point: the banks have reams of 'technically astute' Analysts making
those assessments, and much, much, more.

Wall Street has people all the way up and down Apple's value chain. They pay
'consultants' the world over to eek out any tiny bit of information WRT
Apple's supply chain.

Again - I agree with the original commenter: individual traders are severely
outgunned when it comes to these things and that's why they lose money.

Yes - theoretically, there are some very narrow areas where a savvy investor
might be able to win, and surely, Wall St. has some gaping systematic problems
... but by enlarge, I agree with the sentiment of the analysis as well, even
as other have pointed out flaws.

Investing is 90% gambling. The world only has so much GDP growth and there's
not enough to go around to make every investor super happy. Most returns that
an investor makes are someone else's loss. The losers are usually those with
less information, or are lazy about it all (like some 'big dumb funds')

~~~
TheOtherHobbes
>Do you think that Wall Street hasn't figured that out?

Yes, I think Wall St hasn't figured that out. Sentiment regresses to the mean,
and so do analyst expectations.

If Wall St had figured out what the iPad meant there would have been a huge
rush towards ARM.

That didn't happen. There's your answer.

It's also worth pointing there's a big difference between tactical short-term
trading and strategic long-term trading.

Short-term trading is not a winning option for non-professionals.

Long-term trading can be, because - here's the obvious point - most traders
are looking for quick returns.

Unspectacular stocks with robust longer term returns tend to be systematically
undervalued - more so if they're in a specialised technical niche not many
people understand.

Conversely stocks with a good historical record but signs of a less robust
future tend to be overvalued.

There's a huge amount of fashion and trend-following on Wall St. People who
research fundamentals in depth - like Warren Buffet - are very much the
exception.

~~~
siavosh
You're assuming the research Wall Street publishes actually has anything to do
with their own market positions, they do not. Research that an investment bank
publishes is for customers; they work independently of their traders who have
their own proprietary methodology and information sources.

------
crucialfelix
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.

~~~
alistproducer2
I traded a little during the crisis until I got hit with the pattern day
trading rule. I cashed out up 28%. Maybe they were doing me a favor cause I
probably wouldn't have done so well on a longer timeline.

------
inputcoffee
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?

~~~
gr2020
Not disagreeing - but it's worth noting that you _always_ want someone to take
the same trade as you, right after you do.

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

~~~
Someone1234
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?

~~~
notahacker
Blackjack, a casino game with unusually good odds, has a house edge of 0.43%

You can certainly get brokers that'll accept a lower commission than that per
trade, and if you're not hugely overleveraged the variance of your expected
returns is going to be lower[1]. As with poker, the difficulty isn't so much
the house edge as the fact there will be people or bots who are much better at
it than you and/or have much bigger bankrolls to force you out of the market
even if your suspicion they're holding a weak hand is justified

[1]Your expected returns are also on average positive in the long term if you
buy and hold rather than trading

~~~
yfhsjjskc
But does the broker give you free Pina Coladas?

------
joosters
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
I'm an avid FT reader and like that description, but have never seen it
before. Any chance you can provide a reference?

~~~
osullivj
Suggest Alphaville's coverage of Plus500:
[http://ftalphaville.ft.com/tag/plus500/](http://ftalphaville.ft.com/tag/plus500/)

~~~
joosters
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.

------
Animats
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-...](http://www.timesofisrael.com/the-wolves-of-tel-aviv-israels-vast-
amoral-binary-options-scam-exposed/)

------
chollida1
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
@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.

~~~
jdmichal
With commissions per trade, brokerages _love_ day traders. The more activity,
the more money they make. They hate people that buy a stock with 3% dividend
yield and don't touch it for 10 years.

~~~
manishsharan
Its not just the trades that generate fees; the application enables you to
borrow money with a click of button ( kind of like how they place ATMs near
slot machines). The trader pays a borrowing fees plus interest.

------
akrymski
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
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.

------
mholmes680
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.

------
0xmohit
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.

~~~
gedrap
>>> 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
BTW The Black Swan book sucks!

------
hal9000xp
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
>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.

~~~
hal9000xp
> Putting 100 million into play on a position is completely different than
> 10k.

True. But it's also true that in order to make living from profit of 10K
investments you have to make 300% as retail investor, not 30% as institutional
investor.

I.e. you may be compensated to choose alternative strategies, but as
disadvantage you have to have much higher ROI than institutional investor.

And as you will pursue to make your 300%, you will take significantly more
risks.

~~~
steveplace
I didn't say 10k was total capital base, just deployment for a trade.

And leverage exists so you can get higher percentage returns on your capital.

I'm just saying it's possible, that's all.

------
songzme
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.

~~~
nicholas73
I might have taken this at face value if the houses weren't in LA and Oakland
(well, maybe you mean condos, or cash for down payment only). To make that
much money (>million?) with 100k means selling massive amounts of naked
options. Theoretically it could all work out - but what broker let her take
out so much risk?

~~~
songzme
Yeah. Its an incredible amount of luck. 30-40 naked calls/puts at a time. I'd
never do this myself, but time and time again I am still awed at how its
worked out over the years.

Here's an example: 10 naked puts of Netflix at 95 strike that expires at the
end of the week will yield 1k, with a margin req of 10k. Same with calls,
thats potentially 2k earnings / week with 20k margin req (very optimal case).
If Netflix goes down, she'll short more calls or puts (I forget) that expires
at the end of the week. If stock goes in the money, she closes it and opens a
new position for the week after so she never exercises the options unless they
are too deep in the money.

Its all very messy and very crazy, just wanted to share a story of how day
trading worked out for my mum.

------
koolba
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.

~~~
SyneRyder
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
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.

------
igf
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
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.

~~~
weavie
Well, I don't make a fortune from it, but after losing a fair amount of money
day trading, I wrote an iOS app where people can practice their day trading.
The income from it has covered my losses from trading. So, yeah I can say I
make some thing from day trading!

~~~
pm90
Do you see what the parent's point is? You may not be one of the people making
money directly from day trading itself, but you are an outlier, in that you
used your experience to create a product. Which is something that only you
did.

I do think its a smart idea though. My comment was directed more at the
appropriateness of the parents' observation.

------
thedevil
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
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
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
I'm probably going to continue going "full math" in the foreseeable future.

~~~
verroq
Oh I quite enjoyed it

------
NDizzle
... 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)

------
samfisher83
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.

~~~
JamesSwift
What is the opposite of buying a specific stock? Buying every single other
stock?

~~~
loteck
In investing, my understanding is the opposite of a long is a short.

~~~
wstrange
Shorting has asymmetric risk.

When you are long your loss is 100%. With a short it is theoretically
unlimited.

~~~
dragonwriter
> Shorting has asymmetric risk.

Shorting is perfectly symmetric with longing (except linguistically -- because
"shorting" is perfectly normal, but "longing" not): in the former you have
unlimited downside risk and limited upside set by the price at which you sold,
in the latter you have unlimited upside potential and limited downside set by
the price at which you bought.

------
83457
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.

------
glippiglop
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.

------
lordnacho
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.

------
grondilu
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.

~~~
neffy
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.

------
gedrap
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.

------
DrNuke
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
I thought Barclays were one of the few banks who managed to raise extra
capital without government help?

~~~
DrNuke
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
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.

------
Paul-ish
>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?

------
unknown_apostle
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.

------
bedhead
Only 80%? Shocked it's not higher.

------
anonu
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...

------
nstj
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/PROD000...](https://www.dbresearch.com/PROD/DBR_INTERNET_EN-
PROD/PROD0000000000406105/High-frequency_trading%3A_Reaching_the_limits.pdf)

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

------
JackFr
> 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.

------
known
Insider trading is not illegal;
[http://cnbc.com/id/43471561](http://cnbc.com/id/43471561)

~~~
wahern
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.

------
elmar
More Comments at

[https://news.ycombinator.com/item?id=12330285](https://news.ycombinator.com/item?id=12330285)

------
drcode
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
>>> 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)?

------
praptak
"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.

------
thomasrossi
"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?

~~~
morgante
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
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..).

------
atemerev
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.

------
btbuildem
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)

------
Nihilartikel
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

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

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

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

~~~
hellogoodbyeeee
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
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
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
> 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?

------
wehadfun
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
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
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).

------
sunstone
Day trading is the perfect forum for the overly confident.

------
cloudjacker
Almost 80% of Hedge funds lose money too

------
danieltillett
And the other 20% just lie.

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

------
paul_milovanov
Furthermore, almost 100% of private day traders lose money!

— from the your headline is meaningless and you should feel bad dept :P

------
HashThis
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
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
Thanks for the details

