How Much Money Can I Make as a Day Trader?

Here we’ll look at profit potential for stock, forex day traders.

Last Updated July 23rd 2021
15 Min Read

How Much Money Can I Make As a Day Trader?

It's the biggest question all new day traders ask. It's rather like asking how long is a piece of string.

There are so many anomalies to consider, not least that every day trader has a unique trading style. Some day traders have a few hundred dollars or a few thousand dollars to trade. Other day traders may have six-figure working capital to use for day trading.

Some day traders will dabble in trading while retaining a full-time job. For other day traders, day trading is their full-time income. Some day traders will become millionaires, but many others will empty their trading accounts with a string of losses.

It's no secret that trading has a high failure rate. Like any form of trading, day trading takes patience and skill and, sometimes, nerves of steel.

The great news is that if one person can succeed in day trading, so can you.

In this article, we will cover all the different aspects of day trading. We'll include what financial instrument to choose, how much capital you need to start day trading, and the things you need to learn to become a successful day trader.

The other anomaly is the variety of financial instruments available for day traders. Here, we will discuss day trading Forex, Stocks, and Futures.

By the end of the article, you will have a clear idea of where to channel your efforts as a day trader. You will learn about potential returns from day trading and how to maximise your profits from day trading.

Contents:

What is Day Trading?

day trading

Day trading is where a trader aims to make short-term gains from trading a financial instrument on the same day.

For instance, in the morning, opening a position on a currency pair on the Forex market and closing it for a profit the same day. A day trader does not hold positions overnight, and the experienced, savvy day trader will capitalise on market moves arising from scheduled economic news

How Do I Get Started as a Day Trader?

Before you jump into day trading, there are a few things to consider:

1. Which financial market do you plan to trade?

Your answer to this question may depend on the next question.
There are advantages and disadvantages to trading all financial assets. For Forex and futures, it is possible to get started with relatively low start-up capital.

There are also fewer hoops to jump through. But, for stocks, starting with a low budget would create an almost impossible challenge, and as this market is heavily regulated, there may be a few hoops to navigate

2. How much money do you have to start? 

You can get started with Forex for a few hundred dollars. Admittedly, this capital base will not create an income for you until you have built it up. But it means you can get started.
Day trading stocks and futures takes more capital commitment. If you are a proficient day trader, the more money you have to use as working capital, the more income you can generate.

3. Are you committed to your trading education? 

The truth is, there's no easy route to successful day trading. Once you have selected your market, there's a lot to learn.
At first, you will make many mistakes, and that's OK. It's part of the learning process. You may not want to hear that it could take 12-18 months of learning and mistakes before you succeed as a day trader. But these are the facts.

Talk to any professional day trader in any financial market, and they will tell you about the steep learning curve – which includes losses. Some day traders take years to develop into day trading consistent daily profits

4. How patient, resilient and determined are you?

once you've been around trading for a while, you will hear the expression Trader's Mindset.
The fact is you can learn the best strategy, have a top-notch trading plan, and a thorough understanding of your financial instrument.

But, if your trading psychology is flawed, you will fail to make progress. You will trade impulsively, chase losses, fall foul to FOMO, fear and greed. You'll think you won't do these things., but you will. And you will have no idea why.

A day trader needs the patience to wait for the best trades, the resilience to keep going when your trading efforts are going pear-shaped, and the determination to stay in the game when it looks like it might be best to give up. That's the secret.
It may take years, but if you learn from your mistakes, you will master the art of day trading. Be the last man standing.

To make an income from day trading, you need liquidity in the market, which arises from volatility. You only make a profit if the price is moving. If the price is sluggish, there is no profit for the day trader.

Read Also: Day Trading Tips for Beginners

start trading

Risk Management

As standard practice, risk management is a necessity to protect your working capital.

The educated, experienced day trader risks no more than 1% of their capital, no matter how large or small their trading bank may be. Logically, this strategy works because you would have to lose one hundred consecutive trades to wipe out your trading balance.

For the remainder of the article, we will explain each financial instrument and the potential risks and rewards –

  • Forex
  • Stocks
  • Futures

 How Much Money Can I Make Trading Forex?

Forex requires the least amount of capital to get started day trading. You can open an account with a Forex broker and deposit a few hundred dollars.

Depending on your country, leverage is usually available between 30:1 to 50:1. Some countries offer higher leverage, so check this information before you begin. That said, it is best to stick with the lowest leverage possible as this reduces your exposure in the market.

If you are brand new to trading, before you start day trading with real money, it can be helpful to spend a few months practising Forex with a demo account.

If you can commit to at least 3-6 months in demo becoming familiar with all aspects of day trading Forex, you will make less clumsy mistakes when you start day trading live Forex.

Always opt-in with a regulated broker as this gives a level of protection for your money.

Once you are ready to start day trading  Forex live, work out how much money you can comfortably afford to lose. Don't gamble on the rent money; it's too much pressure. You can start for a few months with, say, $500 - $1000 and set your intention to double this with low-risk day trading strategies and sticking with 1% risk per trade.

You can trade Forex with lots or mico-lots. For a balance of less than $3000, you will likely trade with micro-lots. One micro-lot is $0.10 per pip; one lot is $10 per pip, so make sure you set your lot size correctly before you start.

Check Out: The Risks of Forex Trading

Example of Income Potential from Trading Forex

Your start balance is $1000, and you are trading EUR/USD, a major Forex currency pair with good liquidity and stable volatility. EUR/USD is a recommended Forex currency pair for day trading

Your maximum risk is 1% which is $10 per trade.

Each pip movement is $0.10

Your Risk to Reward Ratio (RTR) is 2 to 1

You want to make 40 pips profit ($4), so your stop loss would be 20 pips ($2).

This figure is a micro-lot of 0.01, but a $2 risk is less than a 1% risk

Because you have room for more on your stop loss, you can take an 0.05 micro lot

40 pips profit is $20.00

20 pips stop loss is $10

Great. It's a 2 to 1 trade with a 1% risk. You're good to go.

Bear in mind that the pip value varies for each currency pair.

Let's say you take four trades for the day. Two close in profit, two close as losses

$40 profit $20 loss

Total $20 gain for the day

If you did this every day for twenty trading days per month, your total gain would be $400. Yes, it doesn't sound a lot, but it's a 40% gain on your account. Wowza! Now that's exciting.

In reality, day trading Forex rarely performs so cleanly. Some days may be losing days. On other days, every trade may win.

The above example represents a 50% win rate. It's a good target for a Forex day trader. With a 2 to 1 RTR, you will stay ahead.

Read More: The Best Time To Day Trade The GBP/USD Forex Pair

How Can I Make More Money Day Trading Forex?

Simple. Increase your Risk to Reward Ratio (RTR) without increasing your risk. If the above example were a 3 to 1 RTR, your wins would be $60 a day, and your losses still at $20 a day. The daily gain, therefore, is $40.

50% wins equal to a monthly profit of $800. Hello, did we just almost double the Forex account there?

To Summarise Day Trading Forex:

  1.   Take your time
  2.   Formulate a successful day trading strategy
  3.   Keep your risk to 1% of your trading balance
  4.   Aim for a minimum 2 to 1 RTR
  5.   Be patient and commit to your Forex education

Don't Miss: Blueprint for Forex Day Trading with $1000 (or Less)

How Much Money Can I Make Day Trading Stocks?

Day trading stocks is by far the most popular day trading market. If you plan to day trade stocks, you're going to need more capital than day trading Forex.

In the United States, the capital requirement is $25,000 to open a stock trading account, and you need to stay above the threshold, so this can only ever be your working capital.

With a $25k account, a 1% risk per trade is $250. If you aren't comfortable with this amount, nothing stops you from trading at 0.05% risk or less. It's your party, your rules.

The broker account may offer leverage, but as with Forex, it's good practice to keep the leverage to a minimum, certainly until you know you can make consistent profits from day trading stocks.

  1. Practice with a simulator account – before you start live day trading, play around with a practice account. Pick out the shares you are interested in and place some demo trades. Document your progress and aim to make a consistent weekly profit before day trading stocks with real money
  2. Start Small – don't go all-in on one share purchase. Create a diverse portfolio of shares to become familiar with and trade
  3. Study the company – get to know the share company. Get ahead of the news so you can anticipate potential price fluctuations
  4. Choose shares with good liquidity – it's all very well buying cheap unknown shares, but they are likely to have low liquidity. Find a small handful of shares that show daily volatility so you can map out an opportunity to take advantage of the price fluctuations for day trading

Assuming you have $25k in your account and 2:1 leverage ($50,000 in buying power) and aiming for a 2 to 1 RTR. Your goal is to make $0.20 on winning trades and lose $0.10 on losing trades.

If you are risking 1%, that's $250 per trade, which means you can buy 2,500 shares. With $50k leverage, the shares need a price of under $20. (2.500 x $20)

Rather than putting all your buying power onto the outcome of one share, it may be better to diversify your risk between a few share purchases.

If the trade wins, you gain $500 (2,500 x $0.20)

As with Forex day trading, a 50% win rate is acceptable at a 2 to 1 RTR.

Five days trading a week

Say, 5 wins and 5 losses

5 wins = $500 x 5 = $2500

5 losses = $250 x 5 = $1250

Total gain = $1250

This total is without commission and fees, but it gives you an idea of what is possible for day trading stocks.

Read Also: Blueprint for Day Trading Stocks with $1000 (or Less)

To Summarise Day Trading Stocks:

  1.   You will need $25,000 capital
  2.   Practice with a stock simulator account
  3.   Become familiar with high liquidity stocks
  4.   Keep your risk to 1% of your trading balance
  5.   Aim for a minimum 2 to 1 RTR

How Much Money Can I Make Day Trading Futures

You will need at least $7.500 to open a futures trading platform to trade an E-mini S&P 500 futures contract – the most commonly traded futures contract.

You will trade one contract applying no more than 1% risk, and you will need a decent stop loss to cover price fluctuations.

Let's imagine you have $10,000 capital to start, so your maximum risk is $100 per single trade.

In an E-mini S&P 500 contract, the smallest price movement (tick) is equal to a $12.50 loss or gain.

That allows for 8 ticks of price movement within your $100 risk.

You could take two contracts with 4 ticks of risk per trade. With a 2 to 1 RTR, your return would be 8 ticks.

An 8 tick win for each contract is $100

A 4 tick loss for each contract is $50

Aiming, once again, for a 50% win rate, let's say you take one hundred trades per month with twenty days of trading -

50 wins at $100 = $5000

50 losses at $50 = $2500

Overall gain = $2500

There are commissions and fees to pay, but you will still end the month in profit.

You have added $2500 to your trading capital, making a total of $12,500. That means that next month, your minimum 1% risk is $125 per single trade

Each month, compound your day trading futures profits, and, in time, you can make a monthly return from day trading futures.

To Summarise Day Trading Futures:

  1.   You will need $7,500 capital
  2.   Spend time learning how future contracts work
  3.   Keep your risk to 1% of your trading balance
  4.   Aim for a minimum 2 to 1 RTR
  5.   Compound your futures profits daily, weekly or monthly

start trading

Recap of How Much Money Can I Make As a Day Trader

As you now know, your choice of financial instrument depends upon the amount of capital you have to day trade.

Your success is also reliant on your ability and how much time you have to commit to educating yourself on Forex, stocks or futures.

Day trading is not easy, and many traders fail. Primarily this is down to many factors, but mostly impatience, greed and lack of education.

All three financial instruments come with unique challenges.

Not many budding day traders have $25k lying around to start day trading stocks. Indeed, many people wouldn't be comfortable landing $7,500 into a futures account either.

Forex may look like the easy option with the least risk, but it isn't. There's a steep learning curve with trading Forex. The industry suggests there's a 95% failure rate for Forex day traders

Forex is a highly liquid market, trading over $6.6 trillion a day, making it an attractive prospect for the day trader.

We've talked about a 50% win rate in this article. But, for a moment, let's look at the other side of the coin. A 50% win rate also means a 50% loss rate. To lose 50% of the time presents a real challenge to novice day traders.

What typically happens is that a novice day trader gets a losing run and ditches his or her strategy, convinced it isn't working any longer. Holding one's nerve in the face of multiple losses is what differentiates a winning day trader from a losing day trader.

When you keep switching strategies, you end up confused. You stop knowing what market signals you are looking for and start taking random trades and ramping up risk.

It doesn't matter what financial instrument you trade. What makes a difference to your success is your mental approach to day trading. Patience and discipline will shape your success. Don't abandon a well-tested strategy just because of a string of losses.

Please note that the above information is not providing advice on tax, investment, or financial services. We provide the above information without consideration for risk tolerance and a specific investor's financial circumstances.

Trading or investing in financial instruments such as Forex, stocks or futures may not be suitable for all investors. It does involve risk and the possibility of a loss of capital.

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