Why Day Traders Can Make Big Returns But Aren't Millionaires

Last Updated July 23rd 2021

21 Min Read

Day trading can be lucrative. Many wealthy traders are making a high income from day trading. So we know that day traders can make significant returns from day trading, but why are they not millionaires?

Are you a day trader struggling to break the ceiling on your profits? Or, are you a new day trader looking to make an income from day trading? Great, because this article will explore whether day traders can become millionaires.

The day trading success rate is 3.5% - 4.5%, which means a significant failure rate of over 95%. Well, that leaves a tiny minority of day traders wanting to become a millionaire from day trading.

No pressure, then.

What is Day Trading
What Kind of Returns do Day Traders Make
Why aren't there More Millionaire Day Traders?
Don't Day Traders Make Millions as Hedge Fund Managers?
Why are there so Few Day Trading Millionaires?
Do Day Traders Have a Personal Financial Ceiling?
How Can a Day Trader Increase the Ceiling to Make More Money?
What is Day Trading Market Ceiling?
Expanding Day Trading Profit Potential
How does a Day trader create multiple sources of income?
Day Traders and Trading Products
Recap on Why Day Traders can make Big Returns but aren't Millionaires

What is Day Trading?

A day trader is a trader who trades a financial commodity, such as Forex, stocks, futures, commodities etc. The difference between a day trader and other traders is that a day trader typically opens and closes a trade on the same day.

For instance, a day trader opens a Forex trade for EUR/USD at 9 am and looks to lock in a profit on the same day. At some point during the day, the day trader exits the trade for a profit or loss, ideally a profit.

A day trader may take several trades during one trading session but not as many as a trader who scalps the market. A day trader does not hold trades overnight as swing traders do.

What Kind of Returns do Day Traders Make?

If a day trader hopes to make a living from day trading, they need great returns. The problem is that day trading is not easy and, to make a good income, you need a decent amount of capital.

The question is, why are day traders successful but not millionaires?

Day traders can't rock up to their trading station with a few hundred dollars and make $10k a month.

It's not that simple.

The professional day trader will have put aside enough money to make a reasonable return, perhaps a living wage income, to replace their full-time job.

Different financial instruments require different levels of capital. How much money you have for day trading makes a big difference to the day trading returns you can expect.

For the day trader trading the stock market, the exchange requirement is a working capital balance of $25,000 for day trading stocks.

The day trader needs $7,500 to trade futures.

To trade Forex, a day trader can start with a few hundred dollars. But to make a reasonable return, the day trader will deposit several thousand dollars, $2000 as a minimum, and aim to build it up as working capital for taking monthly profits for income.

Starting with more money is no guarantee for returns from day trading.

The savvy day trader can make a good return with lower capital in Forex than $25k in a stock exchange. But, trading performance is highly personal, and typically, day traders have preferences for the financial instrument they trade.

For a novice day trader, that decision may rest on how much money you have available to trade.

To put it into perspective, a Forex trader with $2000 starting capital, making a 10% monthly return is only $200. The only way to increase profits is to increase the capital base.

So, $20,000 returning 10% is $2,000 and so on.

Why Aren't There More Millionaire Day Traders?

Based on the above calculation, determine how much working capital you would need for a $1,000,000 return if generating 10% profit a month.

OK, let's see how much trading capital you would need as a day trader to become a millionaire from day trading.

Here it is…

$10,000,000

Oh, yikes. You need $10 million to make $1 million!

Have you got a spare $10 million lying around?

Look, there are some very wealthy day traders, so where are all the millionaire day traders?

Is it possible to become a millionaire from day trading? There must be day traders that are generating more than 10% a month?

So far, we've looked at day trading from a linear perspective. How about we widen our thinking.

OK, here's a scenario:

A day trader with $50k working capital makes 20% profit a month.

They double their account every 4 to 5 months, and that's not considering compounding.

So, within a year, the capital base is over $200,000.

By the end of year two, boom, the day trader has acquired millionaire status.

If that's the case, if it was that easy, let's ask the question, where are the day trading billionaires?

In this scenario, it seems easy to become a millionaire day trader by simply compounding your day trading profits.

Don't Day Traders Make Millions as Hedge Fund Managers?

Not all day traders become hedge fund managers. It's a lot of pressure on a day trader to manage someone else's money.

The top hedge fund managers make crazy incomes. They charge a management fee and a percentage of profits.

Fee structures are 2% on assets under management and 20% on profits.

If a hedge fund manager has $1 billion in assets, he will earn $20 million in fees.

But not all hedge fund managers are day traders.

It takes nerves of steel to manage billions of dollars. The pressure of client expectations is enough to have most day traders running for the hills with fear.

So, what happens?

Here are our thoughts.

Some day traders take the easy route. A salaried hedge fund trader in the United States makes an average of $50 per hour, equating to around $103,649 a year.

The top 10% of hedge fund traders receive over $175,000 a year.

The bottom 10% earn less than $61,000 a year.

So, a day trader makes a choice:

Carry on building up working capital and relying on day trading for their income
Take a salaried position with all the benefits & bonuses. They get an above-average income if within the top 10%
Start at the bottom with $61k a year with company benefits. But, the payoff is they learn trading skills while being paid

Therefore, a day trader decides between freedom and the pressure to create income or get paid to trade.

On balance, what would you do?

Why are there so Few Day Trading Millionaires?

The assumption is that there are few millionaires day trading. But who knows?

By the time a day trader has built the skills to create a wealthy lifestyle, they have mastered the mental mindset needed for successful trading. And this carries across to all levels of their lives.

Most day traders work from home as it's part of the lifestyle freedom. So they aren't in the public domain. Indeed, most day traders prefer a low key profile. You don't hear about day trading, unlike how people talk about investors who tend to have public profiles with big personas.

The other factor to consider is the low success rate for day traders. 95% of day traders fail. So the minority of successful day traders may well be hidden away, squirrelling their millions into investments for their retirement.

Human nature is such that the wealthy day trader may worry about losing their edge in the future and no longer having their lucrative day trading income.

We are looking closely at day traders. But in all aspects of trading, there appear to be few millionaires. Trading is probably one of the hardest things to master. Most day traders end up losing money.

Some top day traders report that it took multiple years and a few busted accounts before they became consistently profitable. Few day traders have the determination or finances to keep going when the odds stack against them.

Check Out: Day Trading Tips for Beginners

Do Day Traders Have a Personal Financial Ceiling?

Almost every day trader has a personal ceiling. How much money is enough? How much money does a day trader need? What are the day trader’s financial goals, and does this align with their money mindset?

It's a fact that most people have an income level they are comfortable with and, consequently, tend to stay at that level. To stretch above this financial ceiling takes some work, and it's often easier to stay where you are, comfortable and with fewer risks.

A personal ceiling is a level of resistance. You hear stories of people winning millions on the lottery but spending or losing the lot within a few years. Subconsciously, they head back to their personal ceiling.

Yes, it seems crazy, but it's a fact of being human, and many suffer from it. It's undoubtedly a thing for all traders, including day traders.

If a day trader gets stuck at an income ceiling, it may be impossible to break through to the next level of income without a lot of self-reflection and self-belief of what is possible.

The day trader may speak of the desire to get rich from day trading, but his subconscious mind doesn't align with the words, so nothing happens.

And, we're all different.

Some day traders may be ecstatic making $5,000 a month, but another day trader wants $10k, $20k or even $50k a month. Even at the higher level, the high earning day trader may encounter the financial ceiling in the future.

Sometimes there's a trade-off that the day trader is reluctant to pay. Creating extra wealth from day trading may mean more time on the charts, more investment or different strategies. External influences can be excuses for failure to progress, and all will appear justifiable.

If you are a day trader currently stuck at a financial ceiling, look closely at your beliefs and values around money. Often our money mindset develops in childhood by absorbing the attitudes of our parents regarding money. It can be hard to undo this financial conditioning, but not impossible.

If a day trader has a financial ceiling, becoming a millionaire day trader will be a constant challenge.

Day traders have all sorts of reasons for trading. Lifestyle freedom is one reason, and that comes with more money or fewer outgoings, or both.

Work out what motivates you, then create a plan for how to achieve what you want from day trading.

Some day traders we know easily create from $50,000 to $300,000 a year from their day trading efforts.

How Can a Day Trader Increase the Ceiling to Make More Money?

Make steady, incremental progress. If you try to jump too far, too fast, you will fail.

Working with 1% risk for your trades, compound your account.

So, say you started with $1000, with a 2 to1 risk to reward ratio (RTR), your risk is $10, and your profit is $20.

Five winning trades = $100

Trading capital now $1,100

Next trades are $11 risk and $22 profit

Five winning trades = $110

Trading capital now £1210

The following trades are $12.10 risk and $24.20 profit

That gives you the idea of building your account organically, so your mind becomes used to incremental gains.

As your account grows, increase your position size marginally, staying within 1% risk. You'll be surprised how this exercise builds your money ceiling, hardly without you noticing.

What is Day Trading Market Ceiling?

Eventually, if you are a very successful day trader, you will ultimately get capped out of the market. The market can't infinitely support ever-increasing position sizes.

If you want to continue to make more money, it may require a change of strategy or trading another instrument. But that comes with problems because you have to adapt to a different market, altered requirements and different strategies.

There are millions of dollars of currencies, stocks or futures changing hands in a matter of hours. The Forex market alone trades over $6.6 trillion a day. But, with increasing position size, the day trader has to establish that market liquidity and volume can absorb the trade for a profitable return.

For instance, you attempt to enter a currency trade with a significant lot size and, because volume, at that point, is low, the broker only partially fills the order. When the order completes, the price has shifted your trade into a loss or reduced your profit.

There's also the increased risk of slippage, which increases with larger position sizes.

Another example is if you are day trading stocks.

You catch a great opportunity and decide to maximise your position. But, at the moment you want to enter the trade, there are only 100 shares available. There is nothing you can do about that except move on to another stock with more liquidity and availability.

In short, if you can't fully utilise your capital, your percentage returns may likely decrease.

For instance, it is easier to make 10% on a $30,000 account than to make 10% on $10,000,000. These are circumstances to be aware of as you make progress as a day trader.

What most day traders do is to have an established base of working capital and withdraw everything else. So, if you have a $50,000 trading account making 10% a month, you withdraw $5,000 a month.

Very few day traders continue to compound their account into the millions. Most successful-day traders withdraw a percentage and leave a portion of profit to grow their account.

For the $50,000 example, the day trader withdraws $4,000 and leaves $1000 to add to their base capital.

In six months, the capital base is $55,000, so the trader can either take out $4,500 or leave $1500 in the account.

Your choices are flexible, but the ideal objective is to grow your capital base as, ultimately, this will generate more profits.

Don't Miss: 10 Day Trading Strategies for Beginners

Expanding Day Trading Profit Potential

Day trading is challenging. Most day traders never reach higher income levels and are happy making $500 to $2,500 a day. They may dream of making millions from day trading but lack the motivation to take the steps needed to get there.

For the successful day trader, creating $50,000 to $200,000 a year, they may invest profits on tangible assets, like real estate, for instance.

Eventually, the day trader can have a million dollars, or more, in assets.

If you have a salaried job, you know your daily and monthly income, and maybe you get one or two bonuses a year.

As a freelance day trader, you never know how much you can generate on an average day. Some days, you find a fantastic opportunity for a highly profitable trade and end up with a month's profits in one day.

The savvy day trader leaves some of that profit in the trading account but withdraws an amount to celebrate his success. The money may go into savings, college fees, a new car, paying off a bill, whatever is needed.

The old saying, money makes money, is true. Some day traders focus on how to maximise profits. They may be trading Forex, but they commit to learning how to invest in stocks, startups or other opportunities. The secret is to use the money you have to create multiple sources of income.

How does a Day trader Create Multiple Sources of Income?

Think about it. How does a day trader typically make money? They sit at their trading station and take trades.

What happens when the day trader goes on holiday?

Oh, yeah, I see what you mean.

Many day traders decide to become the savvy day trader who makes money whilst sitting on the beach.

The question to ask yourself is, 'How can I make extra income when I am not day trading?'

Here are a few ideas for how to create income as a day trader when not day trading:

Learn how to invest in stocks and shares – you already understand how trading works, so it's only a short jump to figuring out how to benefit from buying stocks and shares
Create a course to teach others how to day trade – hey, there's a 95% failure rate in trading. Rookie day traders are desperate to find out how to day trade successfully. Online courses can be fully automated. There are dozens of online companies where you can upload your day trading course. The company take the clients money, sends them a link, and you have zero involvement. Yeah, it's a bit of work to do it, but you can outsource the process for much of it. many pro traders now make a significant income from their loyal followers eager to buy each new course
Run day trading seminars to teach others how to day trade – similar to #2 but generally, physical seminars are a high-ticket item. At the end of the day trading seminar, you can either give them the course you created with #2 or direct them to it to purchase
Buy real estate to rent out – real estate prices continue to increase, so more people are renting than buying. You can outsource to a management company so it can be a hands-off income earner

You came into day trading to trade, and you intended to continue to do so. But if you want to achieve millionaire status, the above ideas may help you get closer to your dream. By using the big returns from day trading, you may eventually achieve millionaire status.

Day Traders and Trading Products

Your trading capital should work for you, maximising the potential for earnings.

Typically, large hedge funds have lower percentage returns than individual traders because of the volume of money involved in hedge funds.

Day traders rarely trade for clients, primarily because they don't need to, and it's a lot of hassle dealing with client expectations and demands.

When you first start day trading, you want to make as much money as possible. You aim for 20% a month and don't want to lower your expectations. But, as you evolve as a day trader, things change.

Once you have accumulated $50,000 or more as your trading bank, you find yourself wanting to protect your money. Now, you are happy to make 10% a month, so you reduce your risk, spend less time trading, and only take the best trades with the highest probability.

Top earning day traders with significant capital may settle for a monthly return of 5%. They may take one or two excellent trades a week, and then they have lifestyle freedom, which is what all day traders want at heart.

Recap on Why Day Traders can make Big Returns but aren't Millionaires

Day traders can make big returns, but the potential to become a millionaire from day trading is limited.

Day traders struggle with the personal ceiling and limitations on position sizes when needing market liquidity and volume. Eventually, the day trader reaches a point where increased position size is counterproductive and reduces profit potential.

It's called the efficient capital/threshold limit. Once you hit this limit, you may find it easier to help others day trade and get paid to do so.

When you were learning day trading, you may have attended online webinars with professional traders.

One of the most common questions attendees ask is, 'If you are so successful at day trading, why are you teaching it instead of trading to make your money?'

It's a fair question, but almost 100% asked by rookie day traders.

If you are at the stage of making a decent income from day trading, you will understand the compulsion to try to help day traders who just don't get it and are failing.

You know there is a 95% failure rate. Most day traders never get anywhere near making consistent profits, and most bust their accounts in the first few months.

Novice day traders want the magic formula. They are desperate to succeed at day trading, so they turn to people like you. To the losing day trader, a successful day trader, making a consistent profit and the freedom lifestyle is like a mystical trading god.

If you can help one day trader to become successful, the feeling of reward is enormous.

The truth is, there aren't many millionaires making their fortune from day trading.

Most day traders make part of their income from day trading and then diversify into others areas.

Trading can, at times, be boring.

Not because you don't enjoy it, but because the successful trader's mindset requires a calm, analytical and unemotional response to winning and losing.

Also, it's lonely. There you are, day trading, just you and the charts and a cup of coffee, and maybe the cat.

It's nice for a while, but eventually, the day trader wants to get out of his pyjamas and venture out into the world of other humans and be with other day traders.

Don't worry about becoming a millionaire from day trading. Become profitable, make a decent income and enjoy the fruits of your labour. Enjoy the freedom of day trading and always aim to be a better day trader tomorrow than today.

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 commodities may not be suitable for all investors. It does involve risk and the possibility of a loss of capital.