“95% of all traders fail” is the most commonly used trading related statistic around the internet. But no research paper exists that proves this number right. Research even suggests that the actual figure is much, much higher. In the following article we’ll show you 24 very surprising statistics economic scientists discovered by analyzing actual broker data and the performance of traders. Some explain very well why most traders lose money.
- 80% of all day traders quit within the first two years. 1
- Among all day traders, nearly 40% day trade for only one month. Within three years, only 13% continue to day trade. After five years, only 7% remain. 1
- Traders sell winners at a 50% higher rate than losers. 60% of sales are winners, while 40% of sales are losers.2
- The average individual investor underperforms a market index by 1.5% per year. Active traders underperform by 6.5% annually. 3
- Day traders with strong past performance go on to earn strong returns in the future. Though only about 1% of all day traders are able to predictably profit net of fees. 1
- Traders with up to a 10 years negative track record continue to trade. This suggests that day traders even continue to trade when they receive a negative signal regarding their ability. 1
- Profitable day traders make up a small proportion of all traders – 1.6% in the average year. However, these day traders are very active – accounting for 12% of all day trading activity. 1
- Among all traders, profitable traders increase their trading more than unprofitable day traders. 1
- Poor individuals tend to spend a greater proportion of their income on lottery purchases and their demand for lottery increases with a decline in their income. 4
- Investors with a large differential between their existing economic conditions and their aspiration levels hold riskier stocks in their portfolios. 4
- Men trade more than women. And unmarried men trade more than married men. 5
- Poor, young men, who live in urban areas and belong to specific minority groups invest more in stocks with lottery-type features. 5
- Within each income group, gamblers underperform non-gamblers. 4
- Investors tend to sell winning investments while holding on to their losing investments. 6
- Trading in Taiwan dropped by about 25% when a lottery was introduced in April 2002. 7
- During periods with unusually large lottery jackpot, individual investor trading declines. 8
- Investors are more likely to repurchase a stock that they previously sold for a profit than one previously sold for a loss. 9
- An increase in search frequency [in a specific instrument] predicts higher returns in the following two weeks. 10
- Individual investors trade more actively when their most recent trades were successful.11
- Traders don’t learn about trading. “Trading to learn” is no more rational or profitable than playing roulette to learn for the individual investor.1
- The average day trader loses money by a considerable margin after adjusting for transaction costs.
- [In Taiwan] the losses of individual investors are about 2% of GDP.
- Investors overweight stocks in the industry in which they are employed.
- Traders with a high-IQ tend to hold more mutual funds and larger number of stocks. Therefore, benefit more from diversification effects.
Conclusion: Why Most Traders Lose Money Is Not Surprising Anymore
After going over these 24 statistics it’s very obvious to tell why traders fail. More often than not trading decisions are not based on sound research, tested trading methods or their trading journal, but on emotions, the need for entertainment and the hope to make a fortune in no time.
What traders always forget is that trading is a profession and requires skills that need to be developed over the years. Therefore, be mindful of your trading decisions and the view you have on trading. Don’t expect to be a millionaire by the end of the year, but keep in mind the possibilities trading online has.
We, at Tradeciety, built the Edgewonk trading journal which is a trading tool that allows traders to track and analyze their trades to improve their trading performance. A trading journal is a great way to become a professional trader and start taking trading seriously.
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– 1Barber, Lee, Odean (2010): Do Day Traders Rationally Learn About Their Ability?
– 2Odean (1998): Volume, volatility, price, and profit when all traders are above average
– 3Barber, & Odean (2000): Trading is hazardous to your wealth: The common stock investment performance of individual investors
– 4 Kumar: Who Gambles In The Stock Market?
– 5 Barber, Odean (2001): Boys will be boys: Gender, overconfidence, and common stock investment
– 6Calvet, L. E., Campbell, J., & Sodini P. (2009). Fight or flight? Portfolio rebalancing by individual investors.
–7Barber, B. M., Lee, Y., Liu, Y., & Odean, T. (2009). Just how much do individual investors lose by trading?
– 8Gao, X., & Lin, T. (2011). Do individual investors trade stocks as gambling? Evidence from repeated natural experiments
– 9Strahilevitz, M., Odean, T., & Barber, B. (2011). Once burned, twice shy: How naïve learning, counterfactuals, and regret affect the repurchase of stocks previously sol.
– 10Da, Z., Engelberg, J., & Gao, P. (2011). In search of attention
– 11De, S., Gondhi, N. R. & Pochiraju, B. (2010). Does sign matter more than size? An investigation into the source of investor overconfidence
FAQs
According to various studies and reports, between 70% to 90% of retail traders lose money every quarter. This article will discuss the main reasons retail traders lose money and how they can enhance their performance and profitability.
Why do traders lose a lot of money? ›
Fear of missing out (FOMO), fear of losing, a lack of patience, and greed are common causes of rash decisions and costly blunders. Ineffective Risk Management: Failure to manage risk properly, such as putting too much money at risk in a single trade, is a common cause of failure.
Why do 80% of traders lose money? ›
Lack of trading discipline
This is the primary reason for intraday trading losses in the intraday trading app. Trading discipline has to focus on three things. Firstly, there must be a trading book to guide your daily trading. Secondly, you must always trade with a stop loss only.
Why 95% of day traders lose money? ›
The emotional aspect of trading often leads to irrational decisions like panic selling. When the market moves unfavourably, many traders, especially those who are inexperienced, tend to panic and exit their positions hastily. This panic selling often occurs at the worst possible time, leading to significant losses.
How much money do day traders with $10000 accounts make per day on average? ›
With a $10,000 account, a good day might bring in a five percent gain, which is $500. However, day traders also need to consider fixed costs such as commissions charged by brokers. These commissions can eat into profits, and day traders need to earn enough to overcome these fees [2].
What is 90% rule in trading? ›
Broker Forex Global
While it can be a lucrative venture for some, it is also known to be a high-risk activity. This is where the 90 rule in Forex comes into play. The 90 rule in Forex is a commonly cited statistic that states that 90% of Forex traders lose 90% of their money in the first 90 days.
Why are most traders not profitable? ›
Traders fail due to being undercapitalized.
Sometimes the market is easier to trade and you make money right away. But usually, there is a learning curve which means losing some of your capital at the start. After that learning curve, you still need enough capital so that the risk on any single trade is small.
Why do 90% of people lose money in the stock market? ›
Staggering data reveals 90% of retail investors underperform the broader market. Lack of patience and undisciplined trading behaviors cause most losses. Insufficient market knowledge and overconfidence lead to costly mistakes. Tips from famous investors on how to achieve long-term success.
What percent of traders are successful? ›
Approximately 1–20% of day traders actually profit from their endeavors. Exceptionally few day traders ever generate returns that are even close to worthwhile. This means that between 80 and 99 percent of them fail.
What is the 80 rule in trading? ›
The Rule. If, after trading outside the Value Area, we then trade back into the Value Area (VA) and the market closes inside the VA in one of the 30 minute brackets then there is an 80% chance that the market will trade back to the other side of the VA.
Success rates among average traders are even lower, with some estimates suggesting the number of people that lose money is as high as 95%.
How many day traders actually make money? ›
Day traders are more likely to experience a 50% loss than a 50% gain. While there is potential for large gains, there is also a significant chance of significant losses. This is an important point to consider for anyone considering day trading as an investment strategy. Only 3% of day traders make consistent profits.
Who are the most successful day traders? ›
Traders can be individuals working on their own or professionals working for a financial company. The greatest three traders in the history of trading are George Soros, Michel Burry, and David Tepper. Let us take a very brief look at each of them.
What percent of day traders quit? ›
So, what percentage of day traders actually stick around? According to various studies and industry observations, it is estimated that around 80% to 90% of day traders eventually quit within their first year. This may seem alarming, but let's dig deeper to understand the underlying reasons.
What percentage of day traders go broke? ›
Studies have shown that more than 97% of day traders lose money over time, and less than 1% of day traders are actually profitable.
What percentage of traders lose money? ›
Studies have shown that more than 97% of day traders lose money over time, and less than 1% of day traders are actually profitable.
What percentage of day traders lose money? ›
Terms may apply to offers listed on this page. Day trading may seem like a faster and more exciting way to make money by investing. Several studies have found that the vast majority (95% or more) of day traders lose money.
Do 97 percent of traders lose money? ›
However, the harsh reality is that the vast majority of day traders lose money. In fact, studies have shown that a staggering 97% of day traders end up in the red. This statistic is not only staggering, but it's also incredibly disheartening for those who are considering day trading as a means of making a living.
What percentage of people lose in trading? ›
As much as 95 per cent of day traders lose money in the market, it demands an investigation. Intraday trading is the most popular, yet data suggests that most intraday traders lose money. A 70 percent don't last beyond the first year, and 95 percent stop trading by the third year.
