If the 95% weren't true, pro firms would be the first to prove their numbers as a marketing ploy to attract fresh traders. Btw, there are something like 7000 full time daytraders, representing less than 0,01 % of all people buying and selling stocks, that really doesn't affect IB's in any way.
The 95% failure rate has been posted by the retail end of the trading business for the last several years...and I think it is probably true. This has nothing to do with licensed, professional trading (not vs. amateur, but vs. retail).....since the "barrier to entry" is quite a bit higher...license, capital, etc., then the numbers are obviously much, much better. Must make a point to my friends at IB and other places....many of you are professional in your trading, and have chosen to stay retail - and I am not directing any negatives your way - you are in the top 5% .. I have posted numbers before regarding retention rates and success rates with our firm...and I'm sure that other successful firms have similar numbers. A big point is simply that this is such an INdividual thing...there really is no "norm" here. If you're planning on doing this, no matter what, simply find the best approach to it.
First, just because somebody gets a license that doesn't say anything about their abilities as a trader, and traders who don't scalp don't have any incentive to go to a pro firm anyway. Then, irrespective of that, you say, the numbers at pro firms are much much better? Oh really? Why don't you prove it, then? Anyway, the following study says something quite different: Studies: Day Traders Victims of False Promises Federal Report Finds 77 Percent Lose Big Money Feb. 24, 2000 By Carol Huang AP Day traders at work in Houston WASHINGTON (APBnews.com) - Day-trading firms use promises of instant wealth to lure novice investors, many of whom aren't screened as required by securities industry rules and wind up losing their life savings, according two government studies released today. Day traders hope to profit from short-term increases in stock prices, buying shares and sometimes holding them for no longer than a few minutes or seconds. The number of day traders and firms has increased sharply because of the prolonged bull market and the development of technology allowing anyone with a home computer and the right software to follow market movements in real time. But the reports from the General Accounting Office (GAO) and the Senate Permanent Subcommittee on Investigations (PSI) said many day traders -- who pay their firms' commissions on every trade they make -- are suffering heavy losses. "Most day traders are not breaking even; in fact, they're losing money -- big money," Sen. Susan Collins, R-Maine, chairman of the PSI subcommittee, said during the hearing. "The best evidence suggests that a significant majority of all day traders, more than 75 percent, lose money." Related Stories: FBI Hunts 'Bonnie and Clyde of the '90s' Atlanta Victim's Widow Files Lawsuit Suicide Follows Atlanta Slaughter Related Document: GAO Day Trading Report GIF PDF Financial backing, experience required Because day trading involves extreme risk, brokerages and dealers regulated by the Securities and Exchange Commission (SEC) and the National Association of Securities Dealers (NASD) are required to uphold minimum standards outlining the amount of money and amount of trading experience day traders must have. However, the subcommittee report found that day-trading firms have lowered their standards to stay competitive, attracting people with less money and less trading experience. At the same time, many firms are using hard-sell tactics by promising prospective traders quick riches without warning them about the risks, the study said. The subcommittee cited one study that found that 42 percent of one firm's customers were no more than 26 years old with a median net income and median net worth of only $30,000. It found that 20 percent of the firms maintained no minimum financial requirements for new customers opening a day-trading account. The study also found that firms are permitting traders to violate securities regulations by borrowing money from other traders to cover shortfalls in their accounts. "The PSI staff has learned that when there are losses, the hustlers are there to facilitate loans of more money at usurious rates to clients trying to recover their stake," said Sen. Carl Levin, D-Mich., ranking minority member on the committee. AP Alyce Wenzel testifying Murder spree kicked off probe The subcommittee began its investigation into day trading last fall, after Mark Barton, an Atlanta day trader at Momentum and at All Tech Investment Group, shot and killed nine people in a shooting spree through both companies before committing suicide. Barton, a former chemist, reportedly lost up to $450,000 in his accounts at the firms, including $105,000 in the eight days before the shooting. Among those who testified at today's hearing was Alyce Wenzel, whose son, Scott Webb, was a 30-year-old day trader killed in the barrage of Barton's gunfire July 29, 1999. Webb had been feeling adrift after losing his job at a car rental agency and after he was let go as a stockbroker at Dean Witter. He thought things were looking up when he learned of an opportunity to day trade stocks at Momentum Securities. Although he had neither a job nor money, the firm permitted him to open a day-trading account after he borrowed $30,000 from his father, his mother said. He told his sister optimistically, "I think I have finally found my niche." Cash problems Wenzel, who has filed a wrongful death suit against Momentum, said her son began having problems shortly after he started trading there and that she grew worried about him. At one point, she said, he confessed that his financial situation was so desperate that he did not think he had enough money for a plane ticket to attend a family wedding. "My son was not an appropriate person to be day trading based on his financial situation and background experience," Wenzel testified. "I still cannot understand why my son was allowed to trade at Momentum. He made decisions that never should have been presented to him as options for a person in his financial situation." Although financial losses are suffered by the day traders themselves, their mistakes have a broader impact on securities markets. Levin, who asked GAO to study day trading last year, said the GAO found only 7,000 people involved in day trading full time -- representing less than 0.01 percent of all people buying and selling stock -- but that they account for 10 percent to 15 percent of all trading on the NASDAQ, which handles the stock of newer and more volatile companies, including many high-profile computer and Internet firms. Little fraud, lots of rule-breaking The GAO report said the SEC and the NASD found little widespread fraud in day trading, but uncovered many securities violations. Advertising claims by 80 percent of the firms failed to disclose the risks in day trading while exaggerating potential profits, he said. The GAO report said day-trading firms admitted that most clients lose money initially, but contended that those who stay in the game more than six months make profits. "This claim directly contradicts the most extensive study on profitability [of day trading], which was conducted by the Washington State Department of Financial Institutions," Levin noted. That study concluded that "77 percent of the traders were unprofitable, and for the 23 percent that were profitable ... the profits were small compared to the size of the other losses," Levin said during the hearing. http://www.apbonline.com/safetycenter/business/2000/02/24/daytrading0224_01.html Now, get that last quote from the former SEC Chairman Levin, 77% unprofitable, and, here it comes, for the 23% that were profitable, the profits were small compared to the size of the other losses. As per my definition of profitable trading, having, over a long time, greater profits than losses after all costs, that just don't quite cut the cake, now does it?
And to add to my previous post,one of the great things about daytrading is the tax savings you get by not having to pay social security taxes or state taxes(if you live in FL,NV,and a few other states). If you make $50,000 a year at a salaried job versus making 50,000 a year daytrading,S.S. taxes are at 7.65%,you'll save $3,825 a year in taxes by daytrading. That adds up to over $150,000 for a 40 year working career,not to mention all the gains on top of that,if properly invested.
Thank You for making my point even more aware to all those "wannabee" traders. We had a discussion group with the NASAA (actually held here in Vegas) where my brother totally agreed with all the naysayers about "daytrading." We agreed that trading should be left to the professionals (those from the trading floors, NY Specialists, MM's, and with trading firms). For your edification (as reported to the regulators for our firm). After a 1 year learning curve, approximately 70% were successful, after 2 years about 80%. We lose about half during the first year (for various reasons, not just losing money). We are limited by regulations as to what can be said ...but these numbers have been substantiated. Hope this helps!! Now, to my retail friends on this board..once again, you guys are probably in the minority, and are probably making money trading. Not everyone has to get licensed, but it does help the situation for most. **Gene** Am I missing something here? Have I lost my mind, or are we chasing ghosts here?
Don, what on earth are you talking about?? I wrote: First, just because somebody gets a license that doesn't say anything about their abilities as a trader, and traders who don't scalp don't have any incentive to go to a pro firm anyway. Then, irrespective of that, you say, the numbers at pro firms are much much better? Oh really? Why don't you prove it, then? The GAO report said day-trading firms admitted that most clients lose money initially, but contended that those who stay in the game more than six months make profits. "This claim directly contradicts the most extensive study on profitability [of day trading], which was conducted by the Washington State Department of Financial Institutions," Levin noted. That study concluded that "77 percent of the traders were unprofitable, and for the 23 percent that were profitable ... the profits were small compared to the size of the other losses," Levin said during the hearing. http://www.apbonline.com/safetycent...ing0224_01.html Now, get that last quote from the former SEC Chairman Levin, 77% unprofitable, and, here it comes, for the 23% that were profitable, the profits were small compared to the size of the other losses. As per my definition of profitable trading, having, over a long time, greater profits than losses after all costs, that just don't quite cut the cake, now does it? Getting a license has zilch to do wth profitability, and there aint no regulation that would prevent you from giving out your stats as long as they are true.
I would imagine that most of these so called daytraders that lose money are not trading at pro firms or at least a good retail firm that offers direct access to the markets. And why does one think that daytrading is so risky,when in my opinion,investing can be much more riskier. I know people that invest for the long term (because that's what the analysts and fund managers tell you to do) and have lost over 75% of their account. Daytrading gives you the opportunity to cut your losses short,while if you are investing for the long term,you're not following the moves of your stock second by second,and not participating in the hundreds of opportunities that are presented each and every day.It all comes down to controlling your risk and admitting when you're wrong.
Vinny1, We always tell aspiring traders that you should only use risk capital and build your acct. over time. The traders who listen to use , will lose a little or break even at worst . The traders who gamble will be gone in a week. Those traders who survive the first year, have an excellent chance of making trading a career. Despite the high risk associated with short-term trading, regulators admitt that they get very few complaints about firms that cater to daytraders! Most of the complaints regulators are getting is from investors that bought and held stocks . I think most people are aware that stock trading is a hard profession. If we take the worse case scenario and say one out of ten daytraders will be around after five years, that is as good as the number of new resturants that will survive after five years . Trading involves not just stock selection, but "cash management" during lean times. Just like a business , you have to change your trading strategy(in the case of a business marketing strategy) as conditions change. The SEC report on Daytrading(Not NSAA report) gives a more balanced and professional view of the industry. The recommendations that were given to the industry were adopted and we don't hear much from regulators about the evil daytraders anymore since most stockbrokers are losing the "customers money" , not daytraders. Gene Weissman Lieber & Weissman Sec., L.L.C. gweissman@stocktrade.net
That study was directed at daytrading firms where people trade from an office, and most definitely did include pro firms. Anyway, ain't no difference between some one who gets a license or somebody who doesn't have one, has nothing to do with earning substantially more over time than you're losing, and accomplishing that after all relevant costs, and still having enough over to pay the rent. Anybody who says that that study is not accurate should prove it. Everything else is just unfounded marketing. The GAO report said day-trading firms admitted that most clients lose money initially, but contended that those who stay in the game more than six months make profits. "This claim directly contradicts the most extensive study on profitability [of day trading], which was conducted by the Washington State Department of Financial Institutions," Levin noted. I found a thread by a guy called Hitman who traded for a so called pro firm where he more or less exactly substantiated the findings of that study. That is just plain old reality.