The Harsh Insider Truth: 9 Out of 10 Traders Lose! (2024)

FAQs

Is it true that 90% of traders lose money? ›

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.

Overtrading To Cover Losses

In an attempt to recover losses quickly, traders often place more orders than usual or trade with higher volumes. This behaviour increases the risk and can lead to a vicious cycle of losses as it often involves making impulsive and poorly thought-out trades.

The futures and options (F&O) market is a complex and risky market, and it is no surprise that 9 out of 10 traders lose money in it. There are many reasons for this, but some of the most common include: Lack of knowledge: Many traders enter the F&O market without a good understanding of how it works.

It is estimated that nearly 80-85% of intraday traders end up losing money in the stock markets. Normally, 70% of the intraday traders do not last beyond the first year and 90% do not last beyond the third year. What is the reason for this phenomenon and why do intraday traders lose money so consistently?

It is a high-stakes game where many are lured by the promise of quick riches but ultimately face harsh realities. One of the harsh realities of trading is the “Rule of 90,” which suggests that 90% of new traders lose 90% of their starting capital within 90 days of their first trade.

From movies like The Wolf of Wall Street to Robinhood commercials, it's often advertised that you can make big money through trading the markets. It might sound as simple as “buy low” and “sell high,” but the reality is that the vast majority of traders end up losing money over time.

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].

The success rate—success meaning they could make a living from the markets (that doesn't necessarily mean a great living)—was about 4%. So out of the approximate. 2,000 people, about 80 were good enough to trade for a living.

As options approach their expiration date, they lose value due to time decay (theta). The closer an option is to expiration, the faster its time value erodes. If the underlying asset's price doesn't move in the desired direction quickly enough, options buyers can suffer losses as the time value diminishes.

How much does the average person make trading options? ›

The option sellers stand a greater risk of losses when there is heavy movement in the market. So, if you have sold options, then always try to hedge your position to avoid such losses. For example, if you have sold at the money calls/puts, then try to buy far out of the money calls/puts to hedge your position.

Around 1% – 20% of traders earn a profitable margin at the end of the day. The low success rate often discourages the newbies who learn new ways from an online course or television. Studies have shown that around 97% of day traders have lost their money in two years.

The defining feature of day trading is that traders do not hold positions overnight; instead, they seek to profit from short-term price movements occurring during the trading session.It can be considered one of the most profitable trading methods available to investors.

Key Takeaways

Very few people day trade. Astonishingly few (1%-3%) day traders are able to consistently earn above-market returns. Data is mixed on whether or not it is even possible to improve performance at day trading. In most studies, the most active traders tend to lose the most money.

Day trading is extremely risky.

And day traders typically end up on the wrong side of a trade more often than not. A study found that traders who lose money account for anywhere between 72–80% of all day trades being made. It's just not worth the risk!

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.

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.

One of the reasons for the loss in the stock market is that people do not decide the amount of their investment. This is also a big mistake. Because the investment amount is not fixed, they invest most of their money in the stock market. Due to which they do not have enough money even for emergency times.