What Percentage of Retail Traders Make Money? That's a Difficult Question to Answer! You’ll Need to Decide For Yourself.

Mike Richardson on Jul 24, 2021

You can spend a lot of time researching Google trying to find an answer to that question.  It will drive you crazy!  That’s one of the reasons that we launched the OTA Research Center here to help collect and curate 3rd party research to try to triangulate a body of evidence on an answer.

From the prevailing research that we can find, it is very hard to conclude that the percentage is anything but a small number.  But read on to the bottom of this article and you will likely be intrigued.  You will need to decide for yourself. 

Here are some of the prevailing research articles and narratives we found to help you:

Market Timing: More Evidence Why It Doesn’t Work by IFA.com (Index Fund Advisors) quoting Dalbar’s annual QAIB (Quantitative Analysis of Investor Behavior) research report.

  • They conclude that “time pickers” don’t do well trying to catch the best days of the market and miss the worst days, concluding that it nets out starkly negative”
  • In the mix of their narrative they use words and phrases like crystal ball, shooting-from-the-hip and head-fake to make their case.  There are other similar research studies drawing similar conclusions that you can’t time the markets.

New Study Show Just How Unprofitable Day Trading Is referring to a study in Brazil by researchers at the Sao Paul School of Economics and University of Sao Paulo.

  • This states that only 3% of traders make money and under 1% do better than minimum wage. 
  • Interestingly, of traders who only traded for a single day, 30% made money (beginner’s luck?) but when continuing for 300 days only 3% did, which the researchers equated to how things aggregate out mathematically.

Scientists Discovered Why Most Traders Lose Money  referring to a number of footnoted research studies

  • 80% of all day traders quit within the first 2 years
  • Only 1% of all day traders are able to predictably profitable 

What’s the Day Trading Success Rate? The Thorough Answer referring to the author’s personal experience in day trading firms

  • Only 3.5% to 4.5% of day traders were successful
  • A little higher at 6% to 8% of day traders if you include those who were negligibly profitable
  • A little higher at 8% to 10% with the benefit of a mentor, although he qualifies that he doesn’t have a lot of data, but notes that his sense is that it doubles your chance of success (roughly twice the 3.5% to 4.5% noted above)

Research of Retail Traders using Contracts for Differences (CFDs) Outside of the USA

  • 76% were unprofitable
  • 24% were profitable

As you can see, it is difficult to triangulate this body of evidence for a reliable answer.  But it seems hard to conclude that it is anything other than a small number. 

Mind you, that’s not surprising when you when you notice a few commonplace perceptions that may be skewing the research and narrative:

  • “Day trading” is commonly used as a proxy for retail trading.  Notice in the above articles how prevalent the adoption of “day trading” is as terminology, which you will see even more commonplace in the media, typically equating retail trading to be “day trading”.  We disagree.  “Day trading” is just one style and time-frame of trading and investing on the spectrum ranging from short-term trading strategies at one end to long-term investing strategies at the other and everything in between.  At Online Trading Academy we teach across that spectrum and the power of a portfolio of styles and time-frames in alignment with your financial goals.
  • You can’t time the market” is a commonplace perception, which you might also hear from your financial planner, especially just before and just after a market correction or crash!  Notice that these market timing studies often seem to be put out by fund management and financial planning organizations and often seem to be based upon the assumption of simple buy and hold and hope strategies, with the hope of time-picking missing the worst days and catching the best days of the markets.  Of course, as the saying goes, “hope is not a strategy”, so it isn’t at all surprising that this approach to market timing doesn’t work.  If you are guessing, you are gambling!  That view of market timing is like buying a lottery ticket.  A few people get lucky and win, who we hear about in the news, and the majority lose who we never hear about in the news.  But, at Online Trading Academy, when we talk about “Market Timing” that isn’t what we mean.  Instead, we mean something very different, educating students about a very different orientation to market timing which is new to most people and very contrarian.  Our large database of rigorously tracked data reveals a different answer to the “can you time the markets?” question.   Attend our Market Timing Orientation to find out more so that you can decide for yourself.
  • Differentiating between educated retail traders and investors and uneducated ones.  As far as we can tell, none of these articles attempt to distinguish between uneducated retail traders and educated ones.  We believe that is essential.  Having served over 80,000 students with lifelong trading and investing education for more than two decades, Online Trading Academy is well placed to research the sub-segment of educated retail traders.
  • Being Contrarian.  Also, as far as we can tell, none of these articles talk much about being contrarian.  In other words, not following the herd.  Read on.

Here are a few more pieces which speak to that very important last point about being contrarian:

Research Shows Negative Effects of Following the Herd referring to research by Professor Brad Barber who concludes that Robinhood users herding around attention grabbing stocks in the news under perform the market over the following month.

Different Research Methodology Begins to Change Commonplace Misconception that Retail Traders and Investors Generally Lose Money referring to research by Professor Peter Swan and his colleagues who conclude that informed contrarians (who were household retail investors in his study) perform better than uninformed trend followers (who were professional institutions in his study).  Most notably, he used a different research methodology which delivered a very different insight and perhaps for the first time, as far as we can tell, concluded that by being contrarian, household retail investors out performed professional institutional investors!  Wow!  That’s why I reached out to Professor Peter Swan and had a great dialog with him and issued a joint press release:  PRESS RELEASE: University of New South Wales (UNSW) Professor Peter Swan and Online Trading Academy Challenge the Commonplace Misconception that Retail Traders and Investors Generally Lose Money.

Why Women Do Better in Trading & Investing: Insights for Women and Men.  By the way, in the same study mentioned above, Professor Peter Swan and his colleagues concluded that women retail traders and investors out perform men.  Why?  Because they tend to be even more contrarian than men, more likely to “shun the hype associated with rising prices promoted by trend-following institutional momentum traders utilizing other people’s money”.   So that emphasizes even more the importance of being an “informed contrarian”

That is the essence of what we teach at Online Trading Academy.  Not being in the “uninformed trend following” majority (the prevailing articles above suggest that is the majority of uneducated retail traders), but instead getting educated to be in the “informed contrarian” minority

  • Informed through a comprehensive education and learning process facilitated by our Compass Program to help students navigate their journey with confidence and find the arc of the desired student learning journey.
  • Contrarian through a proprietary Core Strategy methodology which does not follow the herd and patented technology CliK which is a revolutionary first of a kind platform integrating education, analysis and trading.

So let’s ask a different question:

  • What Percentage of Educated Retail Traders Make Money?  Informed Contrarians as opposed to Uninformed Trend Followers?  That's a Different Question to Answer!

Our April 2021 Student Survey with over 1000 Respondents reveals a very different answer to those prevailing low numbers in the articles above.  Attend our Market Timing Orientation to find out more so that you can decide for yourself.

The OTA Research Center collects, collates and comments upon public domain research and perspectives that it feels may provide interesting insights.  This content is provided for information only and OTA makes no representations about its accuracy.