Sunday, June 25, 2006

Can you really make money as a day trader?

Can day traders really make a lot of money? A day trader is generally defined as someone who trades stocks, options, and other investments very often (multiple trades per day) and generally closing out all their positions at the end of the day. I've heard lots of anecdotal information about day traders making or losing huge amounts of money, but what is the truth?

I decided to interview two friends who refer to themselves as 'day traders'; however, in reality, they don't meet the accepted definition. I would describe them more as short term traders, holding on to stock and option positions anywhere from one day to six months. They always have open positions at the end of the day. They both trade through online stock brokerage firms. This is their only 'job'.

How much do they make? Neither of them have ever had a down year. Both of them, on average, earn an amount equal to what they have tied up in the market, and both have about $100,000 invested. In other words, they double their money each year, or another way to look at it is they earn $100,000 each year from the $100,000 they use for trading.

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