How profitable is day trading?

Media platforms widely focus on day trading because numerous stories document the financial success of traders, sometimes in a celebratory way that ignores the darker side of trading and losses.

We have all experienced at least one story relating to day traders who achieved financial success by making quick profits and proceeded to replace their former employment with online trading activities. 

The Covid-19 pandemic sparked widespread online trading participation where numerous individuals started trading forex and CFDs in pursuit of financial gain during quarantine times.

Is trading success a reality or a far-fetched dream?

Trading success exists as a reality though most people achieve it infrequently. Time, along with lots of expertise, helps people acquire the trading skills they need to declare they have trading proficiency.

Stories on social platforms often exaggerate trading profits while downplaying risks, losses, and emotional stress. In reality, caution is essential.

Getting hopeful then facing disappointment or jeopardising your investment funds should not be an option. The reality is different—most day traders struggle to make significant profits and often face challenges and losses.

Some traders can face financial losses from trading that could cause them to stop trading while others continue incurring losses permanently. The majority of day traders experience financial losses except for a small one percent while a minuscule fraction succeeds in achieving lasting profits with reliable earnings.

Also allows traders of all types to buy and sell assets and explore the markets throughout the day.

CFD brokers and day trading

Most retail trading operations take place through brokers who provide online trading platforms, with MetaTrader 4 representing one of the most popular options available to clients.

Forex trading and generally online trading provide a lot of opportunities, and this is because forex and CFD brokers have made trading widely available by offering cheaper options to trade, transparency, fairness, fast execution and many other features.

However, this ease and quick access to the markets can sometimes be detrimental, as many, lacking the necessary knowledge and experience, jump into trading, ignoring the risks.

Without the necessary proficiency, without proper practice and required skill, new traders can experience financial losses and disappointment.

While there are plenty of stories circulating online about traders achieving success in this field, this a small percentage and tend to be professional or experienced traders who have full awareness of the potential risks and have done extensive market research before delving into trading.

They are also fully prepared and are confident with both potential losses, as these are part of the game. They are strong, resilient and patient and have learnt to face difficulties and unexpected obstacles, while being equally well-prepared.

Is day trading a profession or a hobby?

This depends on your own goals, but it also requires more than just wanting to be a day trader professionally. It demands a lot of research but also involves more practical considerations, such as how much time and money you can invest in the pursuit of trading.

For example, how expensive your equipment will be, the type of computer and screen or screens you will be using—your setup—as well as the software, indicators you may want to purchase and all sorts of other tools.

The people who start day trading and want to make it their occupation tend to be serious about it, so they put a lot of effort into it, and are patient with results. However, a big majority of day traders experience losses.

Why do some day traders fail?

• A lot of day traders quit early, and only a small number of traders stay in for the long run, putting in the hard work.

• Having a strong will and being open to learning while accepting your mistakes will allow you to stay focused.

• Trading experience is a must. Take your time, learn from your mistakes, practise and then practise some more.

• Psychological factors are another reason for failing. Prejudices, irrational reactions and impulsive decisions can lead to mistakes.

How emotions influence traders

One of the most common mistakes is the failure to accept your losses and close your trades, when it is very clear there is no way to recover those losses. Being attached to the market, and persisting, thinking that you may regain your funds and profits, only to extend your losses is detrimental to trading.

For this reason, good traders who stay in the game for the long term, don’t get carried away by emotion. Instead, they know when to take a step back, reassess the situation and make rational decisions about their next move.

One of these emotions that can hurt your trades and account is the “Fear of missing out” (FOMO). Popularised in the cryptocurrency world but used almost widely nowadays, FOMO has led many traders to jump in the game only to arrive very late on the action and experience losses.

Online forums where traders discuss the latest trends, or where several traders exaggerate certain ideas, misleading other traders is also a reality. This is why, despite the hype around a currency pair or stock, you should always do your own independent research and make your own conclusions.

Tips to keep you focused

• Establish your trading plan to reduce risk at 1% of your investment funds.
• Stop trading when you see you are losing and quickly identify weaknesses you can improve.
• Don’t follow emotions, impulses or urges to open/close a trade, but act based on fact.

IronFX: A reliable broker

Trading CFDs means you are entering an exciting but also complex market where profits, risks, losses are the potential outcome. Depending on the way you approach trading, the outcome can be diametrically different.

From the time you invest in trading to the funds you want to trade with, the amount of research and the practice you have put into it, all these factors can boost your trading or lead you to fail.

Remember, even after a lot of research and paying attention to various factors, the market can move against you unpredictably. Being aware of this and taking the right measures, such as having a solid risk management plan in place will help you limit your losses or secure profits.

This is where trading with the right broker makes the difference. A reliable trusted broker will never hide all these risk factors. Instead, they will provide support, while being fully transparent about the risks involved.

If you are looking to become successful as a day trader, you will need a broker who can offer bespoke services with advanced platforms, daily analysis, education and reliable support. Competitive spreads and low fees are especially important for expert traders as this can affect your profits. Managing your finances and cutting down costs is key when trading seriously.

IronFX is a leading multi-asset broker with years of experience in this industry, so if you are looking for a reliable broker, IronFX is the right choice. Register today and explore all their services.

Disclaimer: This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.