Options trader average income

A Prop Trader Explains His Work, His Salary, And Why Everyone Is Wrong About His Profession.

This is totally awesome, mainly because prop traders are something a lot of people talk about, but few people really know about. Here, one London quant sits down and takes you through his job (which, in this industry, is life), step-by-step.

The interview is from a must-read column in The Guardian by Joris Luyendijk called "Banking Blog: Going native in the world of finance." If you don't check it, you should, and Joris, if you're out there, we're fans.

In this installment, Lauyendijk introduces his readers to "an inconspicuous-looking man, originally from continental Europe. He orders a vegetarian pasta and sparkling water."

Check out some of our favorite parts below.

On how he does his job:

" Prop traders come in two varieties, too. The 'pure' prop traders have a view on the market that day and act on that. 'Quantitative' prop traders like me have a systematic view, meaning I build strategies and then trade them longer term on the market.

" How that works: I will have an idea about a pattern in the market , say, if the share price of two English banks with a broadly similar outlook diverge, they will most likely converge again very soon. Or I might look at the ways unusual rainfall in Argentina translates into higher wheat prices.

" That'll be my 'idea'. Next is statistical analysis . "I will also determine my 'confidence range' : how likely is the pattern to play out. "

On the greatest misunderstanding about prop traders:

"What outsiders are concerned about is speculation; if you trade large enough volumes you begin to impact the market itself, you 'move the market'. I would never consciously try to raise the price of, say, rice, and starve children in China. Quite apart from the morals, it is actually very difficult to make a profit out of that. You drive up the price of something by buying more and more of it. The thing is, players in the market are going to notice that. And so they will quote rapidly higher prices to you since they realise that you want to buy a large chunk of the overall market with all your money. It is absolutely forbidden to do a quick in-and-out when you've pushed up the price yourself. It's called price manipulation and regulators are really strict about that, you get sanctioned even if it happened by mistake and was really unintentional."

On not working for a hedge fund:

Well, hedge funds work with other people's money, and they can suddenly go into a panic and take their money out. That kind of thing can really wreck your strategy.

My salary is ВЈ150,000 a year plus bonus. This bonus can dwarf my salary and be multiples higher. In this business you can exactly pinpoint profits, and people like me get paid roughly a percentage of those profits.

And his parting words? He works really hard, and most of that work in his life has been dedicated to getting to where he is now — and that has made him humble.

"Speaking of humility, which I might seem to lack now, I wish I had any artistic skill. I can't sing, paint or play any instrument. But give me some time and I'll work on it."

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A Prop Trader Explains His Work, His Salary, And Why Everyone Is Wrong About His Profession.

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Average Income of a Day Trader.

The vast majority of people who try to trade for a living go bust. This isn't to say that it is impossible because trading is essentially what successful hedge funds do, and their management teams make huge fortunes. However, even the vast majority of hedge funds fail in their first few years. Thus trying to put an average figure on the income of a day trader is an impossible task since you'd have to balance the huge salaries of the successful, against the losses of the failures.

Taiwan Study.

A 2004 study of Taiwanese day traders conducted by U. C. Berkeley found that 8 of 10 high volume traders lost money in a six month period. Whatever profits they earned were eaten up by their transaction fees. Nevertheless, a very few were found to be extremely successful.

Some people have an innate talent for trading or are simply born lucky. Since day-trading is a form of gambling, we should expect that a few people will be successful at it, just as a few people make money as professional poker players.

Traders at Firms.

People who can trade successfully are in demand at hedge funds and investment banks and can command enormous salaries. The 2008 Hedge Fund Compensation Report found that the average salary for junior traders was around $200,000, when bonuses and other compensation were factored in.

If you're good at trading, a hedge fund is probably the place to do it.

Home traders.

The average income for day traders using their own money from home is almost certainly negative, and probably wouldn't be enough to support yourself.

Consider that an annual income of $30,000 would require a person to have an account worth $100,000, and earn a 30% return after taxes, which is extremely unlikely. Having less money would require you to do even better. Note that you would be living off of your paltry returns, so the value of your account would not benefit from the growth of compound interest.

Day Trading Programs.

Lots of websites out there claim to have systems that will help you make tons of money. They claim 90 percent effectiveness or the like. This is all probably baloney. Just like the people who sold things to gold miners in the 1850s were the ones who made all the money, the people selling programs to day traders are the ones profiting today.

Day Trading is a Fool's Game.

For most people, trying to time the market or make tons of trades to beat the market is going to bite you. Most people would be better off in low-cost index funds with their assets allocated to protect against market downturns. Use your time to learn something more valuable than how to be a better gambler.

Average Rate Of Return For Day Traders.

It's the question at the tip of every aspiring day trader’s tongue: how much money can I earn from day trading?

Since most day traders do not disclose their trading results to anyone but the IRS, an exact answer to how much money an average day trader makes is impossible to answer. However, there are numerous sources of information, including reliable academic studies, that offer clues on average earnings. The majority of available information does not shed a positive light on day trading. The research typically indicates that, in fact, most day traders lose money.

Day traders make money by buying stock and holding it for a short period of time--anywhere from a few minutes to a few hours--before selling it off again. Day traders usually enter and exit trading positions within the day and rarely hold positions over night. The focus is on profiting from short-term price fluctuations. They often use leverage to give themselves greater power to buy and sell.

Significant Start Up Costs.

Getting started in day trading is not like dabbling in investing. Anybody would-be investor with a few hundred dollars can buy some stock in a company they believe in and keep it for years. Under FINRA rules, pattern day traders in the equities market must maintain a minimum of $25,000 in their accounts and will be denied access to the markets if the balance drops below that level. This means day traders must have enough capital on top of that to realistically make a profit. And because day trading is more than a full-time job, it is not compatible with keeping a day job. That means the day trader must live off his profits from trading as well as risk his own capital everyday to make those profits. In addition to the minimum balance required, prospective day traders must consider the cost of equipment such as computer hardware and fast internet access. Brokerage commissions and taxes on short-term capital gains can also make a big dent in profits. ( For an in-depth review of the subject see An Introduction To Day Trading)

A University of California, Davis study published in 2000 by Brad Barber and Terrance Odean titled “Trading Is Hazardous to Your Wealth,” showed a correlation between active trading and poor performance among individual investors. The study pointed to overconfidence as a cause of high-volume trading and the resulting poor performance.

A 2004 academic study by Brad Barber, Yi-Tsung Lee, Yu-Jane Liu, and Terrance Odean examined the transaction history of the Taiwan Stock Exchange from 1995 through 1999. Day trading among individual investors is common in Taiwan and accounted for over 20 percent of total trading volume during the period of the study. The research showed that while high-volume traders were sometimes able to earn gross profits, the profits were usually not enough to cover transaction costs. In a typical six-month period more than 80 percent of day traders lost money, and only 1 percent of them could be called predictably profitable.

An important factor that can influence earnings potential and career longevity is whether you day trade independently or for an institution such as a bank or hedge fund. Traders working at an institution have the benefit of not risking their own money. They are also typically far better capitalized and have access to advantageous information and tools. Unlike independent day traders, they are also compensated with benefits such as health insurance, retirement funds, sick leave, and vacation days.

In 2012, the Wall Street Journal published an article giving some rare insight into the failure rates of retail foreign-exchange traders, many of whom are day traders. The article, titled “The Customer Is Too Often Wrong at FXCM,” showed that in four consecutive quarters more than 70 percent of FXCM's U. S. accounts were unprofitable. The article cited the high levels of leverage available at FXCM (50 to 1) as part of the problem. With 50 to 1 leverage, a $10,000 account can take a market exposure of $500,000 and it only takes a relatively small adverse price move to erase the initial balance. Transaction fees are also mentioned as a hurdle that must be overcome. ( See also The Pros & Cons Of A Forex Trading Career)

Trying to become a millionaire through independent day trading is something like trying to become a Hollywood star or a professional athlete. The evidence suggests that a very small minority will achieve consistently high-level of earnings while the majority will not be able to sustain a long-term career.

Options Trader Salary.

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