Never underestimate the human capacity to search for workarounds. Plenty of enterprising people look at the unfortunates who don constricting clothes, commute to 9-to-5 jobs and passively accept annual cost-of-living increases while waiting for retirement, and think “There’s got to be a better way.” There are, in fact, several such ways. But most of them involve starting a business and spending years watching it grow while encountering setbacks and triumphs along the way. For the less-patient among us, that isn’t enough. Better to think that you’re outsmarting the masses while getting paid for the privilege, ideally with a minimum of effort. And few endeavors require as little visible effort as day trading does. Or so it would seem.

Wagering – on sports, on horse racing, on poker – has been described as “a hard way to make an easy living.” It requires restraint, self-control, and the creation and maintenance of a bankroll large enough to withstand the inevitable slumps that even the most successful must endure. That’s why aspirants outnumber legitimate professional gamblers on the order of thousands to one. The same goes for day trading, which is almost the definition of gambling – taking risky action in the hope of a desired result.

Advent of Electronic Communication Networks Changed Trading

In the prehistoric pre-Internet world, the only trading method available to most investors involved calling one’s broker and placing an order. Stockholders thus held onto their shares for years, far longer than modern stockholders do, in no small part because the act of trading itself was inconvenient. The advent of electronic communication networks (ECNs) has not only sped up trades but eliminated much of the need for brokers. That has a secondary effect: requiring fewer brokers means fewer and smaller commissions, which means that a stock’s price need not increase as much to net a profit for the speculator.

So is there any downside to speedy and effortless trading? How can instantaneous trades be worse than trades that take 10 days to settle? How can low commissions be worse than high ones? In a vacuum, the answers would be “none,” “they can’t” and “they can’t,” respectively. But inexpensive trading encourages trading, much like cheap alcohol encourages drinking. Day trading by its nature requires no interest in fundamentals. Does this company have healthy cash flow from operations? Is that company’s long-term debt sustainable? What about the other company’s year-over-year increase in profitability? Those and other pointed questions, vital to the buy-and-hold investor, couldn’t be less relevant to the day trader who’s interested only in the shortest of short-term price movements - which bear little resemblance to fundamentals. In fact, they bear little resemblance to anything. Technical analysis, i.e. noticing and attempting to derive meaningful information out of pricing trends, is all that matters to the day trader. So given the requirements for the position – real-time data feeds, thousands of dollars worth of proprietary charting software, a mindset incompatible with delayed gratification – is it possible to make a living as a day trader?

No, of course not. Well, it isn’t literally impossible, but the odds are less than poor. Author/hedge fund manager/serial entrepreneur James Altucher claims that for every successful day trader, 500 go broke.

Minimum $25,000 Bankroll Necessary to Start Day Trading

The Financial Industry Regulatory Authority (FINRA) points out that you need $25,000 in an account to even get started, which already eliminates the overwhelming majority of the population who can’t amass that much. (Or at least, can’t amass that much without leaving their credit card and student loan bills unpaid.) Once sufficiently fortified, you can trade quadruple the margin excess in said account. Go beyond that, and you’ll be subject to that two-word phrase that paralyzes investors of all risk levels with fear – margin call. Five business days to square up, and you can’t dip into other accounts with the same broker to do so. The legal requirements for day trading are so daunting – even before funding the fast Internet connection and order management system you’d need to day trade with any effectiveness – that the message from the regulators and brokerage houses is unmistakable: This is a pastime for already wealthy people with short attention spans and the wherewithal to withstand gigantic downside. Operating a day-trading account is like owning thoroughbreds or an America’s Cup team. You don’t just decide you’d like to enter the arena one day, at least not from a position of modest resources.

While the era of day traders going on murder-suicide sprees after sustaining losses seems to be behind us, the list of truly successful day traders remains a short one - if indeed it exists at all. A few people claim to make money as day traders, but curiously, such people’s activities seem to disappear from public view within a year or two of their initial gains. Enduring day traders are as common as enduring Russian roulette players, and for the same reason.

The Bottom Line

Being a successful day trader is as easy in both form and execution as being a successful lottery player. Just know which numbers are going to appear, and when they’re going to appear, then watch the profits roll in. And once you’ve perfected that, you can advance to predicting sporting events, blackjack hands, the weather and earthquakes. On the other hand, if you aren’t omnipotent, you’re probably better off investing with a long-term strategy - one that looks years down the road rather than milliseconds.

Related Articles
  1. Trading Strategies

    What Is Day Trading?

    Explore the world of day trading and learn about how traders utilize short-term strategies to capitalize on daily market fluctuations.
  2. Active Trading

    Adjusting Day Trading Strategies For Different Market Conditions

    Being a successful trader means knowing when to play the market and how. Find out what strategies will have you on top.
  3. Forex Education

    5 Forex Day Trading Mistakes To Avoid

    We will look at five common mistakes that day traders often make in an attempt to ramp up returns.
  4. Trading Strategies

    Day Trading Strategies For Beginners

    From picking the right type of stock to setting stop-losses, learn how to trade wisely.
  5. Trading Strategies

    Know Your Counterparty When Day Trading

    This can provide insight into how the market is likely to act based on your presence, orders and transactions.
  6. Forex Education

    Spread-To-Pip Potential: Which Pairs Are Worth Day Trading?

    Spreads play a significant factor in profitable forex trading. Learn when it's worth trading and when it isn't.
  7. Chart Advisor

    How Are You Trading The Breakdown In Growth Stocks? (VOOG, IWF)

    Based on the charts of these two ETFs, bearish traders will start turning their attention to growth stocks.
  8. Stock Analysis

    Analyzing Sirius XM's Return on Equity (ROE) (SIRI)

    Learn more about the Sirius XM's overall 2015 performance, return on equity performance and future predictions for the company's ROE in 2016 and beyond.
  9. Stock Analysis

    Will Virtusa Corporation's Stock Keep Chugging in 2016? (VRTU)

    Read a thorough review and analysis of Virtusa Corporation's stock looking to project how well the stock is likely to perform for investors in 2016.
  10. Stock Analysis

    Analyzing Porter's Five Forces on JPMorgan Chase (JPM)

    Examine the major money-center bank holding firm, JPMorgan Chase & Company, from the perspective of Porter's five forces model for industry analysis.
  1. When does a growth stock turn into a value opportunity?

    A growth stock turns into a value opportunity when it trades at a reasonable multiple of the company's earnings per share ... Read Full Answer >>
  2. What is Fibonacci retracement, and where do the ratios that are used come from?

    Fibonacci retracement is a very popular tool among technical traders and is based on the key numbers identified by mathematician ... Read Full Answer >>
  3. What is the formula for calculating EBITDA?

    When analyzing financial fitness, corporate accountants and investors alike closely examine a company's financial statements ... Read Full Answer >>
  4. How do I calculate the P/E ratio of a company?

    The price-earnings ratio (P/E ratio) is a valuation measure that compares the level of stock prices to the level of corporate ... Read Full Answer >>
  5. How do you calculate return on equity (ROE)?

    Return on equity (ROE) is a ratio that provides investors insight into how efficiently a company (or more specifically, its ... Read Full Answer >>
  6. How do you calculate working capital?

    Working capital represents the difference between a firm’s current assets and current liabilities. The challenge can be determining ... Read Full Answer >>
Hot Definitions
  1. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  2. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  3. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  4. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  5. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
Trading Center