Can individual investors make a living by day trading? In the June 2020 update of their paper entitled “Day Trading for a Living?”, Fernando Chague, Rodrigo De-Losso and Bruno Giovannetti analyze performances of all Brazilian retail investors who begin trading futures on the main Brazilian stock index during 2013 through 2015 and persist in this trading for at least 300 sessions. They use data for 2012 to identify those who begin trading in 2013, and they use data for 2016-2017 to extend performance evaluations for at least two years of trading. They consider performance both gross and net of exchange and brokerage fees, but they ignore income taxes and expenses such as courses and trading platforms. They employ subsamples and regressions to measure learning while trading. Using trading records for the specified index futures for 19,646 individuals as described during 2012 through 2017, they find that:
- An average of 4,052 individuals per day trade the specified index futures over the sample period.
- 19,646 individuals begin to trade these contracts during 2013 through 2015. Only 1,551 (7.9%) of these persist for more than 300 trading sessions. Of these persistent day traders:
- Only 11% (3.0%) have positive average gross (net) daily returns.
- Only 1.1% have higher average net return than the Brazilian minimum wage.
- Only 0.5% have higher average net return than the average Brazilian bank teller, with high volatility.
- The very top frequent day trader earns average daily return $310 standard deviation $2,560.
- There is no evidence of learning by day traders over the periods that they trade.
In summary, evidence from Brazil does not support belief that retail traders can earn a living via day trading.
Cautions regarding findings include:
- The sample of individual traders may not be representative of those trading in other countries or other assets.
- The available sample period may be an especially difficult one for trading Brazilian stock index futures.
See also “Performance of Futures Day Traders”, “The Animal Spirits of Day Trading” and “Do Day Traders Make Money?”.
