The odds of day trading yourself to a profit are lower than you expect

Short-horizon retail investors may like to think they can beat Wall Street at its own game and make a killing in the stock market, but the odds of making a profit, let alone earning enough to retire early, may be far longer than they’d like to hear.

Day traders—who buy and sell securities in extremely small time frames, holding them for less than a day in order to profit off short-term momentum—have a nearly 80% chance of losing «real money» over the course of a year. That figure comes from the blog CuriousGnu, which also calculated a median 12-month loss on investment of 36.3%.

The study was derived from eToro, a self-described «social trading network.» The service isn’t available in the U.S., so the fortunes of stateside traders weren’t taken into account—the two biggest markets for eToro are the U.K. and Germany, according to the blog.

When users sign up for eToro, a default setting allows other users to view and even copy their trades; the analysis was based on this data, and looked at roughly 83,300 traders who had made at least three trades over the previous 12 months.

It wasn’t clear what the analyzed traders invested in or the size of the individual trades. The author of the CuriousGnu blog post, who declined to give his real name, couldn’t say for sure whether the performance of the traders was impacted by platform fees, although he believed that was the case. He also admitted to «a liberal definition» of the term «day trader,» adding that in some cases, investors could have held positions for longer than a single session.

«Nevertheless, the high leverages (and overnight fees), which eToro offers, encourage short-term trading,» he wrote in an email.

London-based eToro didn’t immediately respond to a request for a comment.

While an 80% failure rate for profitability might seem high at a time when major stock indexes are near record levels, other studies have indicated that short-term traders actually perform far worse.

A 2010 study from the University of California at Davis indicated a mere 1.6% of traders were profitable net of fees. Because of this, most financial advisers will urge diversified «buy and hold» strategies, as opposed to short-term trading, as well as investing in index funds rather than speculating in specific stocks.

«Day trading or trying to time the market is just a very difficult way to make a living,» said Frank Davis, director of sales and trading at LEK Securities in New York. «Professionals advise against it, no matter who you are.»