Is Day Trading Worth It? I Did the Math on the Hourly Pay

Warrior Trading's $3 million FTC settlement

0:00 In 2022, day trading educator, Warrior Trading, agreed to pay $3 million to settle Federal Trade Commission charges over misleading earnings claims. The FTC said most customer accounts actually lost money. That was one case involving one course provider, not a study of every US day trader. But it shows why the instructor's results are not enough to tell you what students can expect to actually earn themselves. But there is another problem, even if you make money.

Why a profitable account still might not be worth it

0:24 A profitable account does not necessarily produce enough income to justify the time you spend on it. To see why we can give a hypothetical trader a winning year and calculate what the work actually paid per hour. My name is Blake. I'm a CPA that explains investing in plain English so that you don't have to make the same expensive mistakes that Wojak does. And today on 9-5 Investing, we are considering what day trading could actually pay you. Day trading means opening and closing a position within the same trading day, trying to profit from short-term price changes.

What day trading is (and what courses cost you)

0:53 The FTC said customers had lost money trading as well as paying for the program. Those are separate costs and both matter when you evaluate an offer to teach you trade. Trade offer. One small payment today and a lifetime of payments after. Is this a time share? Now that does not prove every course is misleading or every trader loses. It means you should ask for evidence of typical customer outcomes instead of relying on the most impressive success story.

1:18 Even a complete profit record leaves another question unanswered. Was that profit enough to justify the money and the time involved? Now trust me, I understand.

The appeal of quitting your job to trade

1:26 I've been there before. The appeal is easy to understand for replacing a commute and a difficult boss with work you can do from home sounds pretty cool. But a screenshot of one winning trade cannot tell you whether that person is making a living. You also need the losses, the costs, the deposits and withdrawals across the entire account. And once you know the profit, you still need to count the hours. That is the part a percentage return leaves out.

A winning year that paid 62 cents an hour

1:49 Suppose you have a $10,000 trading account and earn 10% over a year after trading costs before personal taxes. That isn't a assumed result, not a forecast or an estimate of a typical trader's return. You made a thousand dollars. Now, suppose you spent the full regular US stock market session trading each day. That session lasts 6.5 hours. Use 250 trading days as a round assumption and you spent 1,625 hours trading during the year, before preparation or keeping track of any of your transactions.

2:17 Divide the $1,000 profit by 1,625 hours and you earned a whopping 62 cents an hour before taxes. You are far better off in this situation than just going and getting a job at McDonald's. In this hypothetical example, congratulations, you had a winning year. You also worked roughly full-time for about a thousand dollars. Both of those things can be true. Now, the 62 cents an hour is just a random hypothetical example that I made up.

Change the hours and the answer changes

2:44 It is not an actual case study. The account size, the profit, and the time spent trading are all going to be relevant factors here that you could switch and admittedly most day traders are probably not going to be sitting at their desk trying to day trade for the entire trading day. So, in other way, this is not actually the profit of the average US day trader. Some traders spend much less time and that changes the answer. If the same $1,000 took 250 dollars all together, it would be $4 an hour before taxes.

3:11 But, the $1,000 is still an assumption in both cases and trading for fewer hours does not guarantee you can keep the same profit. Although, I will say in my own experience, when I have tried to day trade when I was much younger, usually if you take the win early in the day, you're going to do much better than trading all day. Trading all day just makes it to where you get bored and you end up making a lot of mistakes or taking unnecessary risks that you wouldn't have otherwise.

3:38 The useful calculation is your actual profit after cost divided by all the hours involved, including research, reviewing trades, and keeping records.

The useful calculation: profit per hour

3:47 Even assuming a 50% gain after trading costs on that $10,000 account gives you $5,000 of profit or about $3.08 an hour across the original 1,625 hours in a year. That is a deliberately strong hypothetical return. Not something to expect every year and it shows you why an impressive percentage can still be a poor substitute for an actual salary. And assume 10% annual return producing 50,000 before personal taxes would require $500,000 of capital with no allowance for a losing year or employment benefits.

How much money you'd need to replace a salary

4:17 A larger account can produce more dollars at the same return, but you also put more money at risk and the return you assumed in a calculation is not income that you can count on.

The bid-ask spread: the cost of $0 commissions

4:26 Cost make that calculation even harder. Even when the broker charges no commission, which is the case of almost all brokers these days, the price you can buy at maybe higher than the price you can immediately sell at. The difference is called the bid-ask spread. The ask is the available buying price, the bid is the available selling price. Suppose as a simplified example, the best available buying price is $20.01 and the selling price is $20. And those quotes stay unchanged while you buy and sell 50 shares.

4:52 You pay $10,005 and receive back 10,000. So crossing that 1 cent gap costs $5 on the round trip before any other charges. Repeat that exact hypothetical round trip twice a day for 250 days and the total is $2,500 even though the commission line might say zero.

Warren Buffett and Charlie Munger on trading apps

5:10 But they also make terrific gambling chips. And if you cater to those gambling chips when people have money in their pocket for the first time and you tell them they can make 30 or 40 or 50 trades a day and you're not charging them any commission, but you're selling on our order flow or whatever. It I think it's just god awful that something like that would draw investment from civilized men and decent citizens. It's it's deeply wrong.

Costs a trading record has to cover

5:40 Real execution varies. Prices move, spreads change, and some orders get different prices. So this is an illustration of a cost, not a claim that every trade loses exactly one cent per share. Your short needs to earn enough to cover these costs along with any platform charges or borrowing costs if you're shorting or trading on margin. A record that leaves them out overstates what you actually earned. We already assumed the earlier $1,000 profit was after trading costs.

6:03 So, do not subtract this separate 2,500 example from it. Again, these illustrate different parts of the decision. Taxes also affect how much of the profit you can spend.

Day trading taxes and the wash sale rule

6:11 They belong in the calculation before you compare trading income with your paycheck. For ordinary US stock trades in a taxable account, net profits on shares held for one year or less generally face ordinary income tax rates, the rates used for wages. That does not mean that every winning trade gets taxed in isolation, and it does not mean stock trades, futures contracts, and every professional trader's situation receive identical tax treatment. Selling at a loss and buying a substantially identical security within 30 days before or after the sale can trigger the wash sale rule, which can postpone the loss deduction.

6:44 Special tax rules and accounting choices can change a qualifying trader's treatment. So, the honest takeaway is to understand the tax result rather than borrowing a blanket rule from a video. Some people do make money day trading.

What the 97% day trader study really says

6:55 The question is how common that is and whether their results can tell you what to expect. Another study followed people who began trading Brazilian stock index futures in 2013 through 2015. Among those who continued for at least 300 days, 97% of them lost money. That is the 97% figure people often repeat. It describes that Brazilian futures group, not all traders, not ordinary US stock trading, and not a 97% chance of losing your entire account. These findings do not give us a universal success rate.

7:26 Different markets, periods, costs, and selection rules can produce different results. Still, the exception has to be demonstrated with a complete record because somebody else's success cannot pay your bills, and a profitable month does not establish a durable advantage.

Chasing losses

7:39 A losing day can also affect your next decision. If you start taking larger positions simply to recover a loss, you're increasing the risk before establishing that the strategy actually works. You may enjoy trading without expecting it to replace your job.

Trading as a hobby, not your paycheck

7:51 That is a different decision from depending on trading profits to cover your bills. If that is the reason, set a spending limit you can afford, separate from rent, emergency reserves, and retirement needs. Borrowing can make the loss exceed the cash you started with. Be honest about which kind of decision that you are making. Money that you set aside for recreation is not going to be the same as money that you actually need to earn back to cover your bills.

8:12 You can also keep earning through your job and use some of that income for long-term investments.

Keep your job and invest long term

8:17 Those investments can lose value, but they do not require you to trade throughout the work day. And then they'll have a lot of good results and [clears throat] and if they just bought stocks, they do fine and held them, but you still need to consider fees, taxes, and risk. The difference is that your monthly bills do not depend on successfully trading today's price changes. Which would change your mind more?

What would change your mind?

8:36 A single winning screenshot or a proven track record, a complete trading record that shows consistent profitability? Before paying for a course or reducing your work hours, put the account's actual result beside the time, cost, and money at risk, then compare it with the alternative use of those resources. If you have not kept those records, start there. You cannot tell whether trading is worth your time until you know what it has actually earned for you.

9:01 Check out the video right here.