Why do Day Traders Make So Much Money? 3 Reasons!

Why do Day Traders Make So Much Money? 3 Reasons!

Have you ever seen day traders make so much money at such a quick amount of time that it makes you wonder what you’re doing wrong?

Day trading is a risky business, but it can make you so much money if managed correctly, and done with discipline.

Let’s get into a few reasons why day trading makes day traders so much money.

3 Reasons Why Day Traders Make So Much Money

Day traders have the potential to make so much money because the idea of a day trader is to open and close positions within the same trading day.

Day trading comes with risk and more volatility. With that said you, as the day trader, must be more tuned in with intraday price action movement. Requires you to pay more attention.

With higher risk comes higher reward. Here’s 3 big reasons why day traders make more money than any other type of traders.

1. Leverage

One reason day traders make so much money is because they use something called “leverage.”

Leverage in option trading is used by buying options. Leverage allows day traders to control a large amount of asset with a small amount of investment.

For example, let’s say you want to trade a stock that is priced at $100. The option premium cost $5. This means you, as the day trader, are paying $ to control 100 shares of the stock.

2. Weekly Option Contracts

Since day trading is about opening and closing contracts the same day, to make a decent return in the day, day traders typically trade weekly expiration option contracts.

There’s a couple reasons reasons:

3. Compounding

Here’s the big secret to day traders, daily compounding. Compounding is the process of earning interest on interest.

Not only does your original investment earn you money, but your profit also makes you more money.

Since day trading is about closing positions the same day they’re opened, your compounding effect makes you so much money.

Here’s a table that shows what 2 weeks of option trading $1,000 would make if you win 30% every trade, with taking one trade per day:

DayProfitTotal Profit
1$300$1,300
2$390$1,690
3$467$2,157
4$549$2,706
5$637$3,343
6$729$4,072
7$827$4,899
8$931$5,820
9$1,041$6,861
10$1,157$7,918

In 10 trading days, day traders can almost increase their total account value by 7 times from the initial investment of $1,000.

Of course this is just an example, but you can see how day traders can compound their account at a significant rate.

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