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how do day traders go broke? Watch

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    I just dont get this its something I have dipped into before but then stepped away from because I realized I need a lot more education on a lot more things before I can hope to do this successfully.

    However I keep hearing things like you go broke you will lose everything 85% or 90% lose everything etc.

    This I just cant get my head around. If I make a trade on company X in a day company X will typically move up or down 1% or so.

    now assuming I have no idea what I am doing and I am worse then just pure random guessing then maybe I lose 0.1% per trade on average. Assuming I start with 100,000 but then Even in this spot I am going to win some of the time. I could see someone losing a lot over a period of time but surely under this model it would take ages to go broke. surely by the time you dropped to say 50,000 etc something would click and you would go okay I dont know what I am doing.

    I say 0.1% because factor in regular traders will pay 13.90 to enter and exit a position. £5.95 each side plus £1 of that other charge.
    which rounded to £14 is 0.014% then typically the bid ask spread (difference between buying and selling margin) would be typically 0.05%.

    So we need to overcome 0.065% Approx to break even. So if I was going on pure guess work I would expect to lose 0.065% per trade on 100,000
    so 0.1% loss rate would be huge and appalling performance.

    Now to get below 50000 eg the point when I have lost over half my investment It would take 694 repetitions.

    surely at this point anyone would have to admit to themselves that they actually cant do this, and stop?

    I understand a lot of people who do this use spread betting instead of straight trading but surely if spread betting is such higher risk (which i assume it is) then straight trading would be more attractive.

    short of someone getting absolutely reckless and deciding to leverage their net worth 10 fold or a hundred fold I just cant see people doing this to broke.
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    I don't really know what you are talking about, but if you are talking about playing the stock market, you need to factor in the fact that each trade costs money. So in order to make money you effectively have to gamble a sizeable amount of cash to offset the cost of placing your bet. In fact - let's just get to the point. It isn't trading. It is just a very legitimate form of gambling and you rarely see rich professional gamblers despite the many that try.
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    (Original post by ByEeek)
    I don't really know what you are talking about, but if you are talking about playing the stock market, you need to factor in the fact that each trade costs money. So in order to make money you effectively have to gamble a sizeable amount of cash to offset the cost of placing your bet. In fact - let's just get to the point. It isn't trading. It is just a very legitimate form of gambling and you rarely see rich professional gamblers despite the many that try.
    ive been a professional gambler before small fry but still made a living doing it.I would not argue that it is gambling but gambling is just betting money on an unknown outcome. some things are more likely then others some things can be statistically modeled and others cant.

    The question becomes is it possible to attain an edge or advantage eg have the expected outcome be profitable, and if so how hard is this to achieve?

    There is what I would call pure gambling which is basically where there is no way to attain an edge and your basically just throwing to the luck of the draw which might be what you meant?

    I am aware that the bid ask spread and transaction costs means day trading would be very difficult. By its very nature it can only work up to certain amounts of capital and these amounts of capital are affected by the bid ask spread and transaction costs so this would not be an easy task per say.

    My question is not why do most people who try this lose at this, that is self explanatory. My question is more how can people go broke on such small margins.
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    (Original post by Luke7456)
    My question is not why do most people who try this lose at this, that is self explanatory. My question is more how can people go broke on such small margins.
    Just like any business on small margins. It doesn't take much to tip you up. If your profit margin is 3% based on a large volume of turnover, you are much more prone to going tits up than a business on a profit margin of 30% on smaller turnover. A small increase in costs or a reduction in turnover will kill the 3% margin based company in a single sweep.

    Same for gambling. Remember day traders need to make money to live on. It isn't a hobby. So low margins means they have to play a high turnover strategy. If something goes wrong it doesn't take much to unseat them especially as they may not have significant reserves.
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    (Original post by ByEeek)
    Just like any business on small margins. It doesn't take much to tip you up. If your profit margin is 3% based on a large volume of turnover, you are much more prone to going tits up than a business on a profit margin of 30% on smaller turnover. A small increase in costs or a reduction in turnover will kill the 3% margin based company in a single sweep.

    Same for gambling. Remember day traders need to make money to live on. It isn't a hobby. So low margins means they have to play a high turnover strategy. If something goes wrong it doesn't take much to unseat them especially as they may not have significant reserves.
    I guess if you mean if someone is doing this full time with no alternate source of income and needs to withdraw cash to pay bills then yes I can see them going broke easy. But if for example someone has an alternate source of income or foes not need to withdraw the 100k at any point for whatever reason it puzzles me as to how they go broke.
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    It is very easy to go broke.

    In fact 90% of day traders eventually do so.

    The great traders have gone broke many times actually. They just learn from it and make the big bucks eventually. But it is rare.

    Read Jesse Livermore's biography. Confessions of a Stock Operator. It is all there, all you need to know to start.
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    they over-leverage, put a bunch of cash into a stock to magnify the small returns theyd get and then get shafted when it goes belly up. Kind of like betting a large amount on chelsea beating Sunderland. its pretty likely youll make a bit of cash. But if it goes wrong you lose a ton of it.
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    like the guy above said: leveraging. Especially on FOREX where a pair moves such a minuscule amount so people use their £100 to borrow and bet £10,000 to actually make money (lenders are very happy to do this for some reason I heard before from anton kriel but forgot why).

    I also question the '90% of traders go bust/quit within x time' thing. Most of those are probably the ones who start with £20 and realise that they can't double it overnight and can infact only make like 50p which then gets eaten up by fees anyway. I think any sensible trader (e.g. starting with a reasonable amount like 10k+, actually researching what they are doing rather than following dumb youtube videos) will do as you said and either make money or realise they are bad and quit before it's too late. It's the people who join those instagram/youtube/twitter trading groups to get Forex signals who are silly. You already seem quite good at maths/statistics and logic so day trading could be a success for you
 
 
 
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