Is day trading better than long term investing given the fact that compound interest can result in large profits in the long term with small daily profits? For example earning 1% per trading day can result in 700% profit per year?

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    May I ask how you came to those numbers? How/ why are you expecting any day trader would turn an average daily profit of 1%? – Daniel Jul 24 '18 at 8:43
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    Actually 1% per day is the goal in my trading department. That said, the calculation is wrong because you run very fast into scalability issue.s I.e. you CAN make 1% on average, just you can not necessarily compound but pull the money out and look for new strategies. Strategies DO have limits how much money they can handle before returns go down. – TomTom Jul 24 '18 at 10:03
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    Start with $10k. Assuming it can be scaled up as you succeed (it can't) and you earn 1% per trading day (~252 trading days per year) and in a mere 5 years you're worth $2.7 trillion dollars. But you're now in the top US tax bracket of 37%. Geez, there goes about $800 billion of that. Oh wait. Over 90% of wannabe get rich day traders blow out their account in the first year. Of the remaining 10%, many lose and a few make some good money but no one does these numbers. EVER! OK, time to wake up from this dream. – Bob Baerker Jul 24 '18 at 12:23
  • @BobBaerker Actually besides the compounding - I think traders get special tax traatment in the US. Not totally sure - read it ona couple of books but I am not in the US so I do not care. Also - as trader you can MOVE. Once you make a million or two a year - live where you want ;) – TomTom Jul 24 '18 at 14:53
  • There are some tax benefits (deductions) to Trader Tax Status (TTS) but only a small fraction of active traders qualify because they must trade substantial volume consistently over a long enough period of time. An issue of convenience is that you receive mark-to-market treatment and don't have any issue with wash sale violations. irs.gov/taxtopics/tc429 – Bob Baerker Jul 25 '18 at 14:16

If you are equally accurate in forecasting market movements on all time frames, then yes, trading more frequently will allow you to profit from more fluctuations and generate higher returns, up to the point where transaction costs outweigh this advantage. However, there are active traders squeezing the predictability out of market fluctuations on all time frames. It is extremely difficult to generate average daily returns of 1% or even 0.1%. Very long time frames have the advantage that you can build wealth in diversified investments without having to predict better than other traders.

BTW, by my math, 1% compounded daily for 252 trading days gives over 1100% per year.


Is day trading better than long term investing

Yes, it totally is. IF you can pull it of. Which 95% of the people or so can not.

Your question is similar to:

Is life as a golf professional better than working at a factory. Yes, it is. IF you can actually pull it of. Because most people can not - I for example will never be a gold pro. Period Just lack the skill.

Day-trading is EXTREMELY competitive. Yes, you can make ridiculous returns. Actually it is better than pretty much every job you can think of from the earning potential. But most people just can not do it. Period.

And THAT is your problem. Do you have what it takes?


Is day trading better than long term investing

This depends on a lot of variables. One, profit, you mentioned in your post:

For example earning 1% per trading day can result in 700% profit per year?

So, lets just for a moment assume you can pull that off - what your are missing is investment sum and opportunity costs and risk.

First, 700% of $10 is still only $70. So it will only make sense if you have sufficient capital to cover for your time invested.

Then, day trading is not an investment strategy, it´s an occupation. So it all comes down to how much you can make in that same time elsewhere.

And at last, you have to consider risk, also. If you have to live on the returns of your day trading activity, an economic downturn can cause you to have to consume your investment capital at a market low.

So you are really comparing apples and oranges. Long term investment is letting your money work for you, whereas day trading is working with (your) money!

  • I think you went off on a tangent here with the money working for you versus working with (your) money along with opportunity costs and risk. Yes, 700% of $10 is still only $70 but compound that out 10 years and it's a really hefty number. No one can make that kind of money in that same time elsewhere. One can't even make this kind of money in the first place. The OP's premise is wishful thinking by someone who hasn't day traded in size or duration. – Bob Baerker Jul 24 '18 at 12:31
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    @Bob Baerker: You are missing the point. You´d have to actively and successfully trade with your $10 every day. You cant do this in your breakfast break, you´d have to give up your job! So If I normally make 100k as an IT-Consultant, you are already $99.930 short after the first year! You can invest into an ETF with no more than 30 minutes of your time per year! – Daniel Jul 24 '18 at 12:36
  • @BobBaerker He is not. Day Trading is a job. You don't get return on investment, you get paid for making right decisions. It can be AMAZING - but it is a JOB. And one more like a top athlete. And you CAN get paid accordingly. – TomTom Jul 24 '18 at 14:50

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