Typical Salary Range for Day Traders
The typical salary range for a day trader can vary widely depending on the skill of the trader, the techniques employed, and the asset class being traded. In fact, the typical annual salary can range from thousands of dollars to hundreds of millions of dollars, depending on the specifics of the day trader. This article will explore some of the salary options. For more information, try and speak to traders themselves.
Defining a Day Trader
Before discussing the specifics of a day trader’s salary, it is important to point out that day trading is just the practice of buying and selling financial instruments (i.e. equities, fixed income assets, commodities, currencies, or derivatives) within the same trading day. As a result of this broad definition of day traders, there is incredible variety of skill, trading technique, and asset classes among day traders, meaning that day traders can range from investment bank, hedge fund, or proprietary trading firm employees to at home, part-time traders. Day traders can use anything from discretionary trading techniques to mathematically-derived quantitative / algorithmic trading strategies. Thus, given the wide variety of day traders, salaries vary widely within the profession.
Assets Under Management (AUM)
One of the clearest indicators (other than skill, which is often hard to quantify) of a day trader’s typical salary is the amount of money that the trader is managing (or trading with). A trader’s assets under management can vary widely from a couple thousand dollars for an at-home trader to hundreds of millions or billions of dollars for a day trader at a large hedge fund or proprietary trading shop. A skilled at home trader, for example, managing $100,000 and receiving a 20% annual return will make $20,000 before trading costs. On the other hand, a one man quant fund (a day trader using algorithmic trading) managing $100 million and receiving a 20% return will make a return of $20 million. Typically a hedge fund will charge 2% of the assets under management and 20% of the upside return. The hedge fund, before expense, therefore, will make $6 million before operating expenses. While most day traders generally don’t make millions of dollars per year, the potential maximum salary for a successful day trader is enormous.
Working at a Big Firm
Most successful day traders are making similar salaries to investment banking analysts in sales and trading. This means that if you are working at a larger firm, you will start with a salary of approximately $40,000 - $70,000 with a bonus on top of that. In fact, a 2011 Hedge Fund Compensation Report found that the average salary for a hedge fund professional was around $326,000 when bonuses and other compensation were factored in. These day trading jobs, however, are extremely competitive, but the day trader’s salary can grow significantly with experience at the firm.
Overall, the simple answer is that there really is no ‘typical’ annual salary for a day trader because there is no typical day trader. Whether you are trading from home or own your own hedge fund, your salary will vary widely based on the assets under management and your returns in the market.
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