How Do Day Traders Get Paid

Day trading is a bit like owning a business in that it is a career that does not normally come with a conventional salary.  Day traders get paid based on their performance, and they get paid very well if they perform very well.  If a trader does not perform, he simply does not get paid.

Most traders are paid a payout based on their month ending profit or loss (p/l).  A trader trading his own equity keeps 100% of his profit, but is subjecting 100% of his own money to loss when he takes a trade.  A trader who trades with a proprietary or other trading firm may keep less than 100% of the month end net profit, but they can be given a large buying power enabling them to make more money than they could with their own capital.

The key for a day trader to take home the most money possible is to find a firm that will give him a very high payout of profits.  Many firms will allow a trader to use the firm capital, and teach the trader a strategy, and then split the profits with the trader.  A normal profit split is 50/50 of the month end net profit, which is not a bad deal considering the trader is using firm equity to trade with.  Some firms pay out considerably less, but usually if they do they will take partial responsibility for a trader’s loss at the end of the month and let the trader start his net p/l at zero (or at a fraction of the loss) at the beginning of the next month.   Most firms do not take responsibility for a trader’s loss, and if the trader has a negative net p/l at month end it will carry over to the following month.  It is extremely rare that a firm will reduce a traders month end loss.

On another note, there once were salaried trading jobs where a trader was paid simply to execute orders, mostly in roles for mutual funds, hedge funds, and banks.  These still exist in a limited amount, but most humans have been replaced by algorithmic computer systems designed to maximize efficiency with their high processing speeds.  The salaried positions are now for the traders who design and program these systems.

Traders who are able to develop algorithms and wish to create their own automated trading strategies can also usually find a proprietary trading firm to execute through that will give them access to capital and their electronic resources and possibly lower costs.

In the end day traders create their own income.  This is a big part of what attracts people to become traders in the first place and it is a very powerful incentive to do well. Traders bear more risk than someone in a salaried position and the intent is to be compensated for taking on that risk.

Daniel Major


Page Updated: September 16, 2013

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