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Day Trading: Evidence, Risks, and Realities

By February 9, 2026No Comments

Day Trading: Evidence, Risks, and Realities

Day trading – the rapid buying and selling of securities within the same trading day – has an enduring appeal. Social media platforms are full of stories about traders who’ve turned small sums into fortunes, and in certain market environments, speculative trading volumes surge. However, the data consistently paint a far less glamorous picture. For most, day trading is not a viable path to sustainable wealth (and let’s be real, very few people like to post about how much money they lost. Naturally, you’re more likely to see the winners online).

What the Research Says

Academic studies across different markets have consistently shown that the vast majority of day traders lose money (CVM Study, 2019). Very large datasets from Taiwan, Brazil, the United States, and Finland have been analysed to measure outcomes across all traders, not just self-reported ones.

These studies find that:

  • Only a fraction of 1% of day traders consistently earn positive returns after costs.
  • Most day traders underperform even before factoring in costs, and once transaction costs are included, the average underperformance grows significantly.
  • Institutions frequently profit from the losses of retail day traders by providing liquidity at favourable prices.
  • The longer and more frequently people day trade, the worse their chances of profitability.
  • One piece of research suggests that many day traders have more ‘green’ days than ‘red’ days, however they sell their winners too soon, and hold on to their losers too long, that the net result overall is a loss. It is easy to see how this can get addictive when you think you are winning. (Barber, B.M., & Odean, T. 2000)

– “The tendency to hold losers too long and sell winners too soon has been labeled the disposition effect by Shefrin and Statman (1985). … An analysis of these records shows that, overall, investors realize their gains more readily than their losses” (Barber, B. M., & Odean, T. 2000)

– “Our main empirical findings can be summarized succinctly. Heavy day traders appear to trade at favorable prices, but only a select few are sufficiently savvy to consistently earn profits net of their trading costs. More than eight out of ten day traders lose money in a typical semiannual period.” (Barber, B. M., Lee, Y. T., Liu, Y. J., & Odean, T. 2004)

Check out the direct quotes from the academic literature at the end of this article – 97% of people who tried day trading lost money.

Why Day Traders Lose

The challenge with day trading is that it demands not only correct predictions about price movements, but also the ability to consistently outcompete highly sophisticated market participants. In modern markets, day traders are often competing against institutional investors and high-frequency trading firms that have advantages in information, technology, execution speed, and sheer dollar value (they get better prices on their trades).

For the individuals who like to trade options – on top of getting all of the above correct, you also need to be correct in your timing – an incredibly difficult thing to do consistently over time for anyone without a crystal ball.

Common factors contributing to losses include: –

  • Overconfidence bias: Overestimating skill and underestimating the skill of competitors.
  • Attention bias: Trading in investments that are in the news or experiencing large price swings – often after much of the move has already happened.
  • Preference for lottery-like payoffs: Chasing big wins in highly volatile securities, despite the odds being unfavourable.
  • High costs: Even small commissions, spreads, and transaction taxes compound with frequent trades.

Practical Takeaways

For Canadians aiming to grow wealth, the evidence suggests that the long-term, diversified approach remains the most reliable. Day trading is, at best, a form of entertainment – and an expensive one for most participants.

Academic Appendix: Day Trading in the Literature

The literature on day trading is extensive and generally consistent in its conclusions. Key studies include: – Barber and Odean (2000): Using US brokerage data, found that the most active traders underperformed by over 6% annually after costs, with returns declining as turnover increased.

– “Barber and Odean (2000) document that the majority of losses incurred at one large discount broker in the United States can be traced to trading costs.” “On average, individual investors have perverse security selection abilities; they buy stocks that earn subpar returns and sell stocks that earn strong returns… In aggregate, the losses of individuals are material.”

– Barber et al. (2009): Analysis of Taiwan Stock Exchange data showed that individual day traders, in aggregate, reduced market-wide individual investor returns by 3.8% annually, with institutions capturing much of the other side of these trades.

– “Barber, Lee, Liu, and Odean (BLLO, 2009), using complete transaction data for the Taiwan market from 1995 to 1999, document that the aggregate losses of individual investors exceed two percent of annual Gross Domestic Product in Taiwan.” “In their analysis of the performance of individual and institutional investors in Taiwan from 1995 to 1999, Barber, Lee, Liu, and Odean (2009) document that, in aggregate, the trades of all individual investors lose money before transaction costs and that these losses grow at longer horizons.”

– Barber et al. (2014): Only 0.22% to 0.9% of day traders in Taiwan consistently earned positive excess returns after costs.

– “In the average year, 360,000 individuals engage in day trading. While about 13% earn profits net of fees in the typical year, the results of our analysis suggest that less than 1% of day traders (1,000 out of 360,000) are able to outperform consistently… Top day traders (based on prior year ranking) earn gross (net) abnormal returns of 49.5 (28.1) bps per day on their day trading portfolio, while the tens of thousands of day traders with a history of losses in the prior year go on to earn gross abnormal returns of -17.5 (-34.2) bps per day.”

 

– CVM Study (2019): In Brazil, 97% of traders active for more than 300 days lost money; only 0.5% earned more than a modest salary.

– “We find that 97% of all individuals who persisted for more than 300 days lost money. Only 1.1% earned more than the Brazilian minimum wage and only 0.5% earned more than the initial salary of a bank teller—all with great risk.”

– “It is virtually impossible to day trade for a living; 97% of day traders lose money, and only 0.4% earn more than a bank teller.”

These studies also note that the tiny minority of consistently profitable traders often exhibit patterns suggestive of information advantages rather than purely superior skill.

Disclosures:
Important information about mutual funds is found in the Fund Facts document. Please read this carefully before investing. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Unit values and investment returns will fluctuate.

The information provided is based on current laws, regulations and other rules applicable to Canadian residents. It is accurate to the best of our knowledge as of the date of publication. Rules and their interpretation may change, affecting the accuracy of the information. The information provided is general in nature and should not be relied upon as a substitute for advice in any specific situation. For specific situations, advice should be obtained from the appropriate legal, accounting, tax or other professional advisors.

References:

Stick to a plan. Stay diversified. Keep costs low. Avoid the noise.

And remember: boring investing is often the most effective.

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Article Author

Tanner Hassell, BBA, CFP®, CIM

Certified Financial Planner®
250-718-7232 ext. 113

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