“They Don’t Learn From Experience” – 97% Of Brazilian Day Traders Lost Money

A new study published in Social Science Research Network titled Day Trading for a Living?, warns day trading as a full-time job in Brazil was virtually impossible, contrary to popular belief. 

Researchers obtained Brazilian SEC (Comissão de Valores Mobiliários) data that tracked all individuals who day traded mini-Ibovespa futures contracts between 2013 to 2015, a total of 19,646 traders.

Computing those who day traded mini-Ibovespa futures for only one day, only 29.8% (1,111 individuals) made a profit. Those who traded 2 to 50 days, only 15.5% (9,978) made a profit, 51 to 100 days was 8.9% (3,100), 101 to 200 days was 6.8% (2,738), 201 to 300 days was 5.4% (1,168), and more than 300 days was 3% (1,551). 

The portion of successful day traders declines with the number of days.

Researchers compare it to “casino roulette, where the proportion of successful players also monotonically decreases with the number of rounds played.” 

Lead author Fernando Chague, assistant professor at São Paulo School of Economics, suggests, “day traders do not learn with experience.” 

Chague found it doesn’t depend on a broker or day trading classes, the “expected profit is always negative and does not improve with time.” 

Chague observed a significant surge in HFT programs during the examination of the 2013 to 2015 data. He said: “Given this increase in HFTs trading activity, our finding of no learning could simply reflect the tougher competition individuals had to face over time. However, even when we control the learning regressions for HFTs presence, we still find no evidence of learning by day trading.” 

The author adds that with only 3% of day traders profiting over 300 days, flipping mini-Ibovespa futures might be a terrible career choice, noting that 97% will lose money and make less money than a typical job in the South American country. 

Of the traders who successfully traded for more than 300 days (1,551), only 17 earned more than the Brazilian minimum wage ($16 per day), and eight earned more salary than a bank teller ($54 per day). And less than five made $310 per day but had to trade in tremendous volatility.  

Chague concludes by saying day trading mini-Ibovespa futures is a horrible career choice, and most will end up losing all their money, while the ones who survive to trade for an extended period barely make minimum wage per day. 

And as shown in the chart below, the number of retail traders flipping mini-Ibovespa futures contracts has tripled in the last several years. Most of these folks will be wiped out in the next global bear market.