Why Most Traders Lose Money: A Statistical Deep Dive
Unpacking Overconfidence, Costs, and Behavioral Pitfalls in Trading
Key Points
Research suggests that most traders lose money over the long run, with estimates ranging from 70% to 90% of retail traders experiencing losses.
It seems likely that overconfidence, high transaction costs, and lack of diversification are major reasons for these losses.
The evidence leans toward emotional biases and inadequate knowledge also contributing significantly to poor trading outcomes.
Statistical Evidence
Studies show that a majority of traders, especially retail and day traders, struggle to make profits over time. For instance, a study on the Colombian Stock Exchange found retail investors had negative abnormal returns of 4% to 4.4% per year The performance of retail investors, trading intensity and time in the market: evidence from an emerging stock market. Day trading statistics are even more stark, with 72% of day traders losing money annually, according to the Financial Industry Regulatory Authority (FINRA) Day Trading Statistics 2025: The Hard Truth.
Reasons for Losses
Several factors contribute to these losses. Overconfidence often leads traders to trade excessively, incurring high transaction costs that erode profits. For example, Terry Odean's research shows that securities purchased by individual investors underperform those sold by more than 2% over one year Do Investors Trade Too Much?. Lack of diversification, with many holding only a few stocks, increases risk, as seen in Odean's finding that the median investor holds just three common stocks per month. Emotional biases, like fear and greed, can lead to buying high and selling low, while inadequate knowledge often results in mistakes, especially among new traders, with 40% quitting within a month 14+ Fascinating Day Trading Statistics for 2025.
Unexpected Detail: High Attrition Rates
An unexpected detail is the high attrition rate among day traders, with only 15% surviving beyond three years and 40% quitting within a month, highlighting the steep learning curve and psychological toll of trading 14+ Fascinating Day Trading Statistics for 2025.
Trading in financial markets is often seen as a pathway to wealth, but statistical evidence reveals a sobering reality: most traders, particularly retail and day traders, lose money over the long run. This analysis delves into the reasons behind this trend, supported by research and data, to provide a thorough understanding for both novice and experienced traders.
Statistical Evidence of Trader Losses
Research across various markets highlights the challenges traders face. A study by Barco, León, and Ramírez (2021) analyzed all stock transactions by retail investors on the Colombian Stock Exchange from 2006 to 2016, finding that these investors had negative abnormal returns ranging from 4% to 4.4% per year, depending on the model used (CAPM, Fama-French, or Carhart) The performance of retail investors, trading intensity and time in the market: evidence from an emerging stock market. When transaction costs were factored in, their underperformance became even more pronounced, with the most active traders performing worse than less active ones on both gross and net return bases.
For day traders, the statistics are particularly grim. QuantifiedStrategies.com reports that, according to FINRA, 72% of day traders ended the year with financial losses Day Trading Statistics 2025: The Hard Truth. Only 13% maintain consistent profitability over six months, and a mere 1% succeed over five years. Moneyzine.com adds that only 15% of day traders survive through the first three years or longer, with 40% quitting within a month, indicating high attrition rates 14+ Fascinating Day Trading Statistics for 2025. DayTrading.com further notes that only about 1-20% of day traders profit from their endeavors, with approximately 4% making a living from it Day Trading Facts & Statistics.
Broader estimates suggest that 70% to 90% of retail traders lose money, as reported by sources like MarketBulls and QuantifiedStrategies.com 24 Statistics Why Most Traders Lose Money. For instance, Tradeciety mentions that 95% of all traders fail, emphasizing the difficulty of achieving consistent profits 24 Statistics Why Most Traders Lose Money.
Detailed Reasons for Trader Losses