A trader can trade stocks, options, currencies, bonds, or commodities, among others. To be a trader, you must be skilled at interpreting trends and correctly identifying trading opportunities.
There are different types of traders, so the profits can vary significantly. Read on to find out the types of traders, how much they earn, and what the general expectations are when trading for a living.
Make money with trading: how much does a trader earn?
First, it is necessary to know what online trading is and the different types of traders.
Online trading, as the name suggests, is a form of buying and selling financial securities remotely via the Internet. To trade online, it is necessary to open an account with a broker.
When deciding to trade, it is very important to build knowledge and experience first.
How to trade online: types of traders
There are different types of trading strategies, such as:
- Day Trading
- Swing Trading
- Position Trading
Check out our thorough trading guide to find out more about these strategies.
Make money with trading: Popular Investor Program
The Popular Investor Program allows talented investors to generate extra income. In short, eToro allows any investor to join this program. Once you craft a successful trading or investment strategy on the platform, other novice users copy your portfolio. When this happens, you will receive income according to the table below:
How much does a trader make in the United Kingdom?
Monthly earnings in trading can vary greatly depending on various factors, including:
- The amount of capital invested: the higher the capital, the higher the potential gain.
- The experience of the trader: more experienced traders tend to earn more because they understand the markets better and know how to manage risks.
- The type of market and financial instruments used for trading: some markets and financial instruments may offer greater earning opportunities than others.
- The time dedicated to trading: trading can be a full-time or part-time activity, and this can influence potential earnings.
That said, it is important to emphasise that trading is a risky activity and there is no guaranteed profit. Some traders can earn thousands of pounds a month, while others can lose money. Therefore, it is always advisable to trade only with money that you can afford to lose and build skills, create a foolproof strategy, and test it using virtual money before starting.
Let’s see how much you can earn on average according to your level of experience.
How much does an employed trader earn?
To become a trader for a reputable company in the UK, you need strong trading skills and relevant trading and experience. A skilled trader must have a thorough knowledge of financial markets, be able to anticipate trading opportunities and have self-control.
If you want to be employed as a trader in the UK, your income depends on skills, experience, and other factors. For instance, the average salary in the UK for traders is £50,000. However, reputable companies like HSBC, Goldman Sachs, or Citi may offer £130,000 and above.
How much does an independent trader earn?
You don’t need to get a job as a trader to generate profits. Many independent traders can make a profit based on the capital invested. In other words, your potential earnings are based on how much you’re starting with – the profits made with £500 are far lower than if you invest £50,000.
Many traders report earning from 5% to 10% per month based on the initial investment, or the principal. However, this varies greatly based on your trading strategy – for instance, if you use leverage, you can multiply your earnings significantly, but you can also incur huge losses. Finally, it also depends on the trading frequency (i.e., position trader vs day trader).
How much does a beginner trader earn?
If you are a novice trader, you must take into account that you cannot always make a profit and that there will be some months in the red. As always, it depends on the capital you’re starting with and the employed strategy.
To increase the chances of success, you need to get experience in the markets (for instance, by using a demo account), craft and test your trading strategy and risk management tools, and always stay up to date with the latest market information. Another good practice is to never risk more than 1% or 2% of your entire capital in a single trade.
For instance, if you start with £1,000, you should open small positions worth £20 each.
How much can you earn with trading?
Fortunately, you don’t need a large capital to start trading. As long as you have a robust strategy and risk management strategy, you can start with any amount – usually £500 or £1,000. This will allow you to diversify your positions and mitigate some risks.
In addition, if you are a beginner, the choice of trading platform and brokerage is key – high costs or a steep learning curve can easily eat into your profits and demotivate you. Have a look at:
Trading taxes in the UK
In the UK, the tax law is quite confusing for new traders. To find exactly what applies to you, it’s best to contact HMRC directly or consult a tax specialist.
For example, if the HMRC determines that you are running a self-employed business, your profits are taxable. The assets you trade (i.e., forex, stocks, or others) also help to determine your tax status.
The HMRC may decide that one of the following situations applies to you:
- Your activity is speculative (similar to gambling), and profits are not taxed.
- If you are considered a self-employed trader, you need to pay business tax. A sole trader does not pay any tax on the first £6,475 of the profit, then the next £37,400 will be taxed at 20%, and then the tax rate increases gradually up to 50%.
- If you are considered a private investor, you need to pay capital gains tax.
Characteristics of a successful trader
A successful trader, in addition to having a good strategy, should also be:
- Able to recover quickly after making a loss
Losses are part of the business, it is something that every trader must accept. For a trader to be successful, it’s important not to be overly affected by losses and to remain objective. The loss aversion bias means that traders are usually more sensitive to losses than gains: for instance, many traders tend to hold onto a losing position rather than cut losses early.
- Be consistent
Another common mistake that many beginner traders make is becoming impatient and switching between strategies.
A quote from Warren Buffett illustrates this point: “The stock market is a device to transfer money from the impatient to the patient.”
Traders constantly abandon a strategy because it does not produce quick results, they change markets, instruments, approaches and strategies and are not patient enough to get results.
- Be disciplined
To be successful, a trader must always adhere to the strategy. Some are constantly tempted to act impulsively outside of their strategy, which can result in losses.
- Be rational
You shouldn’t be discouraged after making a loss. When trading, losing trades are as common as winning trades. You should be rational and focus on making bigger gains than losses – which is what’s important in the long term.
- Be professional
A good trader takes their work seriously, always seeks to improve and learn, and understands that they are competing with other traders. It’s important to always stay up to date with the latest market developments, test new strategies, refine the current ones, and strive to be the best.
If you want to start your trading journey, here are some resources that may help you out:
- Beginner’s guide to technical analysis
- Best trading books
- Futures trading
- CFD trading
- Options trading
Overall, online trading can be a rewarding experience. The money a trader makes is only limited by their own skills, diligence, discipline, and trading strategy. There are many resources nowadays to get started, so you can have a look at our thorough trading guide to become familiar with some of the key concepts.
How much money can a trader earn?
The earning potential of a trader varies widely based on factors like trading strategy, market conditions, skill level, and initial capital. Some traders earn substantial profits, while others may face losses. It’s important to note that trading involves both potential rewards and risks.
Can I make a full-time income from trading?
Yes, some traders do make a full-time income from trading, but it requires a deep understanding of the markets, effective risk management, and consistent performance. Trading as a full-time profession demands dedication, discipline, and continuous learning to navigate the complexities of financial markets.
Are there any guarantees of profits in trading?
No, there are no guarantees of profits in trading. The markets are unpredictable, and even experienced traders face losses. Success in trading comes from a combination of strategy, analysis, risk management, and adaptability to changing market conditions.