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Does Day trading as a side hustle make money?


As surreal as it may sound, in the last couple of months, while some people in this country were making desperate calls looking for hospital beds, oxygen supply, essential medicines, there were others, who from their mobile phones were trying to chase stock market glory.

This chasing-stock-market-glory thing (right in the middle of a pandemic) is not something limited to India, it has happened in the rest of the world too, since March’20.

Specifically in India though, we saw a record number of DEMAT account openings in FY 20-21, almost double that of the previous year. 10.7 million1 net additions this year compared to 4.7 million the previous year. There has to be something at play here other than just the ease of opening an account these days.

If you look at the demographics of people who opened new accounts, the majority are from Pune, Bengaluru, Mumbai and Hyderabad, there’s been a comparative increase in participation from tier-2 cities and the average age group of our investors is 20-30 years1.

While there would be some who would have used lockdown as an opportunity to structure their savings and investments across asset classes, also with nowhere to go and nothing much to spend on, they would have had substantially more savings compared to pre 2020 years, and that makes perfect sense.

There would also be others who I fear are looking at making some quick side income from stock markets, short term positions or day trading perhaps.

A quick glance at the google trends data gives us an idea. For India specifically, searches for Day trading are making an all time high (ATH) as we speak, on the other had, US had a peak mid Jan’21 due to the Game stock frenzy.

Does Day trading as a side hustle make money?

Does Day trading as a side hustle make money?


Additionally, If you look at upload data from YouTube, with the search term ‘Day Trading India’, for the whole of 2020 you have 292 uploads vs. 331 uploads for the first six months of 2021.

Putting the demographic and search data together, looks like the zoomers have found the holy grail. Online platforms like twitter, reddit, and instagram are full of life coaches, financial advisors and influencers ready to help.

Going by the popular narrative here, looks like trading could just lead us to the honey soaked land of Lamborghinis or does it?

In all of this, I am not even talking about Bitcoin and its cousins. That’s a world by itself and perhaps the insaneness deserves a separate post.

At Capitalmind, we are in the business of active investing and managing wealth, we spend a large part of our work days and sometimes weekends too, looking for investing and trading strategies that work. In the process we meet hundreds of people young and old, and get to hear their money stories. So here’s what we learnt about trading, investing and money making in general.

Can I make money, just by day trading?

Day trading, intraday trading or short term trading refers to an approach to trading where we buy and sell securities with an intention to close the position by the end of the day. You may hold the trade for a few hours or a few minutes doesn’t really matter.

The answer is both Yes and No.

Yes, because there are large funds and institutions who do run Short time frame strategies and make money. Renaissance Technologies is a good example. Then there is the HFT (High frequency trading) space, like Virtu, Citadel and Two Sigma who operate on shorter time frames. There are also proprietary trading desks within hedge funds, banks, institutions and wealth management firms like ours who do allocate a small part of their capital to such short term strategies and do make money.

Now, why do we say No then?

No because, what works in an institutional context may not work in an individual context. Institutions typically have substantial capital and they can diversify a lot, compared to a retail trader.

No because, institutions can and do invest a fair amount of time and resources to do research about what works and what does not. Very similar to any pharmaceutical company, the way they spend on discovering hundreds of molecules that may potentially have some benefit, of which one or two work, and then they deploy more capital to develop those further and go to the market with it. To match that scale and effort could be quite a stretch for an individual.

No also because institutions can deploy large amounts even if the alpha is small. For example, there could be a strategy that generates perhaps 2% alpha net of costs compared to a bank deposit. Would you stake your money on it?

If there indeed is a strategy that works, and say you deploy 1 Lakh to it and that delivers say 8% after costs. That would be Rs. 8000 pre tax. In the same context an institution can deploy 100 crores and make Rs. 8 crores which would well cover their costs and still leave them with some gains.

So the question is – Would the returns still make sense for you, given your allocation and skills/competence.

I am totally for learning about trading if that interests you, perhaps that learning could help you build a career in capital markets, however, if you are looking at day trading as a side hustle the answer is No. You may be better off doing other things to generate income, instead of risking your capital or savings.

Here’s how Nithin Kamath of Zerodha puts it – yes he runs the country’s largest brokerage firm.

“Countless people have been lured to the markets by mis-sold dreams of getting rich quickly and achieving financial freedom. The ease of getting started adds to this allure. Here is the thing though: less than 1% of active traders earn more money than a bank fixed deposit over a 3-year period. While this percentage seems abysmally small, it is, in fact, similar to the success ratio of ordinary businesses; just that the ease of entry entices a large number of people to give it a shot.”

Okay how about swing trading then? Passive investing at least?

The answer again is the same, it’s about capital allocation. The quantum of it.

Even if you know of a strategy that makes money, how much capital will it take to make a meaningful return from it? For an individual this could be a lot money that you would have to invest. If you ask how much? – upwards of 30 Lakhs for sure, till then no need to look at the markets.

So what should I do then? 

Does Day trading as a side hustle make money?

At the start of your career, your income could just suffice to meet your expenses, so practically limited or no savings.

A few years down, your income grows while expenses may increase but does leave you with some savings. That’s the point where you start getting serious about saving.

Remember your ability to save depends on your ability to earn, so more you earn leaves you with more surplus to save. That’s what you would need to focus on. Over a few years your saving now would turn into a nice corpus which you can invest.

In other words your corpus can now earn for you if invested prudently.

The lesson here is that, it’s best that the initial years go into saving what we can and once the balance tips in favor of having enough money to invest, one has several choices. Up until then think of increasing your earning and investible corpus.

As we discussed, the smaller the investible corpus, the lesser the effect of investing / returns on it.

20% returns on 1 lakh is just 20,000 vs. 30 lakhs is a good 6 Lakhs. Yes this is arithmetic no rocket science.

If you are just starting out in your career, even if you consistently save and leave all of it in your bank account for the first decade, you would be good.

Once you have substantial investible corpus, then it makes sense to look at diversification, by investing in stocks, bonds and all of that.

The road to massive riches in the stock market is through building skills and learning ways to generate excess returns on capital. Once you know how to do that, you would have investors chasing you, and then all you need to do is to charge a miniscule fee and you could be the next Ray Dalio. Did I stretch that way too far?

In all seriousness, that’s the only kosher way!

If that’s not what you see yourself doing, find a job or start a business that interests you and then – Earn, Save and Invest.

Beyond all of this, for some of us at least, maybe just maybe, it would help if we prioritize something else, something that makes more sense to us, something that we relate to deeply as individuals.

I’ll leave you with this, if you’ve seen the film Men in Black, you’ll remember the now iconic conversation between Agent K, played by Tommy Lee Jones and Agent J played by Will Smith. When challenged on the intelligence of humans, K replies, “A person is smart. People are dumb, panicky, dangerous animals and you know it.


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