I've seen studies that claim that 1% of day traders are profitable. Is that really true? Or is it more so luck. After all, day traders don't really have the professional infra or data that HFs/prop trading shops have, and plenty of HFs lose. Based on probability out of ~100 people, we expect there to be 1 person to be able to 128x their money at the casino.
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I'm not sure in what context the 1% figure comes as surely many if not most retail traders have made money in recent years from being long the market or particular stocks overall. The number of day traders that have true "alpha" under strict risk constraints may be rather small but my understanding is retail traders are typically not very strict with risk limits so may have substantial beta, factor or sector exposures (e.g. tech), or just take idiosyncratic risks and it's easy to imagine a decent share have positive pnl in a fixed time frame because of that even if they would struggle in an actual trading firm or multimanager pod where such risk exposures are not allowed. Granted taking these risks make it difficult be consistently profitable so maybe only 1% are profitable across several time periods while high frequency traders will typically make money almost every day and certainly every month.
I think you are confusing retail investors with day traders. Concepts like beta and factor exposure lose their traditional meaning when your holding period is like 30 minutes. At such short timeframes (day trading) what even is beta. Not to mention that these people aren’t even consistent, probably changing strategies every 2 weeks or so based on the ideas of the new finfluencer’s instagram $1,000 daytrading course (which these traders conveniently forget to factor into their PnL) so it’s even dubious to calculate their aggregate beta over a long period. Wouldn’t be surprised if these people also missed a trading signal or two because of a particularly long shit. What’s the taking a shit factor?
I wouldn’t be surprised if 1% was true purely because of the casino math. Some fuckers will get lucky as we’ve seen in Wall Street Bets. Imagine YOLOing your entire net worth into out of the money tesla calls the millisecond before a huge rally starts, just out of pure luck. New millionaire minted overnight.
I agree day traders are only a subset of retail investors and imagine the fraction that are profitable depends a lot on the definition and I imagine if someone really has a holding period of 30 minutes on their entire portfolio they are highly unlikely to profit given the considerable trading costs. FINRA has a "pattern day trader" regulatory standard but I don't think that is necessarily the right definition for these questions either. I agree these portfolios will not have consistent betas or factor exposures although at any given moment I think you could calculate beta and factor exposure for their portfolios. My perhaps incorrect impression is that many if not most day traders on Robinhood etc like your example with tesla calls tend to be net long and often have disproportionate tech exposure. I'm not sure the best way to define the exposure but someone who was constantly buying calls on tech companies for the past few years may have made money but I wouldn't classify that as alpha.
This page summarizes some of the studies https://www.currentmarketvaluation.com/posts/the-data-on-day-trading.php which seem to use very different definitions of day traders and benchmarks but seems consistent with very few day traders having true alpha but suggests by some definitions US equity day traders are net long in aggregate with some factor/sector tilts and that has helped aggregate performance in some time periods.
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