[00:04] Over 90% of day traders, retail traders end up losing money long-term. So why is that, right? And that's the point of this video. My name is Alex Monahan. I used to trade options professionally on Wall Street. I was a quant derivatives
[00:17] trader at Susuana, one of the top trading firms. And I've seen a lot of traders blow up their accounts. They lose a ton of money. They get super discouraged. They never trade again. So, the point of this video is to hopefully
[00:30] help you avoid some of those pitfalls so you can actually become a profitable trader because there are profitable traders. It's not most, right? It's the very hardworking few, but you can make money, right, in financial markets. This
[00:44] isn't a slot machine. It's not completely random. You can get an edge and win long term, but it's not necessarily easy to do. So the first thing I want to be very clear about in this video is there is a difference
[00:58] between trading and investing right so investing for the long term is always a good idea everyone should be doing it sitting on cash which is losing value due to inflation that's not a good idea
[01:10] right so having money in an index fund like the S&P 500 is a good idea the S&P 500 has gone up you know approximately 10% per year right there's obviously
[01:22] down years, financial crisis, stuff like that. But investing your money is a good idea. Trading is completely different, right? Day trading is entering, exiting positions very consistently. You're not investing for the long haul. You're
[01:36] buying calls out of the money call options expiring in a week. You're constantly entering, exiting positions, paying the bid ass spread. That is very different and that is much harder to do successfully. If you want to make money
[01:51] on your money, just put it in an index fund like the S&P 500 and just let it and years and years and I can almost guarantee you it's going to be higher. So, the point of this video is to explain why most day traders lose money
[02:06] and the facts are there, right? Like it is a fact that most traders are losing a lot of money. So for example, one study from the London Business School showed that between 2019 and 2021, retail options traders lost over $2 billion.
[02:24] That's a lot of money. Another study out of India showed that over 90% of derivatives traders, derivatives means options, over 90% of derivatives traders lost money. Right? So it's study after study and it's not just derivatives. So,
[02:41] here's another study that showed 97% of futures traders ended up losing money over the course of the long run. So, if you want to be a great trader, you have to do things differently. You have to think different. You have to be
[02:56] different. And that's the point of this video is I'm going to be explaining the pitfalls you need to avoid. Why are most people losing money? That's what I want to get across to you. So, without further ado, let's get into it. like and
[03:09] subscribe to the channel and I really hope you learn something. So, I'm going to start out a little bit high level. Why do most people lose money trading? And the first thing is most people do not invest in their trading education.
[03:22] So, what's crazy about trading is there's no barrier to entry. The onboarding is so low. If you have some money, you can create a Fidelity account, an Erade account, and start trading options. Anybody can do that,
[03:37] right? even if you have no idea what you're doing, which is crazy if you think about it because like if I want to be a software engineer, I just can't get a job randomly at Apple and start messing around with their code. But
[03:50] that's exactly what you can do in trading. So like when I started as an options trader at Susuana, for my first two years, I did not make a single trade with real money. All they did was have you trading on simulators, so fake money
[04:08] and learning. I mean, I had tests, right? You had to learn everything about options, the Greeks, how everything interacts, go through all these different situations, shadow other traders. You had to invest in your
[04:21] trading education. And that's critical, right? Like most people, they see a video online. There's so many videos on YouTube that say, "Hey, here's how it's so easy to make money options trading and then they just start doing it and
[04:35] lose their entire account and then they're upset and then they wonder what they did wrong." Like, that is not the strategy. You should literally start out strategy. You should literally start out trading either 0 on a trading simulator
[04:49] or like a dollar per trade, extremely low amounts. Until you prove to yourself over a large sample size of trades that you're actually profitable, you should not be risking significant amounts of capital. Like you need to be investing
[05:02] in your trading education. The second reason most traders fail is they're too trusting, right? Like financial markets are a zero sum game. If you are making money on a trade, someone else is losing. Trading is not a get-richquick
[05:17] scheme. It's a very long, boring process involving math and data. There is no successful professional trader who has made all of their money on one trade, right? Like, sure, whatever. There's the guy who gets rich overnight. Don't get
[05:33] me wrong, the one out of a million guy. Just the same way in sports betting, you know, there's always that guy who hits the $1 to win a million dollar parlay. Most other people are losing. But trading, like successful options trading
[05:48] or futures trading, it is a long process involving math and data. And if you think it's simple enough as buying somebody's course, buying somebody's picks, what what option should you buy? It is not that simple, right? Like it is
[06:03] not that simple. If it worked that easily, everybody would be doing it. So, anything that seems too simple, it is right. Like some you you'll hear people say, "You just need to follow this chart and if you follow this chart, then
[06:18] you're going to make money trading." That's absolute BS. If that were true, it would already be priced into the market. Everybody would be doing it and the edge would go away. Financial markets are just simply put too
[06:30] markets are just simply put too efficient. So long story short, like if it seems too easy, it is too easy. You need to be cynical. You need to be distrusting. You need to question everything. That's what makes the best
[06:42] traders is you're constantly questioning, do I actually have an edge on this trade? Right? Like, is this actually a good trade? What could I be missing? Because if somebody else wants to make this trade against me at this
[06:54] price, what could I be missing? You need to be constantly questioning everything. unfortunately, I wish there was, as a get-richqu scheme in trading. So,
[07:07] without further ado, though, that was a little highlevel rant. I'd like to get into more specifics about why do people lose money trading, right? What is it specifically? So the first reason that most traders lose money, this one study
[07:22] actually shows that this is the main reason it this study showed only 1% of day traders were profitable long-term with the main reason for the losses of the other 99% being commissions and the bid ask
[07:38] spread. So the bid ass spread really eats into your profits. Trading isn't free, right? Whenever you want to buy or sell something, you are paying the bid ass spread. Market makers don't provide liquidity. Offer markets for free,
[07:53] right? They're doing it. Wall Street offers markets. These trading firms like Susuana, where I previously worked, Citadel, investment banks like Goldman Sachs, they offer markets because their business model is to make money through
[08:07] the bid ass spread. So every time you're buying and selling, you are paying the bid ass spread and you're starting at a disadvantage. So I'll give you a simple example. You can see the picture here is let's say that a stock is worth $100.50,
[08:24] right? The bid ass spread may be something like 100 bid 101 offer, right? So basically if you want to buy that stock, you're paying 101. You're already at a 50 cent disadvantage. If you want to sell that stock, you're selling it
[08:39] for a hundred. You're at a 50 cent disadvantage. So the bid ass spread where the market maker hopes to buy, sell, make that $1 risk-free profit because financial markets are overall very efficient. That is what crushes
[08:53] most traders, right? It's kind of like the vegan sports betting is it just eats into your profits. It may not seem like a big deal, but over the course of the long run, starting every trade at a disadvantage eats into your profits. So,
[09:08] Right? There's a few different things. Number one, the the first main thing is not overtrading if you want to trade, if you are buying and selling positions hundreds of times
[09:21] the bid ass spread. Paying the bid ass spread, you are going to be at a massive disadvantage. So you don't want to be overtrading. The second thing is you want to focus ideally on more liquid options, right? More liquid stocks, more
[09:37] liquid options are going to have smaller bid ass spreads because there's more interest in them. If you want to buy a call option on Apple, there's probably going to be a pretty tight bid ass spread, right? not much commission or
[09:53] you know essentially hold baked into the market offered by these market making firms. However, if you want to buy call or put options on a very ill liquid stock, right, some small cap company, the commission is going to be much
[10:06] the commission is going to be much larger for illquid assets. So the way to reduce the bid ass spread, granted there may be less alpha, less edge, but is to focus on more liquid, you know, more liquid products, right? Like stock
[10:21] liquid products, right? Like stock options on, you know, S&P 500, major companies. That is a good way to lower your bid ass spread. The second thing is typically out of the money options, especially close to expiration, right?
[10:35] if you're buying a five delta call option. So something that is hard for trading firms to price out of the money options typically have higher bid ass spreads. So a lot of people want to buy cheap put options, cheap call options.
[10:50] So in terms of derivatives trading, they're buying 10 delta puts, betting on a stock to crash by the end of the week or 10 delta calls, betting on earnings to be a huge deal. Is typically outofthe-oney options have higher bid
[11:03] outofthe-oney options have higher bid ass spreads, sometimes even like 20 30%. Essentially, that is the hold of the market that you are paying into. So wide bidass spreads when the market maker has a huge advantage because they're
[11:16] charging these really wide markets. Those are the hardest markets to beat. And finally, you'll notice higher bid ass spreads in, you know, multi-legg things, right? So if you want to trade a butterfly option versus just one call
[11:32] option, the butterfly is going to have a higher bid ass spread. So here you can kind of see a chart for which types of options. This is with regards to derivatives specifically which types of options have the highest bid ass spread.
[11:47] And again according to studies this is the number one reason why most retail traders lose money. So you want to try to minimize the bid ass spread if possible, right? Like you don't just want to be trading these super illquid
[12:01] want to be trading these super illquid five delta calls on small cap companies with two weeks to expiration that have super high spreads. That is a surefire super high spreads. That is a surefire way to get absolutely crushed as a new
[12:13] options trader. Um so that's the first thing right bid ass spread you can't underestimate it. So the second reason a lot of traders you know end up not being lot of traders you know end up not being successful is just behavioral biases. So
[12:28] there's a study here on prospect theory with basically what most traders do is they cut off winners too early and they keep around losses too long. So the
[12:41] general premise of the study is as traders we feel wins, right? If we go up traders we feel wins, right? If we go up $1,000 profit, we feel that much less strong than if we go down $1,000, we feel a lot worse. So basically when
[12:57] traders are making money when they are doing well they become much more conservative right whereas when traders are losing money they turn into gamblers on those days and they start becoming a degenerate so this is another reason it
[13:12] seems simple but behavioral biases I mean it's well studied I mean 28 million trades or something like that is a part are a part of this study is it's a big reason why a lot of traders are successful uccessful is they aren't
[13:26] rational. They're not data driven. They're following behavioral instincts. into gamblers. When they're winning, they cut off those winners too early as they cut off those winners too early as suboptimal prices. The third reason why
[13:40] most options traders, you know, just traders in general, lose money, but this focuses on derivatives is they don't understand the Greeks, right? They don't have a strong understanding. So typically there have been studies to
[13:54] show including one study from 2025 out of LSU showing that retail traders typically buy options they're on the wrong side of volatility. They buy options when premiums are highest when implied volatility is the highest. So
[14:11] retail traders are buying essentially options which means volatility your long vega long gamma. Retail traders are buying options at peak prices and they're selling them at the worst prices. So that's the last thing you
[14:26] want to do. So there's a lot of retail traders, for example, who if a company has earnings, they'll want to buy options on that specific company when implied volatility of the underlying stock is highest. So the options are
[14:40] therefore most expensive. And then after earnings, if earnings is a dud, you know, their option just decays away very quickly to zero. Implied volatility collapses. The price doesn't change much and they lose money. So having a very
[14:55] strong understanding of the Greeks is critical. I've done a full video on the five main option Greeks. Really four are important. Delta, gamma, Vega, and
[15:07] theta. very important to understand exactly how do option prices change with different factors like stock price as well as you know the passage of time implied volatility changes having a very strong understanding of the Greeks is
[15:23] critical if you want to make money trading long-term so there's a bunch of other reasons why most retail traders lose money so for example one study lose money so for example one study found that most retail trading accounts
[15:37] derivatives have they're operating just with way too much margin, way too much leverage, right? So, if you're if you're using too much leverage when you're options trading, even small mistakes can wipe out your account. And obviously, if
[15:52] you lose all your money, then you're not going to be able to be in the game. So, you don't want to I mean, my personal recommendation is start very small. I said this earlier in the video, but start very small. Track your ROI, track
[16:05] your results. Don't even consider doing things like getting overlevered. We've all probably heard horror stories of people losing all their money in their trading account overnight because of some unexpected stock move and you don't
[16:18] want that to happen to you. So the fifth reason is this kind of goes back to the badass spread, but typically when you're trading, right, trading is a zero- sum game. Typically as a retail trader you are trading against market makers these
[16:34] quant trading firms like Citadel Securities and you just have to know they have better data better models. You are coming from a disadvantage not only
[16:46] due to the bidass spread but also just worse technology. I mean sure there are profitable traders who are able to identify edges in markets and make money consistently. There are profitable traders right? This isn't trading. Kind
[17:01] of like sports betting. It's one of the rare few forms of gambling where you can actually get an edge and win long term. But that's one of the main reasons people lose is you're getting worse execution. You have worse data. You have
[17:15] worse technology than your counterparty typically because almost all the time you're trading against very sophisticated counterparties, investment banks like Goldman Sachs. So, that's another reason most people lose is
[17:28] trading is a zero- sum game. If you make money on a trade, someone else lost money. So, that's just something, you know, I figured I'd mention. So, the know, I figured I'd mention. So, the sixth reason is typically people, you
[17:41] shown that. I'll kind of show them here, but typically traders are following headlines too much. They're following the meme stocks, whatever's hot at the time, and they're overpaying for volatility, whether it's around
[17:55] earnings, whether it's around events like elections, when volatility, implied volatility is very high, options are very high, their premiums are very high, which kind of gets back to knowing the Greeks, but those are oftentimes the
[18:09] worst time to be buying options. The professionals, the market makers are selling volatility. And I saw that even during COVID, right? So during COVID, I was trading Jets, which is an airline ETF. So it has American Airlines, United
[18:24] Airlines. And during COVID, I mean, implied volatility reached crazy levels. Like airlines had to be moving percents every single day. And again, there were so many Reddit threads. Airlines were constantly in the news because of COVID.
[18:40] And then once a vaccine was released, implied volatility got crushed and everyone who was long airline volatility, airline options, calls, puts, whatever. I mean, you know, you got screwed. So, you don't just want to
[18:56] have to think differently. Just following what everyone else is doing on Wall Street Bets, that doesn't work. So, the point of this video again was to kind of go through why do most traders lose money? whether they're you know the
[19:10] and and that's true for futures markets for day trading stocks for day trading for day trading stocks for day trading derivatives options calls and puts but regardless I hope you enjoyed this video maybe learned something from it please
[19:24] videos I make a ton of sports betting content also trading videos so let me know other video ideas I'd love to do them I love making trading content gambling content period trading is very similar to sports betting They're both
[19:39] forms of gambling. So, let me know other videos you guys want to see.