Two Completely Different Games

Client Question: "Someone must be making money from day trading, right? Who is it?"

When clients ask this question, they're correct—money is being made. They're just often wrong about who is making it.

The Market Maker's Game

Market makers run a fundamentally different business than day traders:

Market makers are like the casino—they don't care if red or black wins, they just collect the house edge on every spin.

How Market Makers Actually Profit

Let's say a market maker quotes:

• Bid: $50.00 (price they'll buy at)
• Ask: $50.02 (price they'll sell at)

When a retail trader buys at $50.02, the market maker sells to them. When another trader sells at $50.00, the market maker buys from them. The market maker just made $0.02 per share—without any directional bet.

Scale this up:

• 1 million shares traded × $0.02 spread = $20,000 profit
• No prediction required, just volume

The Retail Trader's Challenge

Retail day traders face a much harder path:

Step 1: Overcome the spread

• Buy at $50.02, can only sell at $50.00 immediately
• Already down $0.02 per share before anything happens

Step 2: Predict direction correctly

• Must know not just if the stock will move, but when and how much
• Competing against algorithms and professionals

Step 3: Time the exit

• Must exit before the move reverses
• Emotional pressure leads to poor decisions

Step 4: Do this consistently

• A few wins don't matter if the losses are bigger
• Must overcome costs on every single trade

The Math That Matters

For a day trader making 10 round-trip trades per day on a stock with a $0.05 spread, trading 500 shares each time:

This trader needs to generate $120,000 in profits just to break even—before considering taxes, slippage, or any losses from wrong predictions.

The Information Advantage

Market makers have another advantage: order flow visibility.

When brokers sell payment for order flow, market makers gain insight into:

• Which stocks retail traders are buying
• The size and timing of retail orders
• Patterns in retail trading behavior

This allows them to adjust quotes and manage risk—an advantage retail traders don't have access to.

Professional Framing

When clients ask who's making money in day trading:

"The firms that consistently profit are market makers—companies like Citadel Securities and Virtu Financial. They make money from the bid-ask spread on every trade, without betting on direction. Day traders are playing a different game entirely—one where they need to consistently predict direction well enough to overcome the costs that go to those market makers. It's possible to win that game, but the house has structural advantages."