The allure of online trading for passive income has gained significant traction in recent years, particularly due to increased access to trading apps and platforms. But the key question remains—can trading truly generate sustainable passive income? Here, we analyze data, trends, and insights to explore if and how online trading could serve as a viable passive income source.
The Growth of Online Trading
The global online trading market has grown exponentially, with platforms recording millions of new users each year. According to a report by Allied Market Research, the global online trading market is projected to reach $12.16 billion by 2028, growing at a compound annual growth rate (CAGR) of 7.8% from 2021 to 2028. Much of this growth is driven by an increase in retail traders and the availability of user-friendly platforms like Robinhood, eToro, and Binance.
Passive income from online trading largely relies on leveraging strategies that work in tandem with market trends. Popular instruments include stocks, forex, cryptocurrencies, and ETFs, which allow traders to profit without requiring extensive day-to-day involvement.
Understanding Passive Income via Trading
For income to be considered passive, minimal daily effort should be required. However, trading tends to lean closer to semi-passive income in most cases. Successful online trading typically demands setup efforts like researching markets, selecting investment strategies, and monitoring performance.
That said, tools like algorithmic trading systems have made the process more automated. A recent survey by Mordor Intelligence revealed that algorithmic trading accounts for approximately 70%-80% of trades in developed markets. These algorithms aim to generate profits by executing rapid transactions based on data-driven signals, reducing the need for constant manual input.
Dividends from long-term stock holdings or income from real estate investment trusts (REITs) can also qualify as trading-based passive income streams. However, these require significant initial capital and patience to maximize returns.
Can it Truly Be Passive?
The average return from retail trading varies widely. A 2022 study published in the Financial Analysts Journal found that 80% of retail traders experience losses within their first year. Conversely, seasoned traders and strategic investors can see annual returns ranging from 5%-12% in diversified portfolios. However, such returns require a clear understanding of risk management and market dynamics.
