When I hold a live webinar, the most common question is, “how much money can I make with forex trading?”. This question is wrong. We recently wrote an article about forex trading and profitability.
I see that people are looking for fast income, and they are ready to gamble, to chase after the money! It is the wrong attitude. In trading trader looks for the opportunity – never chase after the money. So I try to make lower expectation and give you these answers :
Can you make money trading forex?
Traders can make money trading forex. However, forex trading is not profitable for retail traders based on all major brokers’ reports because 70%-95% of all retail traders lose money in trading every year. Retail traders making either risk too much, either over trade or create small profits on several positions but then holding on to a losing trade for too long, losing more than the initial investment. Institutional traders and traders from prop companies generate profits trading currencies and managing large portfolios. The best forex trader in prop companies can profit from 20%-25% with less than 5% maximum drawdown.
Now let we see the numbers:
How much money can you make trading forex?
Excellent traders can earn between 20% – 50% annually trading forex. Earnings depend on trading expectancy, position size, and consistency. For example, if an excellent trader manages $100 000, the maximum allowed drawdown is 5% ($5000), he can earn $20 000 annually.
In the prop company where I trade (Leantacapital) average annual return is around 18%. The average position size is 0.5% per trade. The average drawdown is less than 8%. The junior trader who manages $200 000 and has averaged 20% annual return can earn up to $1000 per month (after all costs are paid).
So, it is tough to earn money as a trader. Consistency in trading brings stable and regular profits, week after week without much drawdowns and losses. It is hard to achieve stable returns. My equation is:
How much money can you make on forex = f (Trading expectancy, position size, consistency)
So, your position size is correlated with your capital. More capital, more profits! In the end, we need to calculate your trading expectancy:
Trading expectancy = [1+ (average win / average loss )] x percentage win ratio – 1
So if we have 1000 trades where 600 are winning and 400 are losing, we have :
percentage win ratio = 600/1000=0.6
average win = $6000/600= 10
average loss= $4000/400= 10 than:
Trading expectancy = [1+ (10 / 10 )] x 0.6 – 1 = 0.2
That means for each $1 that the investment trader will earn 20 cents in the future.
Warren Buffet has a trading expectancy of around 20 cents for every dollar, and he is one of the richest men on the planet. His annual return last 50 years was around 20%. So if your trading expectancy 0.1 or 0.2 – it is not bad at all.
2) How much do fx traders make worldwide? Generally, retail traders lose their money. Around 85% lose their capital, and around 10% are break-even (do not lose and earn). These percents are different from broker to broker, but generally, only 2-3% of traders make any significant profit at all. The reason is not a type of asset. The problem is poor risk management, overtrading, and poor position managing.
Can forex trading be profitable?
Yes. If you trade smart any security, you can earn money either forex, stocks, commodities, bonds, etc.
Those who are interested in making fast money should always look for different options to make money fast. But in the trading industry, it is almost impossible to earn money fast. The trader needs years and years of hard-working, analysis, research to succeed in the trading business.
There are numerous ways to earn money, and earning through Forex trading is no exception at all. The most important this is that it can be started with the least amount of money.
There are no Good Profits for new traders.
Forex trading is done almost twenty-four hours a day. One can do trading almost during the entire week. An experienced trader should do trading. It is considered the most volatile, and thus there are full chances of people losing money if they are not experienced enough. Thus, if you plan to go for it, you need to gather all the relevant information about it, learn, test, and practice.
New traders can be profitable for one or two months, but very fast, they will lose all money and blow out the account because of poor risk management and wrong position managing process.
Risk Management
There is no doubt that you can earn a lot of profit through trading, but it is equally true that there are equal chances of you losing it as well. One should always keep the risk factor in mind. So, if you are new to forex trading, you need to keep risk very small at each trade you do. If you do so, you will not lose much of your money. High-risk trading is number 1, the biggest problem in trading for all new traders. My advice is that the new trader does not risk more than 1% of their portfolio. In that case, the max drawdown will be up to 15%.
Strategies in Trading
It does not matter which strategy you are going to opt for. Risk and win are always associated with this form of trading.
Win Rate – Win rate is represented by the total number of trades you have won out of the total number. If, for example, you win 45 from 100 trades and your risk-reward ratio is 1/1. This means that your win rate is 45%, and your account will be losing its portfolio.
Risk/Reward – This decides the amount of capital being risked to get a certain profit. For example, if the trader is losing ten pips and winning fifteen pips, the trader is more on winning than losing. Thus, one can say if any trader is winning, 50% is considered to be profitable. Making more money on winning is a vital component of forex trading, which every trader learns with time.
Leverage on Trading
The leverage that is provided by the forex traders is in the ratio of 50:1. This leverage might vary based on the country in your trade-in. It is known that forex brokers do not charge any commission; they raise the spread between the bid and ask.
Slippage More Than Excepted Loss
Slippage refers to the difference between the expected forex price of a trade and the forex price at which the trade is executed. Those who are new should be aware that slippage is an important part of any trade. Even when stop-loss is there, it results in more loss than was expected by you. It is commonly noticed in the fast-moving trade markets. Every trader needs to understand that part of losing money in trading will come from slippage.
Final Say About Forex Trading
There is no doubt that How Much Money Can I Make Forex Day Trading? If you are aware and have good knowledge of trading, you will earn pretty well. There are risks involved to try to figure out those as well.
You only need capital worth $500 to around $1,000 to get started, which is pretty ok. Using that money, you can not create income – only practice to trade on a live account. If the trader quit the job and start to live from trading, the trader needs to have at least 50K to 100K for a fresh start (my opinion). Do not forget that you do not invest too much money and do not put your hard money at risk just for the sake of earning a good profit. Be sensible and try to put in money that you can afford to lose. Many people have made a huge profit, but on the other hand, many have lost money as well. Try to gain knowledge and then go for forex trading after you are confident enough.
How much money can you make with forex? The best forex traders can earn from 15% to 60% per year based on deposit and risk level. Final advice: Do not think about trading profit – think about the trading opportunity, good setup!
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
