When I hold a live webinar, the most common question is “how much money can I make with forex trading?”. This question is wrong.
I see that people 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 :
1) How much money can you make on forex? In 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 very hard 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! On 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 invest trader will earn 20 cents in the future.
Warren Buffet has trading expectancy 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 do not earn). These percents are different from broker to broker but generally, only 2-3% traders make any significant profit at all. The reason is not a type of asset. 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 to make 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. Trading should be done by an experienced trader. 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 are planning to go for it, you need to gather all the relevant information about it, learn, test and practice.
New traders can be profitable 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.
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 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 is always associated with this form of trading.
Win Rate – Win rate is represented by the total number of trades that 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 portfolio.
Risk/Reward – This decides the amount of capital being risked to get a certain profit. Say for example if the trader is losing ten pips and winning fifteen pips, the trader is making more on winning, as compared to 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 50:1. This leverage might vary based on the country in your trade-in. It is known to everyone that forex brokers do not charge any sort of commission, they just raise the spread that is between the bid as well as 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. For 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 about trading you will be able to 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 do not invest too much money and do not put your hard money at risk just for the sake of earning 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, there are many who have lost money as well. Try to gain knowledge and then go for forex trading after you are confident enough.
Final advice: Do not think about trading profit – think about the trading opportunity, good setup!