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The forex market is regarded as one of the biggest markets in the world. Forex is one of the ways a small or growing investor can get a fortune in trading with little starting capital. However, how much do experts in forex trade make?
Before we write about this topic, we need to divide traders into three to 3 different categories.
- Traders who trade in investment companies and hedge funds and manage millions of dollars with low risk represent the most common category because of their salaries. You can learn when you visit any job-related website like payscale and see the average wage. Currently, it is around $79 000 in the US. There are approximately around 10% of all traders in this group. Learn more in the book Winning the Trading Game: Why 95% of Traders Lose and What You Must Do To Win by Noble DraKoln.
- Traders who trade for prop companies and prop shops as remote traders. Thousands of traders worldwide trade for small prop companies and manage up to millions of dollars. Usually, they manage around $100 000 and make from $500 up to $10 000, depending on capital size. There are 15% of traders in this category.
- Retail traders that trade forex using their own money. Around 90% of all retail traders lose money trading the forex, while only a few percent can earn a profit from $500 up to $5000 on average every month. (Read more in The Retail Spot Foreign Exchange Market Structure and Participants )
How Much Do Forex Traders Make?
Professional forex traders in big corporations may earn $6600 monthly on average, prop company traders can make from $500 up to $10 000 per month, while 10% of retail forex traders (that professionally trade forex while 90% lose money) can earn from $500 up to $5000 monthly salary on average. In companies, traders’ monthly salary depends on fund size, profit-sharing ratio, commission, and bonuses.
In this article, read more about how forex trading functions and factors that may contribute to a forex trader’s pay. We also explain how much an expert in forex trading earns on average.
The forex market is guided by supply and demand rules. That is to say, the value of a currency goes up when there is demand, and consequently, the value drops when there is no demand. To gain forex, one should ideally buy when the currency is low value and sell when it is high value.
If a trader is on a downward trend while trading, it may be necessary to short-sell assets, which means borrowing, selling, repurchasing, and returning the borrowed asset.
In this, the trader makes money if the asset price goes up when selling and down when buying. Note that one is likely to lose a lot of trading with just luck. It is essential to know how the forex market works.
What Makes Professional Forex Traders Different From Beginners?
Beginner traders are still like learners in the forex world; they sometimes will trade with luck and prediction. Beginner traders analyze the data and the markets and use technical indicators to aid themselves and get technical analysis.
Professional traders do not trade with luck but with what they see. They do not need to spend most of the time analyzing the market; instead, they use fundamental analysis to compare and confirm the charts derived from their technical analysis.
Trading For A Hedge Fund
Forex traders who work or trade for a company get a base salary. It also comes with bonuses based on work performance.
When working for a hedge fund, strategy and software tools are available. The software tools are very effective, giving traders essential and valuable information quickly, and with such effectiveness and speed, it does not come cheap.
These traders can also have access to complete training and mentoring programs to learn from trading pros. Another interesting point to note is that when a trader makes a lot of money and delivers significantly for the company, the trader can get paid more and higher performance bonuses.
But a slight disadvantage of working with a hedge fund can be that one could have long work hours and very demanding clients, and if the targets for the company are not met, one could lose the job.
Traders Who Work For Themselves
A few forex traders prefer to work for themselves, either by a condition or choice. An advantage of working by yourself is the choice of working hours; as you have no one to boss you around and to answer to, also you get to keep all the money you make, which is different from working with a company because you only get a percentage of the money earned.
The disadvantage to working by yourself is there is no base salary, and you could end up frustrated when money is risked and lost, especially if one does not have any other source of income. Also, affording software to aid in trading could be quite expensive. Traders who work for themselves may depend on news and online updates or paid data streams.
Also, there are six types of traders classified according to how they trade, which are:
- Scalpers: A scalp is a short-term trader whose strategy involves holding positions for periods ranging from a few seconds to a few minutes. A scalped traded frequently throughout the day, poised to make slight gains from the busiest periods in the market. Scalpers are continually challenged with processing new information and reacting to market changes. So to be a successful scalped, one needs to be adaptive, sharp, and quick-witted but calm under pressure.
- Day Trader: Day Traders are pretty similar to Scalpers. The critical difference between them is that a day trader’s daily routine may not be as fast-paced, and they close all positions on or before the end of the trading day. This means the trades cannot be affected by adverse events that may cause prices to fluctuate before or after the market closes. Being successful as a day trader may demand adaptability and working knowledge of the techniques necessary for this type of trading.
- Swing Trader: They characteristically hold onto trades for over a day, possibly weeks. Throughout this period, swing traders would prefer to use technical analysis rather than stick with the fundamentals while still knowing about news events that could bring about volatility.
- Position Trader: These traders hold trades for long periods, ranging from weeks to years. They are the traders that work with the most prolonged holding period, and as such, they are more focused on the performance of an asset over longer timeframes.
- Algorithmic Trader: These traders rely on software to place trades at the best possible prices. The algorithm traders can choose to purchase existing software or could choose to code the software using high-frequency trading algorithms as a guide.
- Event-Driven Trader: These traders use fundamental analysis to determine decisions more than reading technical charts. Event-Driven Trader’s leading source of profit comes from spikes caused by political and economic events, such as GDP, employment figures, elections, etc. This type of trading can be best suited for people who like to keep up with world news and global events and people that will understand how said events can impact markets. These traders have to be curious and critical forward thinkers. They also must be skilled at processing new information and predicting how major global and local events may play out in the markets.
How Much Do Professional Forex Traders Make
Factors that determine how much a professional forex trader earns are:
- Fund size
- Profit share
- Seniority.
- Company Type
- Performance.
- Location.
Let us discuss some points:
- Fund size is the most critical factor because the profit cannot be the same if you manage 10 million dollars and $10 000 dollars.
- Seniority: When working for a hedge fund, there are positions such as analysts, junior traders, and senior traders. Most traders working for the hedge fund company are likely to begin as analysts. The analyst’s job is primarily to assist junior and old traders. After a few years, the analyst gets promoted to a Junior trader based on merit and performance. Junior traders may earn an average of $300,000 to $3,000,000 per year (including bonuses and commission). The senior traders can make up to $10,000,000 yearly (including bonuses and commissions). However, the figures may increase or decrease based on performance.
- The company they work for: Estimates from glass door show that a trader in the U.S could earn an average of $100,000. This amount is the average because companies vary in salary and bonuses. Examples include: J.P Morgan traders, who make an average of $95,995 as a base salary, and Goldman Sachs traders earn $120,024 as the base salary. Citibank traders earn $158,166, and HSBC, among banks with high base salaries, pays traders $197,029. (Please note that the figures are just salaries and do not include commission and bonuses)
- Location: The location dramatically determines how much a forex trader earns. Examples could be the differences that a Citibank trader earns in the UK to a Citibank trader’s amount in the US due to the location. A trader works in Citibank UK, making 58,951 pounds, while the other working in Citibank U.S earns $149,156. The same is with the Gold Sachs bank, where a UK trader earns about 79,971 pounds, while in the US, a trader can make $129,578. (Keep in mind the figures are salaries and do not include bonuses or commission.)
How Much Do Independent Forex Traders Earn?
Calculating an independent trader’s earnings and coming to a concluding figure may not be possible because every trader is different. Some started with very high capital and some with low. However, one constant factor is the higher the capital, the bigger the profits.
The biggest problem for independent retail traders is fund size because even $100 000 is insufficient capital to earn enough money for bills, life, etc. If we assume that the best traders can earn 20% annually, if you have a $100 000 capital size, your monthly salary can be less than $1300 after tax deduction.
This is the difference between professional traders and amateur traders. Professional traders could have accounted for thousands of dollars; amateur traders could have accounted for hundreds of dollars. Both traders could earn 10% from the capital, but the amount earned would be very different. Consistent trading leads to more profits and more earnings, and significant accounts. However, note that traders with enormous gains are also the most significant risk-takers in trading and could lose all profits quickly.
Why Is It Difficult To Have A Specific Figure?
The number of money experts in forex trading can not be conclusive because there is no exact amount of money traders make. Figures do vary because traders do not use the same amount of capital. Every trader has different trading approaches with other strategies, and what works for one trader might not work for another.
However, not everything goes as planned for traders; some months, the market can be so bad that traders barely make any profits, and sometimes trading could go well, and traders can make up to 50% of capital. Being a professional trader, one has to understand risk management, managing money, the risk-to-reward ratio, and all other things involved in trading. That is a significant path for growth in forex trading.
Conclusion
Coming to a conclusive figure a forex trader could make can be very difficult. The factors that come with being a company trader affect income, such as location, seniority, and the company a trader is working for.
Traders who work for themselves will earn based on capital and monthly profits. Furthermore, every trader is unique, and no trader makes the same percentage of profits.
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
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