As much as we’d all want to think that our involvement in forex is motivated by a love of the business, the truth is that we’re all in it for the money. The forex market has the potential to be a terrific market if you’re trying to make a lot of money from your trading efforts because of the low entrance barrier and generous leverage being given. Forex trading offers tremendous opportunity and potential wealth, but it also carries enormous danger because the market is so volatile.
Because it’s tempting and technology has evolved so much, FX trading has taken off in recent years. According to statistics, there are daily trades of more than $5 trillion which makes the forex market the most traded in the world. In order to help you decide whether investing years in this profession is worthwhile, we will look at the general amount of money you can expect to make from forex trading in this post. Let’s learn more.
How Much Money Can I Make Trading Forex?
Successful forex traders can get an average yearly salary of $98,600 in the US according to some reports. This is undoubtedly a fantastic income, but there is no assurance that you will get the same amount. Despite the fact that some traders make millions of dollars in profits every year, the bulk of traders never succeed in the forex markets. You’re taking a chance by devoting time to learning to trade, but it very well could be profitable in the long run if you are willing to work hard, study and practice.
How much money can I make trading forex is a question that is similar to asking how long a length of string is. To determine the type of data you would be looking at, there are a plethora of different aspects that we must consider. This includes things such as your experience level, ability to learn, initial investment, trading strategy, forex broker and sometimes it can just be down to pure luck.
However, we can make assumptions based on averages. Let’s assume that, based on the US average, profitable forex trading may net you $8,000 each month. The precise amount you take home will depend on a variety of elements, which we will explore.
What Impacts Forex Trading Profits?
When it comes to making money, not every forex trader is made equal. What, then, has a genuine impact on your trading profits?
The most obvious strategy to enhance your earnings in the markets is to increase your win rate, but this must be done in conjunction with other indicators. For example, a 50% win rate is far preferable to a 99% win rate where your losses are 50x larger than your wins if you make 4x your losses for every win.
Risk to Reward Ratio
In forex trading, manipulating risk-to-reward ratios will be essential. Ideally, you want to operate with a risk to reward ratio of no less than 1:2. This indicates that you should anticipate to profit $2 from the markets for every $1 you risk. Typically, traders with higher RRs make more money trading. It can be very frustrating seeing one bad trade wipe out a run of consecutive winners.
Since funded trading accounts are fairly simple to obtain from forex prop firms, trading capital shouldn’t be the focus of your trading adventure. But it should go without saying that you may make more money from the same percentage gains the more capital you have. However, the forex market is very dangerous and you should never ever risk more than you can afford to lose.
Any trader’s plan must consider frequency. You won’t likely make much money in the forex market if you have a good trading strategy but only have access to trade once every two years. The same goes for a method that sends entry signals every ten minutes. Just keep in mind, the more you trade, the more you expose yourself to the market. Some might argue that it is better to take 1 good trade per month on the higher chart timeframes than try to fight the markets every day on the lower chart timeframes.
Risk Per Trade
Profitability in the forex market can be greatly affected by your risk-to-reward ratio for each trade and money management. Utilizing a set risk, and a low risk at that, is crucial. Although utilizing a high percentage could seem like a smart idea, it’s much simpler to experience significant drawdowns, and emotions will affect how well you trade. Try to use a sensible stop loss and set your take profit targets accordingly.
Using a variety of tried and tested forex trading strategies is a way in which you might be able to boost your market winnings. It’s crucial to have a variety of methods available because market emotions might shift and techniques can lose effectiveness over time. I would not want to try and use a trend trading strategy if the market is ranging. Just as I would not like to use a range-based reversal strategy when the market is breaking out.
Example of Forex Profits
It’s crucial to consider your trading strategy and the circumstances you’re in in order to comprehend the truth about how much money you may make through FX trading. If the market doesn’t change and your numbers remain stable, you may determine exactly how much you’ll be making each year by using the numbers you have available. Take this as an example:
- Risk Per Trade = $1,000
- Trading Capital = $100,000
- Trades Per Month = 10
- Risk to Reward Ratio = 1:2
- Win Rate = 50%
- Total Profit: $120,000
- Total Loss: $60,000
- Net: $60,000
With the rough figures we are using above, this is a gain of 60%, not accounting for brokerage fees and assuming you were consistent throughout. Although these returns from forex trading are on the high side, they are still attainable. After a year of compounding and devoting yourself to trading, you could make more than most individuals make every few weeks from their 9 to 5 jobs. However, this is the ideal scenario presented here. A 60% gain is not achieved by even the best forex traders in the world. You can also just as easily lose all of your money if you are not careful.
How Much Do Forex Traders Make?
For most traders, the problem with the above scenario is that they enter the financial markets with only a few thousand dollars rather than a hundred thousand and expect to become rich overnight. Traders that are short on capital usually want to risk a significant amount of money on each trade with high leverage, which ultimately leads to their failure. Forex trading is a marathon and not a sprint. Do not expect to become a forex millionaire with a few hundred dollars and watch out for any forex scams that claim this is possible.
Conclusion: How Much Money Can You Make Trading Forex?
Based on research, a very successful forex trader can typically earn $98,600 a year, but the possibilities are endless. Millions of dollars are made by forex traders each year in the markets. Forex is not the get rich quick scheme you hear about on social media. The forex traders that make close to $100,000 a year are professionals who treat trading like a career; they don’t frequent bars or trade from laptops. These “traders” don’t actually trade forex; instead, they sell courses or forex signals to try and take advantage of inexperienced traders. If you’re serious about becoming a successful trader, I urge you to set aside the necessary mental space for learning the markets and opening a demo trading account in order to begin developing the discipline required to win at this game.
Self-confessed Forex Geek spending my days researching and testing everything forex related. I have many years of experience in the forex industry having reviewed thousands of forex robots, brokers, strategies, courses and more. I share my knowledge with you for free to help you learn more about the crazy world of forex trading! Read more about me.