Forex trading has been gaining ground recently, and many investors even like it more than stocks or mutual funds. One reason for this is it has an incredibly liquid market, with trillions of dollars being exchanged every day.
It also has a low barrier to entry since you can jump in with your minimum account deposit, which reaches as low as $25 for “micro” trading accounts.
How Much Money Day Traders Can Make
Because buyers are readily available and nearly anyone can get started with it, forex trading can be appealing for beginners. Predictably, one of the questions that often come up is: how much money can you make from forex trading?
The answer to this isn’t straightforward. There’s technically no limit to how much you can make with forex trading, but here’s the bottom line: it’s not going to bring you wild riches within a few months.
Progress will at best be slow and steady, and your goal is ideally to accumulate wealth year after year rather than striking out on a get-rich quick scheme.
To be realistic, keep it as a source of side income rather than diving into it full-time, as profit every month is guaranteed to change rather unpredictably.
1] Capital and Risk
There are many factors that determine how much money you’ll make, but among the first that you should be aware of are capital and risk. Your capital refers to how much money you have for trading in total. This directly determines your earnings, and top traders have hefty capital as their foundation.
However, you shouldn’t invest too much of your capital directly on the market. The recommended percentage is very small at 1%, and 3% is already considered intrepid and only for expert traders.
The point of this is to balance out risk and bring down losses, which are inevitable no matter how brilliant your trading strategy. Ignore this, and you might end up wiping out your whole account.
For those who want concrete numbers, there’s a way to calculate your expectancy, or how much you can expect to make off each trade. The downside to this is that you’d need at least 10 (or even 50) previous trades to get a decently accurate estimate.
Here’s the formula:
(Win % x Average Win Size) – (Loss % x Average Loss Size)
Say that you’ve won 10 out of 50 trades. Your total wins are $10,000, and your total losses are $400. Let’s apply the formula:
Win % = 10 / 50 = 20%
Loss % = 40 / 50 = 80%
Average Win Size = $10,000 / 10 trades = $1,000
Average Loss Size = $400 / 40 trades = $100
Expectancy = (20% x $1,000) – (80% x $100) = $120
In this case, you can expect to get $120 per trade. A positive number here is at the very least a relief because it means that you’re gaining money. To figure out how much you might earn annually, you can simply multiply the expectancy with how many trades you’ll make in a year.
The Truth About Forex Earnings
Given the right strategy, you can stand to make as much as 30-40% in one month. But take note that this will never be a frequent occurrence-your earnings can fluctuate wildly, and a more decent average estimate would be 3-7% per month.
This adds up to a healthy 16-20% every year, which is what you should be aiming for. Forex trading is an exercise in delayed gratification, building stable wealth over the long-term. If you’re looking for inspiration, remember this: Warren Buffett had an annual trading average of only 30%, and he became a billionaire.