When starting out trading, we all are dying to know how much money can be made from it. At first, most beginners overestimate the money part. We all think that we can compound our earnings and start making millions in a couple of years. Then a reality check arrives with losing trades. Novice traders are exceptionally good at blowing up their account funds. Usually after a couple of lost accounts, traders downplay the market’s ability to produce results for us. As you can see, it’s difficult to develop an unbiased projection about how profitable Forex trading really is. In this article, we’ll do our best to answer that question backed by reasons and examples.
People who think that trading makes rags to riches in no time and people who believe that it’s gambling and a waste of money are on the two ends of extreme. The truth is that there can be many different kinds of traders. And they all have different risks, skills and incomes.
Various types of traders and different types of incomes
There are so many trading styles and so many different ways to make money on the markets that it’s difficult to talk about traders’ income generally. However, we have grouped them in the main categories below.
Part time traders
Part time traders are generally working regular jobs and pursue trading as a side hustle. Usually part time traders are the main consumers of trading signals and they prefer position trading since they do not have enough time to conduct analysis and place many orders. There’s no evidence that suggests that position trading is less profitable than high frequency trading. Position trading is more precise, more thought process is required when planning each trade and is based more on the fundamentals. Part time traders miss out on trading opportunities that require an immediate reaction. Furthermore, part-time traders do not actively manage trades. They place a stop loss and take profit targets after opening trading orders. The downside is that in case the price goes towards the predicted direction with a nice volume and strength, there’s a chance that the price will continue moving to that direction after it reaches the take profit limit, resulting in a loss of potential rewards.
Full time traders
Full time traders dedicate their time to analyzing the markets, strategies, their emotions and executing trading orders. However, when trading full-time, there are risks of overtrading due to boredom that can jeopardize the whole process.
Novice and professional traders
Novice traders tend to lack the understanding of risks and rewards of trading. As a result, beginner traders usually blow up their accounts or double initial deposits in a matter of several trading sessions. Experienced traders are more careful when selecting trading opportunities. Experienced traders have more steady and predictable returns than novice traders do.
Intraday Forex traders open and close trading orders within a day in order to avoid fees on swaps. There are many different types of intraday traders. And therefore, returns are various. Some intraday traders position trade, others do high frequency trading placing 100+ orders a daily. Some intraday traders do scalping.
Position traders make much less trades than high frequency and other intraday traders do. Each trade is more calculated and better planned. As a result, position trading offers less trading opportunities but more win rates. Position traders are swing traders, some intraday traders that like to plan trades well, and longer term investors.
Copy traders are less experienced traders that outsource the decision making process completely. They make as much in terms of percentage point returns as the person they are copying. The downside of copy trading is that you do not see how much starting capital the other trader has. You can only see the progress in terms of percentages. Higher the trading capital, the higher the responsibility. You do not want to entrust thousands of hard-earned money to someone who trades using a micro 10 USD account.
Algorithmic traders use coding and trading softwares to automate trading. The results are as good as the trading algorithms. Usually automated trading is used for high frequency trading, where there’s a little room for fundamental analysis and main emphasis on technicals. Algorithms vary in terms of performance. Some work best in certain market conditions, while others do not work at all and cause traders to lose money.
How much do retail traders make?
Retail traders speculate on asset prices using their own accounts. While institutional traders are trading with other people’s money. The main factor that determines how much retail traders make are how good they are at trading and how much is their trading capital. The more you have on your trading balance, the bigger position sizes and the bigger rewards you’ll have.
How much do institutional Forex traders make?
Institutional traders are trading using investors money and therefore have more steady incomes and predictable salaries. According to many estimates, an average annual Forex traders’ salary in the USA is approximately $100,000 +$25,000 in commissions.
Large starting capital means that you’ll earn more, or does it?
As we have already mentioned, bigger capital enables traders to increase position sizes proportionally and result in higher profits. Having an adequate capital is essential in trading. When traders have not enough funds to invest in trading, they start with too small, take huge risks in an effort to increase their capital and blow up their accounts. It’s really difficult to conduct a professional market analysis and sit in front of a computer screen waiting for a trading opportunity when you have only 100 USD on your balance..
At this point, you are probably thinking that the key to success is to invest large amounts in trading when starting out. Well, it’s a bad idea. When traders are still in their learning phase, everything they do is extremely risky. Investing the money you can not afford to lose in trading can make riches into rags in no time.
What is an optimal starting capital in Forex?
It’s important to properly choose the trading capital in Forex when starting the journey. Too much and you can lose it all and never be able to return to trading again. Too little and you might not have an interest in planning your trades.
The optimal capital is individually calculated for each trader. The idea is to understand that trading highly is risky for the beginners and deposit the amount you can afford to lose. Furthermore, it’s important to prepare financially for losing trades and drawdown periods and not be dependent on the income from trading day after day. You don’t need that kind of pressure when opening trading orders.
Trade more to profit more
When you have a trading strategy that gives you a mathematical edge over other traders and can manage your emotions and risks properly, the more you trade, the more you will make. However, we don’t suggest that high frequency trading is more profitable than position trading. What we mean here is that the more time, energy and mental power you spend on trading using whichever system you have in place, the better.
It’s important to make trading an integral part of your life to maximize opportunities. It’s true that the FX market is open 24/5, however, some trading sessions are more active than others. It’s important to choose specific hours for trading, specific hours for market analysis, and have hours for family and friends.
How much do traders make in terms of percentages?
As you can see, there are many different types of traders. And each factor can influence how much traders make. It’s easier to turn 5,000 USD into 10,000 USD than it is to turn 50,000 USD into 100,000 USD. The reason is simple, when traders are managing more money, they are more careful and take less risky trades. Less risk translates into less losses and at the same time it means less potential winnings.
Usually traders that know what they are doing can increase their accounts annually by 20-100%. However, if the capital is too large for the trader psychologically and is prevented from taking the same level of proportional risks, the number drops to 5-15%.
Strategies to grow your income in Forex
There are several boring things you can do that will help you increase your earnings from Forex. Firstly, it’s necessary to stop thinking in terms of sheer numbers and start thinking in terms of percentages. To win more, you need to be able to risk more sizes(not more percentages of your capital). The ideal strategy for wealth creation is growing investments exponentially by the power of compounding.
Furthermore, traders should keep learning from other traders, books, the internet and their own experience. If you want to earn more, you should do what successful traders are doing and avoid what losing traders are doing
The main takeaways
To sum everything up. It’s hard to say how much Forex traders are making as there are so many different kinds of traders. Each type has a different range of earnings. Institutional traders that manage other people’s money have more structured returns. It is estimated that institutional Forex traders in the US earn approximately $100,000 as salaries and additional $25,000 in commissions.
How much you can make depends on many factors, such as how experienced you are, which trading strategy you are using, how much is your trading balance, how much risks are you willing to take, etc.
Starting with too much capital might result in a disaster as many novice traders blow up accounts. Starting with a too small account might make you lose interest in trading. The key is to start with an optimal amount that you can afford to lose and focus on trading the proper way with no additional pressure.
FAQs on how much you can make in Forex trading
How much can you make a day on forex?
How much you can make trading Forex depends on a lot of variables. Most traders lose money instead of earning any. There are many different types of traders and their incomes are vastly different from one another. Institutional traders are compensated by salaries and performance bonuses. Retail traders earn based on their own performance and generally the amount depends on various factors. The factors include:
- How much capital do they have for trading Forex?.
- How much experience they have and how well they can execute their trading systems.
- What’s the risk/reward ratio and likelihood of a trading system generating profitable trades?
- Which currency pairs do they trade?
In addition, there can be many other reasons why traders’ incomes are so different.
Can you make a living in forex trading?
Yes. You definitely can. And many traders have turned trading as their main source of income. However, it is important to note that trading will not provide you with a steady paycheck at the end of each month, as you will experience drawdown periods on your account balance. Turning Forex trading into a profitable business requires trading skill and good preparations that include investing in education, home office, account balance and in an emergency fund for drawdown periods.
Can forex make you a millionaire?
Yes, It can make you a millionaire if you already are a billionaire. All jokes aside, there are many Forex traders trading large positions of their own money and making millions. However, in order to make that much money, you need a large upfront investment. In addition, there are many professional traders managing investors’ money and making millions. Keep in mind that managing large amounts of money is not an easy task and it requires a lot of experience, dedication, education and trading skills.