Before enrolling in any economic or investing activity, most people ask themselves: will it pay back, and how much will I earn? The same is with Forex trade. As Forex trade carries a substantial amount of risk, one should acknowledge potential risks and benefits one can receive.
How do Forex traders make money?
Forex traders earn money by buying and selling currencies in the foreign exchange market. They make a profit by taking advantage of the difference in exchange rates between two currencies.
For example, let’s say a Forex trader believes that the value of the Euro will increase relative to the US Dollar. They might buy Euros using US Dollars at the current exchange rate and then sell those Euros back for US Dollars once the exchange rate has increased. The difference between the buying and selling price represents the trader’s profit.
Forex traders can also make money through other strategies, such as carry trading and scalping. In carry trading, a trader borrows money in a low-interest-rate currency and invests it in a higher-interest-rate currency, earning the difference in interest rates. In scalping, a trader makes quick, small trades to take advantage of small price movements in the market.
However, it’s important to note that Forex trading also carries risks, and traders can lose money if they make poor trading decisions or the market moves against them. Successful traders typically use sound risk management strategies to limit losses and maximize profits.
Beginner traders vs. Professionals vs. Strategies
The amount of money a beginner Forex trader can make will depend on various factors, including their trading strategy, risk management approach, trading experience, and the amount of capital they are starting with.
Experience is a vital thing – experienced ones can have more chances to find the market and take profits rather than newbies.
Strategy, such as day trading, can be even more important than experience. But one should always consider 2 things: The win rate and Reward and Risk.
The win rate
A day trader typically engages in a specific number of trades each day, with a common figure being 15. The win rate refers to the number of profitable trades out of the 15 executed. For example, if a trader wins 10 out of 15 trades, their win rate is 66%, which is a realistic target to aim for. However, it’s essential to note that the vast majority of day traders are unable to achieve this level of consistency. In the following explanation, I will illustrate why this is the case.
Reward and Risk
To be profitable in day trading, one needs to have more winning trades than losing ones. For instance, if a trader has a target of 5 pips for each trade and executes 15 trades per day, they will make a profit of 75 pips if they win every trade. However, if they lose 5 out of the 15 trades, the profit would be reduced to 60 pips after deducting the losses.
To illustrate this point further, let’s consider a hypothetical scenario where a day trader focuses on cryptocurrency, specifically ETH/USD. On a particular day, they enter the market based on a bullish signal seen on the 1-minute chart and buy ETH/USD. Unfortunately, the trade goes against them, resulting in a loss. However, after 10 minutes, the trader re-analyzes the market and places three new trades, two of which are profitable, and one incurs a loss. By the end of the day, they had made 60 pips but lost 15, resulting in a net profit of 45 pips. Assuming a lot size of $100,000, the profit for the day would be $20
What are the figures?
In reality, Forex traders’ monthly income can range from zero to several thousand dollars or more. Some successful traders are able to make six-figure incomes or more, while others struggle to make a consistent profit. Ultimately, the amount of money a Forex trader can make in a month depends on their individual circumstances and trading performance.
According to a survey conducted by Australian Forex brokers, the average monthly income of Forex traders in Australia is around AUD 3,725. However, this figure should be taken with a grain of salt, as it represents only a small sample of traders in one country and may not be representative of the wider Forex trading community.
Another source suggests that as of April 4th, 2023, the typical yearly salary for a Forex Trader in the United States is $125,229. Using a basic salary calculator, this amount averages out to approximately $60.21 per hour, which equates to $2,408 per week or $10,435 per month.
The third says that: on average, professional Forex traders working in large corporations can earn a monthly income of $6,600. Meanwhile, prop company traders have the potential to earn anywhere from $500 up to $10,000 per month. However, only 10% of retail Forex traders who trade Forex professionally are able to earn a monthly salary ranging from $500 to $5,000, while the remaining 90% lose money.
In the world of Forex trading, a trader’s earnings depend on several factors. One of the most critical factors is the fund size, as the profit potential will vary significantly between managing $10 million versus $10,000.
Another factor is seniority. When working for a hedge fund, traders typically start as analysts, with the primary responsibility of assisting junior and senior traders. Based on their performance, analysts may get promoted to junior traders, earning an average of $300,000 to $3,000,000 per year, including bonuses and commissions. Senior traders, on the other hand, can earn up to $10,000,000 per year, including bonuses and commissions. However, these figures are subject to change based on their performance.
The company, a trader, works for is another significant factor, as salaries and bonuses vary between companies. For example, a trader in the United States could earn an average of $100,000. However, JP Morgan traders earn an average base salary of $95,995, while Goldman Sachs traders earn $120,024, Citibank traders earn $158,166, and HSBC traders earn $197,029. These figures are just base salaries and do not include commissions and bonuses.
Location also plays a significant role in a Forex trader’s earnings. Traders working in the UK may earn less than those working in the US, for example. A Citibank trader in the UK earns an average salary of £58,951, while a Citibank trader in the US can earn $149,156. Similarly, a Gold Sachs trader in the UK may earn around £79,971, while a trader in the US can make $129,578. Again, these figures are just salaries and do not include bonuses or commissions.
What about independent traders?
Coming up with a definitive figure for an independent trader’s earnings is not possible as each trader is unique, with different starting capital and trading strategies. However, one constant factor is that higher capital results in bigger profits.
The most significant challenge for independent retail traders is the size of their funds. Even with $100,000 in the capital, it can be challenging to earn enough money for daily expenses. Assuming that the top traders can earn 20% annually, the monthly income for someone with a $100,000 capital would be less than $1300 after tax deductions.
Success in terms of profit can differ vastly in the Forex world. One Forex trader makes 10.000$ a day, while another, using the same strategies makes 10.000$ a month. Therefore it is not only about what strategies you use but also about different factors like experience, execution, decision making, and more.
The income of a Forex trader can vary widely and depends on a number of factors, such as the trader’s experience, skill level, trading strategy, risk management approach, and market conditions. It is difficult to provide a precise figure for how much Forex traders make in a month.