You don’t have to spend much time searching on the internet before finding forex traders who seem to live a life of luxury. Flash cars, exotic holidays, and no 9-5 grind. But how much do forex traders make in a day, and how much can money you make from forex trading? In this article, we’ll discuss some of the key principles behind forex trading profits and some sensible expectations.
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How much money can you make forex trading?
The best way to approach this question is to think not in terms of money, but in terms of percentages.
Firstly, a good forex trader who is mindful of sensible risk management practices won’t risk more than 1-2% of their account balance on a trade. (For many, even 2% may be too much.)
It doesn’t matter whether they have a $500 account or a $50,000 account. The principle remains the same.
Let’s take a look at it in action.
First of all, let’s take a look at a trader with a $50,000 account. We’ll call her Sarah.
Now let’s say that Sarah makes 15 trades per month. Each trade risks 1% of the starting account balance, and each trade has a risk-to-reward ratio of 1:1. This means Sarah stands to gain a dollar for every dollar she risks.
And let’s say, out of those 15 trades, five fail, and ten are successful.
This means Sarah’s gain for the month is $2,500. That’s a decent amount of money. For a lot of people, getting that amount of money every month is a full-time income.
The $500 account
Now let’s take a look at the trader with a $500 account. We’ll call him Dave.
Dave makes the same 15 trades with exactly the same risk management and money management parameters. He risks 1% of the starting balance per trade and stands to gain a dollar for every dollar that he risks. Five of those trades fail but ten are good.
Dave ends the month with a $25 gain.
Clearly and obviously, Dave isn’t going to quit his day job with thirty bucks. His trading will have got him a pizza night, but it’s obviously not going to replace his full-time income.
So, how much money can you make forex trading? The answer always depends on how much money you can trade with.
But what about risking 10-15% per trade?
This is a common pitfall that forex trading beginners often fall into. Instead of risking around 1% of their account per trade, they risk significantly more, perhaps 5%, 10%, 15%, or even higher proportions.
This is a terrible idea. We cannot stress this enough. That’s because a series of unsuccessful trades will wreck the account. For example, if you experience 5 losses in a row after risking 1%, you will still have over 95% of your account capital remaining. You still have the power to overcome this dip in the road.
But if you risk 10%, you will have lost over 40% of your account. And if you risk 25%, you will have lost 75% of your money. You can check this yourself using the Drawdown calculator in our list of forex calculators.
There is an excellent piece of risk management and forex psychology advice, which is that no one loss or series of losses should make or break you. If it does, then what you are doing isn’t really trading. It’s gambling. Trying to turn a $500 account into a $50,000 account in a year would involve such a high level of risk, that it would probably make more sense to buy lottery tickets instead.
So how much money can you make forex trading?
If you’re profitable, a realistic expectation would be 2.5 – 5% per month.
If you consider the examples above with Dave and Sarah, each person made 5%.
This is an excellent achievement.
Why? Because of the power of compound interest.
Compound interest means that you reinvest your profits so that your account will grow at a faster rate.
Let’s be more conservative than Dave and Sarah – let’s imagine a trader starts with $500 and makes 4% a month.
4% of 500 is only $20, but thanks to the power of compound interest, that $500 will be $800 in a year.
That is a sixty percent return on the initial investment. That is HUGE. Very few investing opportunities produce that kind of gain in a year.
You can see for yourself the power of compound interest with the Compound interest calculator in our list of forex calculators. Increasing a $50,000 account by 60% in a year would be a $30,000 gain.
How to get started
If you’re serious about forex trading, the smartest course of action would be to learn how it works, learn a strategy, and test it on a low-leverage demo account to prove that it’s profitable first. There’s no point risking real money on a live account if you can’t even be profitable on a demo account.
Now, a lot of people say that trading on a live account is completely different to a demo account. And there is probably some measure of truth in that.
So, should you start trading with a $100 account or a $200? If you can afford to do so and you accept the risk of potentially losing it all, absolutely. Proving that you can be profitable with real money is an excellent step in what is potentially a very exciting direction.
Because, as you’ve probably already realized from the above examples with Dave and Sarah, forex trading is scalable. If you’re profitable on a $500 account, you can be profitable on a $50,000 account.
But I don’t have $50,000 for forex trading
That’s no problem. There are loads of firms out there who will allow you to trade five, six, or even seven-figure accounts and let you keep a percentage of the profits.
FTMO, for example, is the perfect example of a proprietary trading company or “prop firm”. You can be allocated up to $400,000 to trade with, and you get to keep 80-90% of the profit for yourself. All you have to do is pass a two-stage evaluation to prove that you are profitable on a demo account, and you’ll then be invited to trade for real money without risking your own capital. For more information on the FTMO Challenge, check out our FTMO review.
My Forex Funds is another great example of a prop firm. Pass the two-stage evaluation, and you can trade with up to $600,000. You’ll get to keep up to 80% of your profits. Check out our My Forex Funds review.
As we said, if you can afford to trade with a few hundred dollars, it’s potentially a very valuable exercise to show that you can be profitable with real money.
However, if you’re successful on a demo account, it could be a much better idea to put that money into a prop firm evaluation instead. If you are profitable on a long-term basis, this will be a much faster way of making money than trying to compound an account with a few hundred dollars.
So, how much money can you make forex trading?
- A realistic expectation is 2.5% – 5% a month.
- You should always think of it in terms of a percentage of the money that you can trade with.
- Don’t expect to give up the day job if you’re trading with a $200, $500, or even a $10,000 account.
- It’s always best to prove that a strategy is successful on a demo account before risking real money on it.
- If you are indeed profitable, there are loads of firms out there that will allow you to trade big accounts, and let you keep a percentage of the profit.