You have heard and read about the growing popularity of online forex trading and how people around the world are making real money trading currencies. You have probably also done some basic research, and you might be interested in becoming a forex trader yourself. The fact is, there are many advantages of forex trading, even if you have no prior experience or an understanding of how the markets work. Some of those advantages include:
- Easy accessibility to the market
- Low or zero trading commissions and transaction fees
- 24/5 market
- High liquidity
- Over the counter (OTC) or decentralized market
All these are some of the attractive aspects of forex trading, and they have definitely helped to attract an exceptionally large number of people to enter the market over the past few decades. All these features and more contribute to the forex market being the largest and most liquid financial market in the world, averaging a daily trading volume of over $6 trillion.
However, the biggest question that remains unanswered is the amount of money that forex traders make per day. There are dozens of answers to this question on the Internet, making it hard for the readers to decipher and to get a true gauge of the profit potential. This post looks into the amount forex traders can make per day and how they achieve their daily earnings.
What is Day Trading?
Day trading is the act of buying forex currencies for a short period of time, usually for a day and selling them when the time is right. The same technique applies to stocks, commodities, and other tradable assets. The goal of day trading is to make a profit from the short-term price volatility of the assets. To achieve this, day traders enter and exit positions, usually numerous times a day. They rarely hold positions overnight. So, forex day trading is the buying and selling of currency pairs within the same trading day.
To succeed as a forex day trader, you need to have adequate trading capital and excellent knowledge of the forex and financial markets. Without understanding the factors that impact asset prices and the direction the prices are likely to move, you simply cannot know when to enter or exit a trade at the right time so as to extract maximum profitability. Successful traders will tell you that education and an understanding of the financial markets are vital to becoming successful in forex trading.
Another thing to keep in mind as a forex trader is the risk of trading online. Having trading capital and knowledge of the financial markets does not mean that you will be successful all the time. Sometimes, prices of currencies fluctuate massively during the day, and traders might end up recording losses. Even professional traders lose sometimes – this is a part of online trading. But before you become disillusioned, it is important to understand that there are many trading tools and strategies that enable traders to reduce the risks of trading while securing the profits.
To make more money from forex trading, day traders take advantage of leverage offered by the broker. This gives a trader more financial power and it could boost their chances of earning more profit. Leverage is a way of gaining a large exposure to a market with a small outlay. This means that an investor is only required to put up a fraction of the total position value when trading with leverage. While there are many benefits of this, it is important to remember that losses with leverage are also amplified.
In most cases, day traders usually stick to trading major currency pairs that have liquidity, such as the EUR/USD, USD/JPY, GBP/USD, and others. Liquidity describes the degree to which an asset can be sold or bought in the market at a price reflecting its intrinsic value. That is, it relates to how easily an asset can be bought or sold. The EUR/USD trading pair has the highest liquidity and is the best choice for day traders. The price of this pair is usually volatile, and it also offers the best trading conditions for beginners.
How to Start Day Trading?
To get started, we will have to remind you of a few things. Forex trading is not a get-rich-quick scheme. If you are in it to earn quick cash, then this is the time to step back. It is common knowledge that forex trading is risky and, as such, should be approached when the trader has the knowledge and clear understanding of the risks involved.
Before you get started, it is important to also understand the necessary qualities a successful day trader is required to have.
Trading capital is a crucial necessity for a trader. Forex trading activities depend on how much money the trader has in order to trade online. Another important factor is how much a trader can afford to invest in each trade. In order to trade online, you will need to partner with a reputable broker who will provide access to the trading platform. It is important to note that there is no fixed minimum trading capital requirement when it comes to forex trading. This will depend on the broker you have partnered with. In many cases, the minimum deposit requirement starts at $100 but this can vary so make sure to check this information before signing up with a broker. When trading, you can start with the minimum deposit amount and then move forward from there. To make excellent returns, traders need to have substantial capital with a suitable risk/reward ratio when trading forex currencies. Also, it is especially important to trade with money you can afford to lose.
Market Knowledge and Experience
This is another important part of successful trading. Anyone that wishes to become a profitable forex trader must have adequate knowledge and understanding of how the markets work. The trader must also consistently monitor the markets and use technical and fundamental indicators to analyze the market conditions. Developing a trading strategy is also vital for success. Take the time to test your trading strategy, even by using a demo trading account, and once you have perfected your trading skills, you can then step into a live trading arena and trade for real money. Practice is the key. As stated, to gain a better understanding of the forex market, you can start by learning the ropes with a demo trading platform before risking real money. A forex demo account can help you understand how the market works and it will give you the opportunity to fine-tune your trading strategy. Based on this, it is important to select a broker that offers a demo trading account.
Discipline and a Well-Formulated Strategy
In forex trading, discipline is the key to success. As a trader, you need to be aware of the price movements of the different currencies and what causes these movements. Also, you should never make any hasty trading decisions or trade based on your emotions. Furthermore, you should adopt one or more trading strategies that work for you, as this might help you to maximize your profits and minimize your losses. Forex market conditions change every minute of the day. As a trader, you need to have the ability to adjust your trading techniques and strategies accordingly.
Note: Forex traders risk their capital every day to make profits. As such, forex traders need to be flexible, focused, and knowledgeable. In addition to this, traders need to partner with the right broker, conduct a lot of market research, and keep a trading journal to help them keep track of their winning strategies and lessons.
It is also important to note at this point, that how much you will make from trading online will vary based on a variety of factors including your available capital, your experience, your tolerance for risk and the market conditions.
How Much Can You Make Daily as a Forex Trader?
The amount you earn as a forex trader per day depends on a few factors. They include:
Forex Day Trading Strategy
A trading strategy plays a crucial role in how much a trader earns per day trading forex. Although a strategy has numerous components and can be analyzed for profitability in various ways, they are usually ranked based on the win rate and the risk/reward ratio.
- Win Rate
The win rate stands for the number of trades that are successful out of a given total number of trades. For example, when you win 60 out of 100 trades, you have a win rate of 60 percent. Although there is no set rule for winning rates, having a win rate higher than 50 percent is a good starting point for forex day traders, which means that a 60 percent win rate is attainable and acceptable. If you are losing more trades than winning trades, you will make a loss.
This metric stands for the capital you are risking to attain a certain profit level. If you lose 10 pips on a losing trade but regain 15 on winning trades, you are making more on the winning trades than you are losing on the other trades. This means that if you can win 50 percent of your trades, you will be profitable. Hence, making more money on winning trades is a crucial component for successful forex trading. A higher win rate would allow you to be more flexible with your risk/reward ratio.
For example, if a trader has $10,000 as capital and has a win rate of 55% on their trades, they risk only 1 percent of their capital or $100 per trade. To minimize losses, a trader can then use a stop loss order. With this type of order, once an asset’s price reaches the stop price as set by the trader, a limit order is initiated to buy or sell the assets only if it trades at the specified price or better. This is an excellent way to boost profits.
- Trading Leverage
Leverage is an excellent tool for boosting trading income. Brokers provide leverage to traders according to the allowed level in their jurisdiction. For instance, if a forex trader is using a 50:1 leverage with trading capital of $10,000, the trader can take positions worth $500,000. If the forex trade goes as planned, the trader can earn profits that outweigh the initial trading capital. Most brokers also do not charge a commission but make their money via spreads which are the difference between the bid and ask prices of an asset.
- Trading Currency Pairs
The currency pairs you choose to trade also plays a role in the profits you earn. The major FX pairs, such as the EUR/USD, GBP/USD, GBP/EUR, USD/JPY, USD/CAD, USD/NZD, offer more liquidity. This means that you stand to make more profit from these currency pairs than the minor or exotic pairs. Major currency pairs are also often more volatile, increasing the profit potential Take the time to understand the different currency pairs and what they have to offer.
- Time Dedicated to Trading
Trading experts and coaches do not usually discuss this, but the amount of time you put into forex trading is particularly important. To reach a stage where you will start earning consistently, you will need to put in a lot of time. You will need time to come with an effective trading strategy, to analyze the markets and the various factors impacting markets movements, to deploy resources such as time and capital, and then to deploy the trading strategies in a live trading setting to achieve success. All these processes take time, and a trader needs to dedicate hours to become a successful forex trader. If you want to practice forex trading part-time, then it will likely take you a longer period to develop a consistent strategy and achieve a satisfying and steady income.
Furthermore, how often you trade depends on your trading strategy. If your strategy has a winning rate of 70%, skipping a day means that you skip the winning trades (70%) compared to losing 30% of the trades. Hence, you need to work on finding the right balance for your trading strategies.
- Independent or Institutional Trader
There are individual traders, and there are institutional traders. Institutional investors have numerous traders working for them to trade forex currencies and earn profits. If you are an institutional trader, it means you are working for a company. Technically, you would be risking money that is not yours, and you would only be paid a salary. The wins from the trades do not go to you. However, when trading as an employee for financial institutions, you would have access to excellent information and varying tools to help you succeed. Ultimately, the profit does not belong to you.
Therefore, to make money as a forex trader, you need to be an independent trader. This means that you are not affiliated with any institutional investor or hedge fund. You trade using your capital and other resources. You will be in charge of choosing your broker, developing and utilizing a successful strategy, deploying the right risk management plan, and more. All these help to determine how much you will make trading forex currencies.
Making Money as a Forex Trader – Frequently Asked Questions
How much does Forex trader make?
The amount a trader makes depends on various things. Each trader has their own budget for trading currencies. Depending on the amount they can commit to online trading and whether they are trading full-time or part-time, most traders earn an average income of 10-20% of what they trade with. Sometimes some traders earn higher than that. There is no set earning income when it comes to trading forex currencies. Your tolerance for risk as well as your trading strategies will impact how much you will earn in profits.
Is Forex trading worth the stress?
Considering the fact that the forex market has over $6 trillion in trading volume per day, it is safe to say forex trading is worth the stress. The market is dominated by institutional investors, but individual investors and traders have been able to understand the industry and are making profits trading daily. To be realistic, it isn’t possible to make profits every day with forex trading. Some days, you will encounter losses. To become profitable, you have to research the currency pairs, keep abreast of the latest happenings in the market, and continue dedicating time and energy to learn how the market works. If you do all of this, then your trading efforts will be rewarded with profits in the long run.
Should I read other people’s Forex success stories?
Yes, you should. The success stories of other forex traders can give you the motivation to keep learning and trading on the market. It serves as the fuel to enable you to continue during trying and challenging times. Some forex experts advise users not to follow their strategies due to the high risk involved. However, with the right knowledge, you can apply those strategies to start earning similar profits like the experts.
Can forex trading be a passive income source?
Yes, it can. Modern technology has made it possible to trade forex passively and earn money in the process. Traders now hire other people and robots to trade for them. The use of other experts and trading software makes forex trading as a passive source of income a possibility. However, it is not usually as profitable as trading by yourself. The amount you earn when you trade forex currencies passively is little compared to what you stand to earn as a full-time trader.
What is the most profitable trading strategy?
There is no superior trading strategy in the forex trading space. If there was such a strategy, everyone would be using it. Usually, a trading strategy that churns out a decent success rate; and it works in different market conditions, can be considered a viable trading strategy. The developers of trading strategies usually keep their successful strategies a secret and continue to enjoy using them quietly.
Should I quit my job to trade forex?
No, you shouldn’t. Forex trading needs time to learn and understand. That does not mean you should leave everything else right away. Modern technology has made it possible that you can learn forex or trade with various devices such as mobile phones and computers. Hence, you can start learning about forex trading while you keep your regular job. Realistic forex returns happen when you spend more time learning rather than just jumping into the market and trading eight hours a day. Learning before you start trading will give you the experience you need to succeed.
Is it possible to trade forex for a living?
Yes, it is possible. However, it is not easy. The key to earning a living from forex trading is to understand how the market works. You need to find a time frame and strategy or strategies that work for you and also develop discipline and patience. Furthermore, you need the time and energy to make considerable profits from forex trading.
How much money can you make trading FX?
As we have said, the forex market has a trading volume of roughly $6 trillion per day. This means that your earning potential is limitless. In reality, though, a trader isn’t going to earn millions per day. To make it as a forex trader, you should not focus on the money but rather on the process of effective trading and deploying tested strategies. The profits will be a bonus from executing top trading strategies and dedicating time and energy to trading currencies.
What is a suitable way to make money with forex?
As stated above, the best way to make money trading forex currencies is to not focus on the money. As a trader, the trader’s focus should be on the process of effective trading. This means you should focus on deploying conservative risk management techniques, staying patient during turbulent times, planning when to enter and exit trades, and more. When you focus on improving your forex trading abilities, you will start earning more profits consistently. In addition, an important part of making money is signing up with a reputable trading broker.
Now that you understand what it will take to become a profitable trader in the forex world, now is the time to take your first step into the trading arena. Take the time to understand which currency pairs you wish to trade and learn about the factors that impact the price movements. Remember to manage your risks and practice your trading strategies. Lots of luck!
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