Can forex make you money

How Much Money Can I Make Forex Day Trading?

See the profit a simple risk controlled forex day trading strategy can produce.

The forex market requires the least amount of capital to start day trading, trades 24 hours a day (during the week) and offers a lot of potential due to the leverage provided by forex brokers. The key question is "How much money can I make forex day trading?" The following scenario shows the potential, using a risk controlled forex day trading strategy.

Forex Day Trading Risk Management.

Every successful forex day trader manages their risk; it is one of, if not the , most crucial elements of profitability.

Keep risk on each trade very small, 1% or less is typical. This means if you have a $3,000 account you shouldn't lose more than $30 on a single trade (see ​Forex Position Sizing). That may seem small, but losses occur, and even a good day trading strategy will see strings of losses. Risk is managed using a stop loss order, which will be discussed in the Scenario sections below.

Forex Day Trading Strategy.

While a strategy has potentially many components and can be analyzed for profitability in various ways, a strategy is often ranked based on its win-rate and reward/risk ratio.

Win-rate is how many trades are won out a given number of trades. Say you win 55 out of 100 trades, your win rate is 55%. While it isn't required, having a win rate above 50% is ideal for most day traders. 55% is acceptable and attainable.

Reward/risk determines how much capital is being risked attain a certain profit.

If a trader loses 10 pips on losing trades but makes 15 on winning trades, they are making more on winners than they are losing on losers. Even if they only win 50% of their trades, they will be profitable. Therefore, making more on winners is also a strategy component many forex day traders strive for.

A higher win-rate means more flexibility with your reward/risk, and a high reward/risk means your win-rate can be lower and you'd still be profitable. For a more thorough discussion on win-rate and reward/risk (also discussed in terms of risk/reward) see: Day Trade Better Using Win Rate and Risk-Reward Ratios.

Scenario: How Much Money Can I Make Forex Day Trading?

Assume a trader has $5,000 in capital, and they have a decent win-rate of 55% on their trades. They risk only 1% of their capital or $50 per trade. This is accomplished by using a stop loss. For this scenario, a stop loss order is placed 5 pips away from the entry price, and a target is placed 8 pips away.

This means that the potential reward on each trade is 1.6 times great than the risk (8/5) -- we want winners to be bigger than losers.

While trading a forex pair for two hours during an active time of day (see: Best Time of Day to Day Trade Forex) it's usually possible to make about five round turn trades (round turn includes an entry and exit) using the above parameters. If there are 20 trading days in a month, the trader is making 100 trades, on average, in a month.

Forex brokers provide leverage up to 50:1 (more in some countries).

For this example, assume the trader is using 30:1 leverage, as usually that is more than enough leverage for forex day traders. Since the trader has $5,000, and leverage is 30:1, the trader is able to take positions worth up to $150,000. Risk is still based on the original $5,000; this keeps risked limited to a small portion of the deposited capital.

Forex brokers often don't charge a commission, but rather increase the spread between the bid and offer, thus making it more difficult to day trade profitably. ECN brokers offer a very small spread, making it easier to trade profitably, but they typically charge about $2.5 for every $100,000 traded ($5 round turn).

If day trading a pair like the GBP/USD, we can risk $50 on each trade, and each pip of movement is worth $10 with a standard lot (100,000 worth of currency).

Therefore we can take a position of one standard lot with a 5 pip stop, which will keep the risk to $50 on the trade. That also means a winning trade is worth $80 (8 pips x $10).

With all that out of the way, letès see how much a forex day trader can make in a month (100 trades).

55 trades were profitable: 55 x $80 = $4,400 45 trades were losers: 45 x ($50) = ($2,250)

Gross profit is $4,400 - $2,250 = $2,150 if no commissions (win rate would likely be lower though)

Net profit is $2,150 - $500 = $1, 650 if using a commission broker (win rate would be like be higher though)

Assuming a net profit of $1,650, the return on the account for the month is 33% ($1,650/$5,000). This may seem very high, and it is a very good return. See Refinements below to see how this return may be affected.

Refinements.

It won't always be possible to find five good day trades a day, especially when the market is moving very slowly for extended periods of time.

Slippage is an inevitable part of trading. It results in a larger loss than expected, even when using a stop loss order. It's common in very fast moving markets. To account for slippage, reduce the net profit by 10% (this is a high estimate for slippage, assuming you avoid holding through major economic data releases) This would reduce the net profit to $1,485 per month.

Adjust scenario above based on your typical stop loss and target, capital, slippage, win rate, position size, and commissions.

How Much Money Can I Make Forex Day Trading? - Final Word.

This simple risk-controlled strategy indicates that with a 55% win rate, and making more on winners than is lost on losers, it's possible to attain returns north of 20% per month forex day trading. Most traders shouldn't expect to make this much; while it sounds easy, in reality, it's more difficult. Even so, with a decent win rate and reward/risk ratio, a dedicated forex day trader with a decent strategy can make between 5% and 15% a month thanks to leverage. Also remember, you don't need much capital to get started, $500 to $1,000 is usually enough.

How Much Do Currency Traders Make?

Is That Even The Right Question To Ask. Now?

Currency traders are a bit of a rare breed. What they make can vary widely depending on what type of trader they are and how much experience they have.

In general, how much money you make will depend on what currencies you trade, what leverage you use, and how much capital you have.

Why This Is the Right & Wrong Question to Ask at the Same Time.

Of course, the reason you’re here in the first place because you’re looking to make money.

No one falls you for that, and that’s perfectly good reason to embark on foreign exchange trading. The problem with the question in my view is that it’s a long-term goal to make money consistently in the FX market is short-term goals have to come ​​before the long-term goals for the long-term goals to be achieved.

Just like a concert violinist who want to perform on stage for paying customers for the joy of it, they will need to have years of short-term goals of building the skills necessary to get there. The Forex traders are no different.

There is no shortage of people telling you how to trade or waste to trade, but you will need to find the skills and hone the skills for the strategy you will trade.

Therefore, the better question to ask in my opinion is:

What skills are required to make money in FX trading?

This site works to answer those questions and more as you started in your FX trading.

Just like the violinist needs to know what skills need to be learned before they can perform on stage, the FX trader will have skills they will need a master before they can think about how much they can withdraw a monthly basis consistently.

Here Is How Your Earnings Are Affected.

First: How much money you have.

Forex is fairly risky, whether you are trading high or low risk, the amount of trading you can do will always depend on how much money you have to trade.

Second: How much leverage you use.

In forex trading, brokers offer leverage, which means you can put on trades for more than you have. Might be a good thing, or might be a bad thing, but either way, it affects your trading. If you like to take heavy risks, you can see heavy account fluctuations in the positive or negative.

Third: What kind of currencies you trade.

Some currencies are slow movers. They are good for beginners, or large traders. Obviously, if you are trading fast moving currencies, it can make a big difference in what you make.

What you make is up to you, but the foreign exchange market is risky, and it is not for everyone. It takes a trader that can take an honest look at themselves and learn from their mistakes.

For more information on forex trading and the latest news and updates, you can follow me on facebook and twitter.

3 Things I Wish I Knew When I Started Trading Forex.

Trading Forex is not a shortcut to instant wealth. Excessive leverage can turn winning strategies into losers. Retail sentiment can act as a powerful trading filter.

Everyone comes to the Forex market for a reason, ranging between solely for entertainment to becoming a professional trader. I started out aspiring to be a full-time, self sufficient Forex trader. I had been taught the 'perfect' strategy. I spent months testing it and backtests showed how I could make $25,000-$35,000 a year off of a $10,000 account. My plan was to let my account compound until I was so well off, I wouldn't have to work again in my life. I was dedicated and I committed myself to the plan 100%.

Sparing you the details, my plan failed. It turns out that trading 300k lots on a $10,000 account is not very forgiving. I lost 20% of my account in 3 weeks. I didn't know what hit me. Something was wrong. Luckily, I stopped trading at that point and was fortunate enough to land a job at a Forex broker, FXCM. I spent the next couple of years working with traders around the world and continued to educate myself about the Forex market. It played a huge role in my development to be the trader I am today. 3 years of profitable trading later, it's been my pleasure to join the team at DailyFX and help people become successful or more successful traders.

The point of me telling this story is because I think many traders can relate to starting off in this market, not seeing the results that they expected and not understanding why. These are the 3 things I wish I knew when I started trading Forex.

#1 – Forex is Not a Get Rich Quick Opportunity.

Contrary to what you’ve read on many websites across the web, Forex trading is not going to take your $10,000 account and turn it into $1 million. The amount we can earn is determined more by the amount of money we are risking rather than how good our strategy is. The old saying “It takes money to make money” is an accurate one, Forex trading included.

But that doesn’t mean it is not a worthwhile endeavor; after all, there are many successful Forex traders out there that trade for a living. The difference is that they have slowly developed over time and increased their account to a level that can create sustainable income.

I hear about traders all the time targeting 50%, 60% or 100% profit per year, or even per month, but the risk they are taking on is going to be pretty similar to the profit they are targeting. In other words, in order to attempt to make 60% profit in a year, it's not unreasonable to see a loss of around 60% of your account in a given year.

"But Rob, I am trading with an edge, so I am not risking as much as I could potentially earn" you might say. That's a true statement if you have a strategy with a trading edge. Your expected return should be positive , but without leverage, it is going to be a relatively tiny amount. And during times of bad luck, we can still have losing streaks. When we throw leverage into the mix, that's how traders attempt to target those excessive gains. Which in turn is how traders can produce excessive losses. Leverage is beneficial up to point, but not when it can turn a winning strategy into a loser.

#2 Leverage Can Cause a Winning Strategy to Lose Money.

This is a lesson I wish I had learned earlier. Excessive leverage can ruin an otherwise profitable strategy.

Let's say I had a coin that when heads was hit, you would earn $2, but when tails was hit, you would lose $1. Would you flip that coin? My guess is absolutely you would flip that coin. You'd want to flip it over and over. When you have a 50/50 chance between making $2 or losing $1, it's a no-brainer opportunity that you'd accept.

Now let's say I have the same coin, but this time if heads is hit, you would triple your net worth; but when tails was hit, you would lose every possession you own. Would you flip that coin? My guess is you would not because one bad flip of the coin would ruin your life. Even though you have the exact same percentage advantage in this example as the example above, no one in their right mind would flip this coin.

The second example is how many Forex traders view their trading account. They go "all-in" on one or two trades and end up losing their entire account. Even if their trades had an edge like our coin flipping example, it only takes one or two unlucky trades to wipe them out completely. This is how leverage can cause a winning strategy to lose money.

So how can we fix this? A good start is by using no more than 10x effective leverage.

#3 Using Sentiment as a Guide Can Tilt the Odds in Your Favor.

The 3rd lesson I've learned should come as no surprise to those that follow my articles. .. using the Speculative Sentiment Index (SSI). I've written many articles about this topic. It's the best tool I've ever used and is still a part of almost every trading strategy I am using, present day.

SSI is a free tool that can be found here that tells us how many traders are long compared to how many traders are short each major currency pair. It's meant to be used as a contrarian index where we want to do the opposite of what everyone else is doing. Using it as a direction filter for my trades has turned my trading career completely around.

Learn From My Mistakes.

If I could tell my younger self 3 things before I began trading Forex, this would be the list I would give. I hope they help your trading as much as its helped mine.

---Written by Rob Pasche.

Are you new to FX trading? We created this guide just for you.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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Past performance is no indication of future results.

DailyFX is the news and education website of IG Group.

How do you make money trading money?

[] Investors can trade almost any currency in the world. Investors, as individuals, countries, and corporations, may trade in foreign exchange (forex) if they have enough financial capital to get started and are astute enough to make money at it. How someone makes money in forex is a speculative risk: you are betting that the value of one currency will increase relative to another.

Currencies are traded, and priced, in pairs. For example, you may have seen a currency quote for a EUR/USD pair of 1.1256. In this example, the base currency is the euro and the U. S. dollar is the quote currency.

In all currency quote cases, the base currency is worth one unit, and the quoted currency is the amount of currency that one unit of the base currency can buy. So, in this example, one euro can buy 1.1256 U. S. dollars. How an investor makes money in forex is either by an appreciation in the value of the quoted currency, or by a decrease in value of the base currency.

Another way to look at currency trading is to think about the position an investor is taking on each currency in the pair. The base currency can be thought of as a short position because you are "selling" the base currency to purchase the quoted currency, which can be seen as the long position on the currency pair.

In our example above, we see that one euro can purchase $1.1256 and vice versa. To purchase the euros, the investor must first go short on the U. S. dollar in order to go long on the euro. To make money on this investment, the investor will have to sell back the euros when their value appreciates relative to the U. S. dollar.

For example, assume the value of the euro appreciates to $1.1266. On a lot of $100,000 the investor would gain US$100 ($112,660 - $112,560) if he or she sold the euros at this exchange rate. Conversely, if the EUR/USD exchange rate fell by 10 pips to $1.1246, then the investor would lose US$100 ($112,460 - $112,560).

[Currency traders rely heavily on technical analysis to find opportunities. Investopedia's Technical Analysis Course provides an in-depth overview of technical analysis and strategies that you can use when trading currencies or other securities.]