Forex market is appealing to many, but when newcomers first learn about it, they are typically taken aback by its complexity and unpredictability. In this industry, there are only possibilities and probabilities; but no guarantees.
You can't generate enormous profits without taking on the corresponding risks because trading is a lengthy, incremental process that needs a lot of discipline to achieve.
As a forex trader, you can make at least 3%-5% of your account monthly on average, however, this figure varies based on several factors. Undoubtedly, the possibilities of great returns are endless, but the probability of a collapse is ever-present.
However, before delving into this type of trade, it's prudent to understand the realistic figures you could make. We will also explore some examples to illustrate what an average forex trader could make in different scenarios.
What Factors Affect the Amount you Make Forex Trading?
Here are some of the main factors influencing forex trading profitability.
Risk Management Strategy: It is estimated that most forex traders lose their money, especially in the initial years of trading. The absence of a risk management strategy is the primary cause. Industry experts advise forex traders to risk at most 2% of their account per trading position.
Overexposure to a single position is limited by placing stop-loss orders and using reasonable lot size relative to your account. For instance, a trading account with a $500 capital would only risk a maximum exposure of $10 on any single trade.
However, a 5% exposure would lead to a loss of $25 on a single trade which would be catastrophic to the retail investor accounts, considering multiple trades.
Leverage: Forex brokers offer forex traders significant leverage making it possible to borrow multiple times their trading. It makes it possible for profits or losses to be magnified.
For example, assuming a forex trader has 50:1 leverage on a deposit of $1000, the forex trader is allowed to take positions up to $50,000. High leverage on a winning system results in more significant gains.
Winning Percentage of a Trading Strategy: Represents the number of trades you win out of a particular number of trades. Assuming a forex trader wins 52 out of 100 trades, the winning percentage is 52%. Forex traders should always aim to achieve a win rate of above 50%.
Risk to Reward Ratio: This ratio describes the amount of capital a forex trader is willing to risk to get a certain profit. A higher risk ratio implies a greater potential for higher yields and lower losses. For example, if a successful forex trader sets a risk-to-reward ratio of 1:3, this means that for every $1 at risk, the trader is aiming to make $3 in profit.
Trading Capital: Your trading capital is critical and determines your earning potential. With more money, there’s a possibility to initiate more trades which would translate to higher profits.
Experience and Skill: Naturally, more experienced and successful forex traders are likely to profit. Professional forex traders are known to rake in profits of up to 20% on a good month. However, beginners may face challenges that may lead to losses. We advise setting up a demo account before risking your capital.
Other notable factors include forex market volatility, risk tolerance, frequency of trades, broker fees, and commissions. A trader needs to wade through all these factors and use them to their advantage.
Potential Earnings
There are possibilities of making money with forex trading consistently. The trader has to take advantage of the trading strategies without forcing trades. However, it's critical to note that there are significant chances of losses.
An average forex trader can aim to make up to 3%-6% monthly. Those who adopt long-term strategies can expect good and bad days. However, it's essential to stick to the strategy and have realistic goals while aiming for profits in the long term. The table illustrated below gives a rough and estimated idea of what a good trader can make monthly.
| Month | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec |
| % profit | 4% | 3% | 5% | -2% | 0% | 7% | -1% | 10% | 1% | -1% | 6% | 6% |
The average monthly profit would realistically range between 2.5%-5%. Assuming a $2,000 trading account, an average of 3% gain per month would result in a profit of $720 annually. The gain is minimal, and it may take a lot of time to grow your earnings to something substantial.
By adopting a long-term strategy, you would perhaps compound your returns for 10 years. Taking the 3% profit monthly, your account would grow to a massive $69,000 just by compounding your earnings. This translates to a huge 3350% profit if no capital is withdrawn during that period.
Expert traders can average profits of 5%-15% and the returns they yield are relatively higher due to their skill and experience. However, these numbers are not set in stone and vary significantly due to the factors we’ve listed above. In fact, By leveraging the forex market's vast opportunities, potential earnings from forex trading can be maximized, especially when utilizing the best stock trading apps to make informed decisions and seize profitable moments.
Trade Example
Here are some parameters you may see in a typical trade forex on a good day.
| Direct currency pair trade | GBP/USD |
| Capital | $5,000 |
| Long term position(buys) | $150,000 |
| Margin requirement(leverage) | 2% |
| Lot size | one standard lot (100,000 units) |
| Entry position | 1.50000 |
| Exits position | 1.50500 |
| Profit on closing position | five pips |
A trader Joe can set up such parameters believing that the British pound will go up against the US dollar.
By buying one lot of GBP/USD pegged at 1.50000, Joe buys £100,000, which is now worth $150,000 (£100,000*1.50000)
The margin requirement is 2% translating to $3,000(($150,000*2%). This amount is set apart from the initial $5,000 in the account.
Joe hits the take profit target, sells, and closes the position at 1.50500. He will earn a profit of $500 from this trade.
This scenario above shows that Joe got a 16.67% return from his $3,000 capital. This is due to leverage trading, which increases exposure. However, caution must be exercised as Joe could have easily lost $500.
How much can I make with forex trading?
Average traders can aim to generate between 3%-5% monthly, which translates to 36%-60% annually. Traders should aim at a win rate above 50% and a reasonable risk/reward ratio. Higher win rates guarantee more profit, which can easily supersede the 3%-5% monthly average. Expert traders can, however, make much more.
Earnings will not be the same monthly. Traders must remember forex trading has no guarantees; only possibilities and probabilities exist.
