So you’ve been trading Forex for some time now, or are planning to venture into the business?
Well, you must have wondered just how much money you can make trading Forex.
In this post, I will reveal just how much money you can make trading Forex.
It is not a straightforward answer though, because how much you can make depends on factors which only you can control.
So shall I give you a certain figure and tell you that such is how much you can make trading Forex?
Definitely no, but I will show you factors that you can play with to determine how much you can make out of trading.
So which are these factors and how do they determine how much you make trading Forex?
Here we go:
- Win Rate and Risk to Reward Ratios.
- Frequency on the Markets.
- Starting Capital.
- Trade Size or Stake.
- Compounding Versus Withdrawing.
Win Rate and Risk to Reward Ratios.
We have always insisted on a risk to reward ratio of at least 1:2, but can I tell you something else?
If you only win less than 30% of the trades, you will eventually be a consistent loser.
You need to win at least 30% of the trades and more, in order to make consistent profits out of the markets. Especially if you are using the 2:1 risk to reward ratio.
So what exactly I’m I insinuating?
I mean you need to play your win rate and risk to reward ratio math so smart.
Ensure you don’t go so low past a win rate which your risk to reward ratio cannot beat in pulling you good income out of the markets.
All we mentioned about less than 30% win rate making one a consistent loser was as far as a risk to reward ratio of 1:2 is concerned.
So what is your usual risk to reward ratio?
Does your win rate guarantee consistent profits if coupled with such a risk to reward ratio?
Do the math and be above your game.
A good win rate coupled with a competitive risk to reward ratio will earn you a decent income.
A poor combination of the two will mean inconsistent income and how much you make won’t be predictable.
Frequency on the Markets.
So how frequently does your strategy allow you to visit the markets and trade Forex?
Is it once in two weeks or once every month or daily or and at what frequency?
There is a huge difference between traders who visit their trading accounts once a month and those who visit the markets daily.
If the two employ the same stake and similar risk to reward ratios and their strategies are effective, you already know who is bound to make more money.
The trader on the markets daily will of course make more money, holding some factors constant.
So what about this frequency thing?
Get a strategy that allows you to frequently make trades and win them.
Avoid strategies that only allow you to make trades at odd frequencies which may even have chances of losing.
Being on the markets frequently means more trades and more money for effective trading and risk management strategies.
Conversely, being on the markets a few times means less money, for whichever strategies.
So you want to pull 20% of your account off the markets every year, right?
But how much is your trading account worth?
Is it $10, $100, $500 or over $1,000 and so on?
How big or small your account is has a lot to say about how much money you will make trading Forex.
The reason I say so is that small accounts do not allow you to explore much as far as position sizing and risk management are concerned.
Large accounts, however, allow you to stretch yourself and size your initial stakes well, as well as perform proper risk management without strain.
So what then?
If you begin small, you will make little out of the markets because you will stake little and anticipate little as well.
If you begin with a huge account, on the other hand, chances of staking much and anticipating much are high.
Trade Size or Stake.
So we have spoken a lot about your account size, but here is another important aspect, your trade size or stake.
So what about your trade size?
How does it determine how much you bag from trading Forex?
Say for example you employ a risk to reward ratio of 1:2.
In one scenario, your stake or risk is $100 while in another, your stake or risk is $1,000.
Which of the two yields more money? The stake of $1,000 of course, yields $2,000 as the stake of $100 produces only $200.
Those simple calculations imply that huge risks attract huge returns while small risks attract small returns.
But here is a catch – you must always consider how fat or slim your trading account is.
Remember not to stake more than 5% of your trading account in a single trade.
That boils down to having a big starting capital to play and win big on the markets.
Compounding Versus Withdrawing.
So what kind of trader are you?
The one who compounds their profits in their trading account or the one who withdraws frequently?
Well, I move that traders who compound their earnings in their trading accounts will at any given time have bigger accounts to utilize in trading.
Those who withdraw frequently may have smaller accounts, limiting their chances of staking big to win big.
But does it really matter?
What you call a big account by a trader who compounds may even be smaller than an account of a trader who withdraws frequently.
Well, comparison in trading, is the thief of joy, so compounding is about you, not the other trader.
The more you compound your earnings, the bigger your account grows, and so the bigger your stake is likely to be.
Consequently, the higher your returns are likely to be.
So how much money can you make trading Forex?
You can make as much as you want, of course, playing around with the factors discussed above.