How Much Do Forex Traders Make Per Month?
How much do Forex traders make per month? What is the monthly earnings potential of the average Forex trader? If you’re reading this article, you’re probably fairly new to Forex trading, so I don’t want to misguide you.
In fact, I’m going to tell you some hard truths that you probably don’t want to hear, but they are absolutely necessary to learn if you ever want to become a successful Forex trader. Your initial reaction may be discouragement, but there is a light at the end of the tunnel.
Please fight the urge to roll your eyes and move on to something more uplifting. Sometimes the truth hurts, but I will absolutely guarantee that if you don’t listen to what I’m about to tell you, you will NEVER be a successful, long-term Forex trader.
So how much do Forex traders really make per month?
This question is a little misleading for a couple of reasons:
1. Most Forex traders are not profitable
2. No profitable trader in any market makes the same percentage of profit each month
These are the questions you NEED to ask:
Why are most Forex traders unprofitable?
Despite what you may have heard about how easy it is to make money in the Forex market, the truth is that most traders fail. It is also true that you will probably fail at trading, but you don’t have to. The real reason traders fail is probably not what you think.
This is why traders actually fail:
Most new Forex traders have unrealistic profit expectations. They think it will be possible to make 25% – 50% or more month to month. They have dreams of turning their small account into a very large account in just a few years.
This is totally unrealistic. If it were possible we would all be doing it. Most successful traders make a much lower average monthly profit (3%-7% is common). If you’ve averaged 10% or better for more than a year, you’re a rockstar in the trading world.
Take this into consideration:
If you could sustain a 10% average monthly gain, you would more than triple your account every year.
By averaging 6%, you would more than double your account every year.
Starting with $5,000, and averaging only 3% per month, your account would grow to over $170,000 in 10 years.
Warren Buffet became a billionaire trader averaging only 30% per YEAR!
I’m not saying it’s impossible to make 25% or more in a month. I’ve done it, and many others have done it. I’m saying its impossible to MAINTAIN such a high average monthly gain. In order to shoot for such a high goal, you will be pressured to take bad trades, overtrade, and overleverage (which brings me to my next point).
Poor money management is one of the worst account killers for new traders. This goes back to greed, because traders typically overleverage while shooting for unrealistic profit targets.
You should be risking a small percentage of your account on each trade, and you should be risking the same amount on each trade. I recommend never risking more than 2% per trade. Many successful Forex traders risk 1% or less per trade, and some very successful and experienced traders risk 3%.
Risking more than a small amount per trade is a death sentence for your trading account because all trading systems go through periods of drawdown. If you’re risking too much during one of these periods, you will, at least, wipe out much of your progress, if not completely wipe out your account.
Consider these two examples:
If you lost 10 consecutive trades, risking 2% per trade, your account would be down about 18%. You would need to earn about 22% of the remaining account just to get back to your starting balance.
If you lost 10 consecutive trades, risking 10% per trade, your account would be down by more than 65%. You would need to earn nearly triple the remaining account (187%) just to get back to your starting balance.
Not only does responsible money management help preserve your capital during losing streaks, it also helps to keep you trading your edge mechanically. That’s because losing 1% or 2% on a trade does not sting nearly as much as losing 5%, 10%, etc….
It’s easier to deal with the losses, psychologically speaking. You’re more likely to pull the trigger on the next trade, and let your edge work itself out over time. And that’s exactly what you need to do, if you know you have a profitable trading method working for you.
I cannot stress this point enough. Testing is the backbone of a successful trading program. Most new traders are too impatient and undisciplined to thoroughly test new strategies. I think this, again, goes back to greed, because we all want to fire our bosses as soon as possible. You want to get that account snowballing quickly, but this is a costly, rookie mistake.
The problem is that, without sufficient testing of your trading system or any new trading setup, you’re not going to know how it will hold up during changing market conditions. You need to know if your trading system can stay profitable through increasing/decreasing volatility, growing/shrinking average daily range, impactful news events, etc….
I would not even consider a new trading strategy unless it had proven itself to be profitable after, at least, a couple hundred backtesting trades – either through my trading platform or using a backtesting software, such as Forex Tester 3.
Next, I would forward test (with a demo or micro account) the new strategy for, at least, a few months. The more time you spend doing this the better off you will be down the road because you will have absolute confidence in a system that has proven to be profitable over time.
Knowing exactly what your system is capable of, and proving to yourself that your trading system is profitable over months or (preferably) years worth of different market conditions will go a long way in helping you to mechanically trade the edge that your system gives you – even when you’re experiencing a losing streak.
Lack of Discipline
I’ve mentioned discipline a few times already, and it’s an import factor in profitable trading. It’s another psychological aspect of trading that can either make you or break you. Most new traders lack discipline in every aspect of their trading, from testing to execution.
It takes discipline, as well as patience, to properly test a new trading strategy. Most traders don’t have the discipline to do any manual backtesting at all. They simply learn a new trading method, and demo trade it for a week or two, or worse, they go straight to live trading.
It takes discipline to keep trading when you’re losing. If you’ve done your due diligence, then you already know for sure that you’re trading a consistently profitable trading system. With discipline, you will be able to keep pulling the trigger on the next trade and let your edge play out over time.
Sometimes you just have a bad feeling about a trade, although it meets your criteria. It takes discipline to mechanically trade every setup that comes along, but it’s a must. As soon as you start trading subjectively, you’ve abandoned your edge and you’re gambling.
Note: There is limited room for some subjectivity in some aspects of trading when you become much more experienced, but you should strive to trade as mechanically as possible even then.
Lack of discipline can also lead you into catastrophic behaviors, such as overleveraging (which I mentioned above) and revenge trading. Revenge trading is when you re-enter the market because you’re trying to earn back money that you’ve just lost – not because your trading system has provided another quality entry trigger.
Overtrading could be mentioned in the same breath. Successful, disciplined traders trade less, because they only take the best trade setups. They have the discipline to wait for the market and their trading system(s) to provide them with quality setups, rather than trying to force bad setups to meet some unrealistic profit target.
If you’re a new Forex trader, it’s absolutely necessary to find a consistently profitable trading system to start testing. As of right now, there are three profitable trading systems reviewed on this website that I have personally traded and recommend. However, I mostly use Day Trading Forex Live now.
If you’ve been trading for a year or two, the truth is that you’ve probably already traded a few profitable trading systems. You just were not confident enough in them, or disciplined enough to let their edge play out over time.
You probably didn’t test long enough, started trading your hard earned money, lost a bunch of it, blamed the trading system you were using, and moved on to the next system. This is a constant, destructive cycle that a large majority of unsuccessful traders are trapped in.
There is no “holy grail” in trading. The point is to find a system that makes sense to you, and test it to see if it actually works. Just as importantly, you need to test it to prove to yourself that it will be profitable in the long term.
You’re looking for something that will provide you a verified edge in the market. You need to have an unwavering belief in the trading system that you are using. Once you do, you simply have to continue to trade the edge that your system provides for you with discipline.
Many traders unwittingly give up on profitable trading systems because they don’t trade them long enough, or with enough discipline, to let the edge work out for them. Even the best traders in the world lose lots of trades, but they have the discipline to let their edge play out.
What is a realistic average monthly profit expectation for a successful trader?
This question is more in line with the way you should be thinking, although its answer may be just as discouraging: It depends on the trader, their trading system, the market, etc….
Successful traders simply trade the edge that their trading system(s) give them, and take what they can get. They don’t set goals and they don’t force trades to meet those goals.
A really good year for a successful trader might look like this:
A trader with this record, if no money was withdrawn from the account along the way, would have earned over 120% – more than doubling their starting balance! Their average monthly profit percentage would be 7%.
Even as I’m writing this I can picture the amateur traders saying to themselves, “That’s not enough! I’ll never be able to do this for a living at that rate.” That is greed and impatience doing what they do to every inexperienced trader.
You could make more than what is depicted in the example above, but if you don’t change your attitude and expectations, you will most likely make much less. Instead of asking yourself, “How much can I make per month as a Forex trader?” you should be asking yourself, “Am I willing to do what it takes to become a successful Forex trader?”
What is Arbitrage Strategy: In foreign investments, the strategy identified by the name arbitrage helps the investor to clasp the profit by simultaneously selling and buying an identical asset, currency, commodity or security across two distinct markets. This strategy helps the investor to gain benefit on the varying prices for the same said security across the two different fields represented on each portion of the trade. Highlighter -The arbitrage takes place when an asset is purchased from one market and concurrently sold on a higher price in another financial market. - The difference (temporary) in the amount of the same security in two different financial markets leads the investor to lock in profit. - Investor often tries to utilise the arbitrage opportunity by purchasing a share in the foreign exchange where the stock cost has not been set for the varying exchange rate. - There is comparatively low risk associated with the arbitrage trade practice. - This term is principally used for trades in financial instruments, including stocks, commodities, currencies and bonds. The people engaging in this process are called arbitrageurs. What Is Arbitrage? It is defined as the process of simultaneously purchasing an asset from one market and selling it in another market at a higher cost. It enables the trader to lock in gain from a temporary difference in the price per stock. In the share market, an investor makes use of arbitrage opportunities by buying a share on a foreign exchange where the stock price (equity) has not still set for the rates of exchange; it is in a static condition of flux. Therefore, the cost of share on foreign trade is undervalued as compared to its value in the domestic or local exchange, enabling the investor to reap profits from this differential. This whole process appears to be a little bit tricky and complicated to the inexperienced investors. However, it is a relatively easy and straightforward way and hence considered comparatively less risky. Example of Arbitrage For better knowledge, consider the following example for: TD or TD Bank trades on both the NYSE (New York Stock Exchange) and TSX (Toronto Stock Exchange). Let us assume that on a given trade day the share trades for $63.50CAD on the Toronto exchange and $47.00USD on New York exchange. Further assume that the exchange rate of USD/CAD is $1.37 (means $1.37CAD = $1USD) hence, $47USD is equal to $64.39CAD. Under such condition, an investor can buy TD stocks for $63.500CAD in TSX and can concurrently sell the same share for $47.00USD at NYSE this is the equivalent of $64.39CAD. Finally, the lock-in profit of trader for this transaction is $0.89, which is nothing just the difference between $64.39 and $63.50. Conditions For Arbitrage Arbitrage can only be applied if the following conditions are met: 1) Always remember the law of a single price which states that the same security does not trade at the exact cost on all markets. 2) Two securities having the same cash flows do not exchange or trade at a similar price. 3) The security is never traded at its future price or discounted at the risk-free rate of interest (or have storage value) even if its future price is known. This situation is only applicable to things like a grain but not for assets or securities. Arbitrage-free If no profitable arbitrage is not allowed on the financial market costs, then these costs are said to create an arbitrage-free market or an arbitrage equilibrium. An arbitrage-free exchange and equilibrium is a primary condition for a usual economic equilibrium. The term no arbitrage is used in quantitative finance for measuring a neutral risk cost for derivatives. Considering the Transaction Costs When considering the arbitrage opportunities, one should beware of transaction cost along with it. The reason for this is if the prices are prohibitively high, they will tend to nullify the profits from the trades. We are again considering the scenario mentioned earlier if the fee (trading) per stock surpass more than $0.89, the aggregate return on arbitrage will neutralise those profits. Amount variances across the financial markets are usually small in size, so strategies of arbitrage are practical only for trader having substantial securities to invest in a particular trade. The Bottom Line – Arbitrage strategy If all the financial market were excellently efficient and, the foreign exchange halted to exist, there would be no arbitrage opportunities left. But in reality, the market is rarely perfect, which gives investors (arbitrage) many opportunities to gain benefits on pricing disparities.
Scalping is a technique to trade quickly. In this method, traders complete their trades in a few seconds. Which is up to a few minutes at most. Scalping is the best way for those who want to trade more in less time with smaller profits. For example, if you open a trade with a scalping technique, remember that your trading time limit is very low and you close the trade without expecting more than 2-3 pips. However, in this case, you must remember whether the broker you want to trade scalping has scalping trade support. This means that you will see that the broker is an ECN or no-dealing desk broker. Usually dealing desk brokers do not offer scalping support. (See details about broker type) Scalping is a popular way to open and close fast trades. But it also has some disadvantages, those who go for scalping without knowing those things will remember that they will lose more often and time instead of profit. When to do scalping: This way you can't trade every day. Because the market environment is an important issue for scalping which you will not always get. Scalping in the hot market and the time frame will be a 1-2 minute chart. In scalping or small trading formulas, you have to execute trades with small changes in the market. So again, make sure that your broker has fast trade execution before the trade. For scalping trades, you must trade in low spread currency. Because your target is a spread of 2-3 pips, if it is 3 pips, then you will not be able to profit without a change of 6 pips. So all the currency spreads 1, they are eligible currencies for scaping. Notice in the figure above that many spellings have been traded in small changes in the 1-minute chart. You can make a good profit by scalping in this kind of fast market movement. One of the default indicators of MT4 for scalping trades is Fractals which will get Insert> Indicators> Bill Williams> Fractals of Meta Trader. This indicator will give you a buy and sell signal via an arrow symbol above and below the candle. For example, sell in the upward arrow above the Kendall and buy in the downward arrow below the Kendall. Keep in mind that any indicator will help you in order-making. If you trade with 100% indicators completely, there is a possibility of missing. So use the indicator as to your helping hand and trade overall in the light of Upper Trading Strategy and experience. Thanks, everyone. I tried to share as much as I could. If you make a mistake, correct it.
Statistics say that hardly 2% of traders actually make the cut. The remainders of the 98% are merely a flash in the pan. Some traders give up at the first taste of failure; others continue to spend money in hopes of finding the 'Holy Grail' of trading.Others simply use a social trading or a PAMM account and hope that other's decisions will affect their equity to grow. Trading, be it stocks, forex or bonds is just like any other endeavor. Nothing happens overnight! You cannot expect to find a trading strategy and expect that you will get the same stellar results as the guy who posted it on a forum or a vendor selling you a system.Hard work and perseveration are one of the essential aspects that will determine your success in trading. What keeps the best traders going is that hunger to understand how the markets work. Success in trading is in finding a system that suits you perhaps in a way a trading system is like an extension of yourself.Struggling to make the cut? Probably more than money management or a trading system you should prime your mind.Trading, as you might know, is a part-psychological game. It is after all the reflection of other humans/traders. When you trade, you are basically trading with or against this mass sentiment.It can be easy to get discouraged with trading. A few string of losses (which are not that uncommon) can easily make a trader to doubt one's ability to trade successfully. Further to this, the fact that losing money is the result of such losses can easily make a trader to give up.Here are three things that will help you to have a winning mindset and will help you to become just a little bit more successful. 1. Know what you are tradingSo you want to trade EURUSD. That's great. But do you know what factors are behind moving the price in this currency pair? Using just technical indicators will not help you get far. And if you aim for consistency you need to take the time and learn and get intimate with the currency pair or the security that you want to trade.Most often, traders only focus on a security or a currency pair because they think they can bank money easily. But sooner or later you will realize that this will only end up in burning a hole in your pocket. There are numerous resources available these days. Traders can easily take advantage of this and learn more about the fundamentals and the history of the currency pair that they are trading.To illustrate this point, take the example of the EURCHF peg that was broken in 2015. While many traders were surprised, history showed that the SNB did this quite a few times before. Therefore, traders who spent time researching into the history of the currency pair were at an advantage while most others relied on technical indicators and the greed to make money quickly.2. Make a commitment and stick to itTraders who keep jumping from one strategy to another will often find themselves running in circles. They will end up either spending money on black box trading systems or paying a signals provider without actually making much money.If you want to be successful in trading, then the first thing to do is to build your own trading system. The options are endless. What determines a good trading system from bad is how well you know it.Some traders are quick to jump from one strategy to another at the first sign of taking losses. This way one doesn't really give themselves a chart to truly understand the dynamics of their trading system.It is only through these losses that you can get to know the strength and weakness of your trading system.3. Don't give upIf you think you can become rich trading forex within a year, then that is being very ambitious. While the timeframe may vary, traders should know that the only way they can make the markets work is by not giving up.For some, it might take a year, for others, it can take more than three years. The bottom line that differentiates a winning trader from a losing trader is that they don't give up. The urge to excel at trading is what keeps some traders going until they make the 2% cut.Forex trading is often glamorized, and most often the trader's psychology is preyed upon. Disguised as a way to trade and make money, most traders fall prey to this tactic.However, being fully aware of what the currency markets are and how they work, and most importantly taking a serious step to learn and be good at trading is what will eventually decide whether you will be consistently profitable or here just to give your money away to the other 2% of successful traders.