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How Much do Forex Traders Make?

By Louis Holding-Parsons on October 10, 2018

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How much do Forex traders make is a question that many aspiring retail Forex traders will ask themselves as they contemplate opening their first trading account. One attraction of Forex trading is the Forex market requires the smallest amount of capital of any asset class. The fact that it is open 24 hours a day and only closes for part of the weekend means there are many chances to trade. Yet it is impossible to quantify how much do Forex traders make as everyone is different. This will not stop us from delving into the subject you’ll be glad to hear! 

Determining how much do Forex traders make

How much do Forex traders make?There isn’t a specific formula but a few metrics spring to mind when working out how much do Forex traders make from trading. Trading frequency: if you are trading regularly and making small profits every time. Account size: clearly if you have capital of $1m then the returns will be larger than with $1k! The same applies with the trade size. Finally if you do not withdraw any profits, then compounding will make your money grow faster than you thought possible!

Do retail Forex traders actually make money?

The answer is yes some do, but they have honed their skills and made mistakes along the way! Many Forex beginner traders will allow the same weaknesses to repeat themselves, leading to poor trades. Psychological weakness is a biggy! Few traders focus enough time and effort on the psychological traits needed to develop the discipline and cold unemotional approach that trading requires. Instead they focus on how much do Forex traders make to their detriment. 

This is a (trading) business

Run your trading as you would a businessSo run it like it! Your desire to find out how much do Forex traders make is probably driven by having heard of other successful traders, Yet you cannot compare them to you. How much do Forex traders make from trading depends on many different variables. Everyone is different: each will have different strategies, weakness, capital, trade size etc! Like any business, cash is king so look after it! Do not think this is a get rich quick scheme, but something which you will let grow over time. You will make mistakes, analyse them, educated yourself to the ways of the market. This is no different from any CEO of a company!

Consistent profits

Anyone watching Hollywood films such as The Big Short or The Wolf of Wall Street will think that trading is about making huge bets and earning big dollars in return. Wrong. Retail Forex trading is about small trades, where you limit your risk to 1-2% of your portfolio at a time. Most important is making consistent profits, which will give you feedback when you are wrong. You can’t think how much do Forex traders make from trading if you are losing it all first.

% profit versus size

% profit is the same whatever your account sizeHow much do forex traders make from trading is not down to how big your FX trading account is, but how successful you are with what you have. If you are making 10% a trade, then you are just as good a trader, whether you placed $1m and made $100,000 or $1k and made $100. Big trades do not necessarily mean big returns but they can mean big losses, which can lead to you blowing up your account! Someone who is regularly earning 10% or even 20% a trade is doing well for themselves!

How not to make money…

Spending too much on costs can easily wipe away your profits. Before trying to work out how much do Forex traders make, it might be an idea to find out how they avoid losing money! Check how much each trade costs, this can be the spread charged or a flat fee. Be careful with other admin costs that brokers will charge. Leverage falls into this area too, not so much if you lose (although that is bad enough) but because of the interest the broker charges you for lending in the first place. These charges add up fast. You might make $$$ from a trade but find out the leverage has eaten into a substantial part of your profit.

You have the advantage…of being small

Being small can be an advantageBelieve it or not, there are some trades that the institutional traders will not be able to make. Why? Because these trades are too small, i.e. the institutional trader will not be able to deploy the amount of capital they normally would because this would move the market. This gives retail FX traders the chance to place their (relatively) small trades in areas where the big boys cannot operate! 

Examples of rags to riches traders…

George Soros 'broke' the Bank of EnglandYou often hear of traders who have gone from nothing to being billionaires. George Soros, the man who broke the ‘Bank of England’ is the obvious one. A Jewish immigrant who had to survive Nazi persecution during WWII, George started with less than many, and is now one of the richest investors in the world. This he achieved by his success with trading Forex.

Ingeborg Mootz, who only started trading at 83, was virtually broke before she started trading. Yet she was able to increase her capital to near 2 million Euros without having a background in finance! Her age, and dare we say it, her sex was often seen as being against her, yet is an excellent example why we should encourage female traders.

Mark Huntley has made a HUGE 66% gain on his account whilst keeping the risk low. Even though he started with a small account, that 66% gain would be $666,000 profit if traded with a $1m account! Get the theory and strategy right and there’s nothing stopping you from conquering the world.

Conclusion

There is no one answer as to how much do Forex traders make but with a risk-controlled Forex trading strategy, it is possible to trade successfully. There are numerous rags to rich stories which all have one thing in common: they didn’t get it right first time. Be prepared to lose some money initially and learn from your mistakes. The examples we have given above should be the inspiration for you to become the latest rags to riches trader!

 

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Louis Holding-Parsons

Louis is a portfolio manager and a trader who brings a wealth of experience in private banking to The Lazy Trader. A fundamentalist and a trouble-shooter, Louis makes a firm contribution to the trading team.

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Louis Holding-Parsons

Louis is a portfolio manager and a trader who brings a wealth of experience in private banking to The Lazy Trader. A fundamentalist and a trouble-shooter, Louis makes a firm contribution to the trading team.

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