Have you just started with Forex trading, and do you find yourself asking the question “how much money can you make trading Forex?” If so then you’re in he right place!
To answer the question of how much money you can make trading Forex, one must start by understanding the terms. Learning as much as possible in a new enterprise also increases the chances of winning at it. It will also depend on your trading capital, if you have the right attitude and the time and effort you are willing to put in.
In this Forex trading article, we will touch on important definitions and then answer the question of how much money you can make trading Forex.
The word Forex is a merge of two words, ‘foreign’ and ‘exchange.’ Forex is also abbreviated as FX.
It is a term sometimes used in Forex trading. Though in international trade terms the word refers to items like minerals and precious metals, in the Forex trade context, a commodity refers to a particular currency such as the Dollar, the Yen, and the Euro.
Forex trading is the act of exchanging a national currency or commodity for another. In Forex trade literature, the exchange is expressed in terms of the two currencies being traded.
For example, a trade between the Euro and the dollar is indicated as EUR/USD. Currency exchanges facilitate trade and tourism across borders.
Where foreign exchange transactions take place is a Forex market. The Forex market is the largest in the foreign exchange trade sector as currencies are the most liquid assets. Forex markets are spot (cash) markets where speculation takes into consideration factors such as geopolitics and interest rate risks.
OTC (over-the-counter) trading is the most common way of Forex trading. There is no physical trading market, but portals across computers. This is referred to as over-the-counter trading or OTC trading. All Forex trading is carried out on computers running relevant software and anywhere in the world.
Trade worldwide starts in Sydney, Australia and closes in New York daily. The major financial centres on the globe are Sydney, Paris, Hong Kong (China), Singapore, Zurich, Frankfurt, Tokyo, New York, and London. Forex markets are represented on all time-lines.
Why Trading in Currencies is Possible
Forex trading has benefited from the influx of computers. Prior to the mass acceptance and utilisation of computers, the most common players in the Forex trade were banks, large corporations with interests across several nations, individuals of high net worth able to trade across nations, and fund managers.
The internet and the wide use of computers opened up the space for retail Forex traders with a whole ecosystem developing with both large and small players and brokers. The entry of retailers has made startups into the Forex trade less capital intensive. It thus makes it possible for entrants to start trading in amounts as low as $100.
On the flip side, this influx of players makes the industry less standardised, thus the potential for loss is much higher for traders. Depending on the currency, a trader might be in a market where the trade is almost entirely unregulated. In such a market, the currency value is determined by the terms agreed upon by the trading parties.
Put the Trading Process Before Profits
To become a consistent and profitable trader you need to focus on the process first. You won’t find any Forex trader who have become consistently profitable when they have focused solely of how much money can you make trading Forex.
In reality, what you should be more concerned with as a trader is how much money you could lose!
If you find yourself focusing on making a fixed percentage each month, this will end up with you losing more than you make. So keeping your losses small and letting your wins run is the key to success.
Don’t be in a hurry to make winning trades or profits in the markets. Take your time and evolve as a trader. Wait for those quality setups and keep your trades small, these are a few of the steps of this process that you should focus on.
Do these things well consistently and the profits will find you.
How Much Money Can You Make Trading Forex
On a mathematical model, Forex trading is determined by the percentage gain you make on a buy/sell transaction. The sheer magnitude of the amount of Forex traded daily makes the potential for making money limitless. Why not also check out this trading article I wrote with, is swing trading profitable? clicking here.
The factors that will affect the amount of money that you make are:
The unit amount you make will be determined by the amount of capital you start with. For instance, if you make a 10% trade profit on $2000 capital, you make $200, whereas if you had a $20,000 trade capital and gained the same 10% you would have a cash profit of $2000.
However, such a profit model is ideal and does not hold much practical value in the Forex traders’ business. It is impossible to develop a trading plan that will guarantee a 10% profit all the time.
Practice time on demo accounts
Fear is an enemy of Forex trading. To develop confidence and overcome your natural fears, practice your strategy on a demo account. This gives you the confidence that you will not lose actual money and allows you to concentrate on your strategy. If you are new to Forex trading, open a live account but start trading on smaller amounts.
The right attitude
Losing money can often be preceded by an attention lapse on your part. Wrong attitudes also lead to losses. Two mental states will harm your trading skills. If you take your Forex trading as a hobby, you will lose money. Go at it seriously and it will reward you. The second dangerous mental attitude is sporadic attention.
If you know you cannot trade for long hours, isolate a set time slot every day when you will do nothing but trade. Daily concentration on trading will give you better results in the long run. It will be better than spending seven hours in one week and a paltry one hour in another week.
On average, 300 to 400 trades are enough practice to refine your strategy. These are not necessarily profitable trades. They are practice trades. What you are doing is increasing your odds of winning. If you can make a profit of 60% of the trades, you have raised your overall chances of making more money.
Time and effort in learning the trade
The most incisive factor of success and ultimate ability to make a reasonable income in the Forex trade industry is the time and effort you will put into learning. Trading part-time or full-time will also have an impact on how well you turn what you learn into actual income.
Trading education will enable you to map out your trading plan, which will help you generate a consistent annual income. To understand a Forex trading plan, here are three icons of Forex trading.
Easily one of the century’s top traders, Ed Seykota has valuable lessons for the new entrant. He started trading in the 70s. According to Ed, the trader needs to learn to get out when they need to.
“…protecting your capital is your primary job as a trader. Making money comes second.” It is critical for the trader to learn to put their trading process and patience before profiteering. To become a successful trader, focus on developing your trading process.
Also at the top of the list of best traders of our century is Randy Mackay. Randy is among the few traders who did not face huge setbacks at the start of his career. His general trading philosophy as summarised in his own words is “I want to catch the easy part: the meat of the move.
The beginning of a price move is usually hard to trade because you’re not sure whether you’re right about the direction of the trend. The end is hard because people start taking profits and the market gets very choppy. The middle of the move is what I call the easy part.
I never try to buy a bottom or sell a top. Even if you manage to pick the bottom, the market could end up sitting there for years and tying up your capital.”
The successes of Bill Lipschutz are remarkable because of how he accomplished them. He started with a $12,000 inheritance and almost lost it all. A quick takeaway from Lipschutz is “if most traders would learn to sit on their hands 50 percent of the time, they would make a lot more money.” His strategy is patience above profits. Although difficult, it is possible to make a living on Forex trading.
How Long Does it Take to Become a Profitable Forex Trader?
The shortest time could be anything between three to six months, but that will make you an ordinary trader. If you want to become very good at Forex trade, give yourself at least three years.
Nevertheless, It will not take you three years to earn an income. You can make a profit in Forex trade as early as your first month, depending on what you knew before you started trading. Three years is the time it takes to perfect your trading strategy. It is enough time to enhance your strategy and help you learn market influences on currencies.
There is an adage that says ‘practice makes perfect.’ It does not flow very well in Forex trading. If you start off doing the wrong things and practice on those, then you end up with a faulty strategy. Give yourself time to study the industry and develop outstanding trading tactics. From the beginning, decide to become an outstanding trader, and invest the necessary time to practice.
To read more on how long does it take to become a profitable Forex trader, just click here to read through another trading article I wrote recently.
All new entrants into trading Forex have heard of the viability of the industry. Although they have also heard that it is possible to lose a lot of money, they know that those that have made money have lots if it. What is important to note is that the latter category did not become successful overnight. It was a slow success. They perfected their strategy and gained results compounded in time.