You are planning to make become a full time or part time forex trader. You have one question on your mind. How much money will I make from this new venture? Will it be enough to pay the bills? Can I be a millionaire trading Forex? Worry not, below is a clear breakdown of what you should expect to earn. You will realize that calculating expected income is not that direct. It depends on quite a number of factors.
Factors that will determine how much you make from Forex?
1. Trading Frequency
The more trades you make the higher your income. It is really not rocket science. Making a hundred trades in a month will earn you more money in comparison to making 10 trades. With ten trades there is a chance you will make loses because the number of trades is not enough to truly reflect the effectiveness of your trading strategy. A hundred trades, on the other hand, ensure losses and profits balance out.
2. The size of your Bankroll
In the financial sector money is the main raw material. It, therefore, goes without saying that the more money you invest, the higher your income earning potential.
Allow me to demonstrate how this works:
You have a starting account of $1000,
Let us assume you risk 1% of your account per trade.
This means you can only risk 10 dollars per trade.
With a risk reward of 1:2, you can expect to earn 20 dollars per trade.
Win ten trades in a week and you can expect a weekly income of 200 dollars.
Note that winning 10 0ut of 10 trades is close to impossible. Expect to earn half of 200 dollars which is 100 dollars.
Compare this with a $10,000 account.
A 1% risk means 100 dollars is the maximum risk per trade.
With a risk reward of 1:2 there is a possibility of making 200 dollars per trade.
Win 10 trades in a given week and you should make 2000 dollars.
Half of 2000 dollars is still a decent amount of money.
3. The Power of compound interest rate
There is this famous Albert Einstein Quote “Compound interest is the eighth wonder of the world. He who understands it earns it … he who doesn’t … pays it.” If you let your profits from FOREX compound you will be surprised by the number of profits you will make over time.
Here is a little demonstration:
Assume you make a conservational 20% per year return on investment. If you start out with $10,000 in the first year and you do not withdraw any profits, you will have $383,376,000 in twenty years.
4. Risk management can make or break you in the financial markets.
Risk management is perhaps one of the most important aspects of trading. If you do not follow risk management principles your account will go to zero in no time. As a general risk between 1%-2% per trade and no more. If you risk more than this percentage there is a high chance you will join the 99% of forex traders who consistently lose money to the market.
Let’s crunch a few numbers: With a 55% win rate, you should be able to make around 20% of your bankroll every month.
However due to a number of factors such as less trading opportunities in a given month this percentage averages between 5-15%. With a large bankroll, you should be able to live off forex trading.
Remember to check out the best online platforms you can learn to trade Forex from.