The forex market is one of the most popular ways to supplement your regular income. Although most forex traders only seek to trade the market to augment their main incomes, some manage to turn it into a lucrative source of income.
Additionally, there is a select group of billionaires that made their wealth from trading forex and George Soros is one of the best examples that most forex market experts point to. Here is everything you need to know about making forex your source of income.
What Are The Advantages Of Trading Forex?
One of the main reasons people use the forex market as a source of income is because of the ease of entry. Anyone can trade forex, whether by themselves or by relying on a signal service or trade copier.
Moreover, getting started in forex is easy, both capital-wise and structurally. While setting up a business requires high initial capital and obtaining relevant licenses, opening a forex account can be done with as little as $3,000 or lower and no one will ask you for a business license. That part is left to the broker.
Trading forex can be done 24 hours a day. This means that even if you have a 9-5 job, you can still make meaningful income from trading forex. The question of cause is if you made forex trading your main source of income, can you make a living trading forex?
Factors to Consider When Using Forex Trading as a Source of Income
To make forex trading a feasible source of income, you must adhere to a strict risk management strategy.
- Don’t lose more than 1% of your account on one trade
The rule of thumb is that you should never risk more than 1% of your account on a single trade.
What that means is if you have a $5,000 account, then you cannot afford to lose more than $50 on one trade. This is why professional traders use stop-loss limits to control their losses.
- Achieve a win rate of 55% and above
Ideally, assuming every trade that closes in a losing position results in a $50 loss, and every trade that closes in a winning position results in a $50 win, a 50% win rate will break even on your account. And that does not include any charges related to overnight trades. Therefore, a 55% win rate is recommended.
- Try making more per winning trade compared to losing trades
The alternative is instead of making as much profit on every winning trade as you lose on losing trades, you can target a higher margin for winning trades. So, instead of making $50, you target $75. This means that even a win rate of 50% will be a profitable trading experience for you.
This is the most popular strategy adopted by top traders, making your winners bigger than your losers.
- Be mindful of the number of open trades
Another thing that you should consider is the number of open trades you can have at any given time. Again the rule of thumb is 3-5, especially if you are trading manually. This limits the amount risked at any given time to 3-5%.
How Much Can a Beginner Forex Trader Make?
As a beginner trader, you are likely to struggle to make money in forex because of a lack of patience and experience. Therefore, in the initial stages, it is always recommended you approach the market as a part-time gig, rather than comparing your potential profits with a full-time forex trader income.
This way, you can keep your risks low as you learn the ropes. Most beginners start with $3,000- $5,000 accounts, while experienced traders manage accounts with funds above $100,000 or even higher.
So how much can a beginner forex trader make? 5%-10% (in dollar terms) of what a professional trader makes. Below is an example of trade demonstrating how a professional trader made $2,750.
How Much Do Professional Forex Traders Make Per Month?
There is no concrete answer to this question, but we can provide guidelines and estimates based on achievable assumptions.
Using the chart above, assuming the trader used the maximum leverage permitted in the US of 50:1, a profit of 55 pips would earn the trader a whopping $2,750. ($55X50), by opening the position at the indicated entry point and covering at the indicated exit level.
However, in day trading, positions are likely to return anything between 10-20 pips, with very rare occasions witnessing 50+ pips in profits.
So how much do forex traders make in a day? In pip terms a retail trader can make between 20-100 pips, it all depends on how successful a trader is, and how active they are per day. And then dollar-wise, it comes to the amount of capital invested and the leverage applied. In some countries, traders can apply leverage up to 500:1 or higher.
Can Forex Trading Make You Rich?
Although most people join the forex market to augment their incomes, they always have this question at the back of their minds. Can forex trading make you rich? Of course, everyone wants to be rich, but it’s not as straightforward as some platforms may suggest.
Ensuring that you adhere to the factors discussed above you have a great chance of making a living trading forex. For instance, depending on the profit margin per trade, you could easily find yourself making 5%-10% of your account per week, which can translate to as high as 25-30% per month.
However, you should note that, while a successful month could bring you such profit margins, a bad month could be equally devastating.
Therefore, monthly earnings are not directly proportional to annual earnings. Although George Soros made billions of dollars trading forex, as a beginner trader, you would be better placed exercising patience and caution for better long-term success.
Alternatively, you can always seek help from signal service providers to boost your forex trading profits.
Most people who go all-in and rush to get results will fail because forex trading does not churn out millionaires every second. You need to map out your strategy, have knowledge of the foreign exchange market, finalize your capital, and then dig in. Tools like Telegram. Forex can help with trade decisions.
In summary, brokers always have a disclaimer somewhere on the website indicating the number of traders that lose money in forex. The percentage ranges from 65% to 70%, meaning roughly 30%-35% of retail forex traders are profitable in the forex market.
This is why some traders opt to use signal service apps like Telegram.Forex to boost their profits. Although the 65%-75% figure is scary, the 30%-35% figure shows that there are some people out there who have made trading forex a source of income. So, can forex trading make you rich? Definitely yes, but you’ll have to sharpen your skills and manage your risk properly.