How much do Forex Traders make a day?
Federica D’Ambrosio is a Senior Trader and CFO at Audacity Capital. She graduated in Finance from Luiss University enhancing her knowledge on global markets completing a Master of Science at Fordham university in New York.
Looking at the benefits of forex trading, it is available all day Monday to Friday, has low transaction cost, requires a minimum amount to start, governments and central banks cannot control the forex market, and many more, you can conclude that forex trading is a lucrative endeavour that can make you a fortune.
Should you quit your job, how much will you make trading forex? You have the money and some knowledge; should you start trading immediately? Here is what will make you a successful day trader.
How Do Forex Trader Make Money Day Trading?
Forex day trading is buying and selling forex pairs throughout the day. It can involve taking long trades taking hours or the whole day or small time frames like 1- minute charts. Traders using this type of strategy aim at making reasonable profits within the day. It works well with highly volatile pairs.
This is what happens in day trading; a trader analyses the market, and when they see a good pair, they choose entry and exit points. After being successful or losing the trade, they leave until they find another profitable position.
However good it may sound, day trading also makes losses. Other trading options are weekly, monthly, annually, and more. But we are here for day trading. So how much do forex traders make?
The standard currency pair quotation system involves two currencies listed using three-letter abbreviations. The first or base currency is on the left, while on the right is the quote currency. There’ll be two prices for each pair in a two-way quote system for buying and selling currencies, and the bid and the asking price.
Placing a Forex order involves giving your broker or brokerage software commands showing the currency pair to buy or sell. You’ll indicate the direction of trade, whether short or long, and the price to trade. Trade orders tell the platform the quantity to buy, where to deposit that profit, or when to exit the trade.
In both instances, the market needs to go either up or down for you to make a profit. That’s true whether you bought weak to sell strong or you shorted the market, waiting for the price to fall.
What Makes A Successful Day Trader?
A successful day trader works with a strategy.
Success in terms of profit can differ vastly in the Forex world. A Forex trader and make 10.000$ a day, while another, using the same strategies makes 10.000$ a month. Therefore is not only about what strategies you use, however also about different factors like experience, execution, decision making, and more.
Having said this, a Forex strategy looks at two things;
The win rate.
A day trader has a specific number of trades per day; let’s take a random number, say 15. The win rate is the number of profitable trades in the 15 trades. So if you win 10 out of 15, your winning rate is 66% which is achievable but keep following, and I will show you why almost 99% of day traders won’t achieve it.
Reward and Risk.
There must be more wins than losses to be profitable. For example, if you have a target of 5 pips, win for every trade. And you also aim at putting 15 positions a day; you make a profit of 75 pips. Nevertheless, we said you lose 5 of 15. Therefore, 75-15 = 60 pips.
Let’s look at a currency pair example:
For example, you are a day trader who focuses on cryptocurrency. On this day, ETH/USD is looking good, so you enter the market on the 1-minute chart and see a possible bullish move and buy ETH/USD. After a minute, the trade goes against you, but your stop loss is at 3 pips, starting the day at a loss. So you analyze again after 10 minutes, you set 3 positions where two respect your order and 1 goes against it. By the end of the day, you have made 60 pips but lost 15. So if you are using a lot size of $100,000, you will make $20 per day.
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Leverage.
Leverage is the financial muscle traders borrow to acquire assets and increase their profit. Brokers provide leverage. So the type of broker you pick matters. Brokers can provide leverage of up to 50:1. Meaning if you have a $1000 capital, you can trade up to $50,000 with the same risk of $1000. Not to get you too excited, the higher the leverage, the higher the profit, and so is the loss. So leverage is a good tool, but master how it works before using it.
How Much Money Can Forex Day Traders Make a Day?
There are many factors to consider before answering this question. But if you look at the elements you need to be a successful day trader above, you can quickly get an answer. First, however, let’s assume you started day trading with a capital of $1000. In your strategy, you place a maximum of 15 trades a day (too many), lose 5 and win 10. You are looking at a total of 60 pips per day. As mentioned, you make roughly $20 a day. For a month, which is 20 days since you only trade Monday to Friday, it will be: $20 x 20 days = $400 a month. If you consider commissions and trading and withdrawing fees, you remain with roughly $330 In case you plan to start trading with an initial investment of $10000, you will make; 1% x 10000 = $100 risk per trade, using a lot size of 0.10 because the amount is bigger 0.1 x 60 = 6 but you make $60 because each pip with the lot size is $1 $60 x 20 days = $1200 adding up to $14,400 per year. However, if you are using a bigger lot size you will make more. On the other hand, a $100 account will make; $100 with a lot size of 0.01 because it is a small account 0.01 x 60 = 0.6 which is $6 per day. $6 x 20 = $120 per month Not bad, right? However, remember that the forex is never a perfect market as these figures look. Getting 100% turnout every day is not typical, let alone simple. However, the aim is to keep losses minimal. You cannot eliminate them entirely. The truth is that approximately 1% of day traders become successful at the end of the year. This shouldn’t scare you because you are amongst them if you follow your strategy. How much time you invest in learning and understanding the market is critical for profitable trading. Something fundamental not mentioned by many is trading psychology. Psychology in trading is something people should be willing even to pay to acquire. The ability to keep emotions out of trading is vital.
What Do I Need To Be a Successful Day Trader?
Risk Involved.
Pioneer traders insist that your risk should be 1% of your capital in one trade. Therefore, if you have $1000 in your trading account, you should risk only $10 at a profit ratio of 1.5%. It sounds so little to make such an amount, yes. However, discipline is critical. How much forex traders make in a day depends on their invested money. It is worth noting that forex is not a get-rich-quick scheme.
Knowledge Investment.
How knowledgeable are you about the subject? As you know, forex is not gambling nor a game of luck. It takes time and money to master the skill. Therefore, apart from the money you can put in forex, invest in knowledge about how the market works. That’s why you are advised to trade on a demo account before putting in real money.
Discipline.
Congratulations on putting money and time into forex trading. However, let me remind you that how much money you can make trading forex a day can also be the same as how much money you can lose. It all depends on the level of your discipline to your strategy. If your strategy says to use 1% of the capital and execute 15 trades per day, you will be killing yourself to go against it. If you make your daily target, be disciplined to stop. You have probably heard people who made thousands of dollars in a day and lost it all on the same day.
The Future of a Day Trader.
Jack Dorsey once said, “you cannot build generational wealth with day trading.” However, if you have a good strategy and stop taking day trading as a hobby, remember that you can make money. But on a long-term basis, you need to consider having growth plans. As you know, that day trading requires you to be on your computer in many events, even with stop-loss options. Put more effort into learning new techniques and approaches to the market. It can be a good career option that doesn’t need you suited to work. You can work from anywhere in the world as long as you have the basics; a computer and a fast internet connection. However, to make forex day trading a worthwhile career, you need to remember that you are good as dead without discipline. Patience and good risk management techniques will keep you afloat in the industry. Lastly, invest in forex knowledge first before you throw money into a ditch. If you don’t have enough funds to start your career in trading, you can register with Audacity Capital to get a $15000 funded account.