Looking at the benefits of forex trading, such as the fact that it is available all day Monday through Friday, has low transaction costs, requires a small initial investment, governments and central banks do not have control over the forex market, and many more, you can conclude that forex trading is a profitable venture that can make you a fortune.
How much money will you make trading forex if you quit your job? Should you start trading right away because you have the money and some knowledge? Here’s how to become a successful forex day trader.
How Do Forex Trader Make Money Day Trading?
The practice of buying and selling currency pairs throughout the day is known as forex day trading. It can involve taking long trades that last hours or the entire day, as well as taking short trades on 1-minute charts. Traders who use this strategy aim to make reasonable profits within the day. It is effective with highly volatile pairs.
This is what happens in day trading: a trader analyzes the market and selects entry and exit points when they see a good pair. They leave after winning or losing a trade until they find another profitable position.
Day trading, no matter how appealing it may appear, is not without risk. Other trading options include weekly, monthly, and annual trading, among others. But we’re here to day trade. So, how much do currency traders earn?
Two currencies are listed using three-letter abbreviations in the standard currency pair quotation system. The base currency is on the left, and the quote currency is on the right. In a two-way quote system for buying and selling currencies, each pair will have two prices: the bid and the asking price.
What Makes A Successful Day Trader?
A successful day trader employs a strategy.
Profitable success in the Forex market can vary greatly. A Forex trader can earn $10,000 per day, while another can earn $10,000 per month using the same strategies. As a result, it is not only about the strategies you employ, but also about various factors such as experience, execution, decision making, and so on.
Having said that, a Forex strategy considers two factors:
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
To be profitable, there must be more wins than losses. For example, if your target is 5 pips, you should win every trade. You also intend to open 15 positions per day, with a profit of 75 pips. Nonetheless, we stated that you would lose 5 of 15. As a result, 75-15 = 60 pips.
Consider the following currency pair:
For example, suppose you are a cryptocurrency day trader. On this particular day, ETH/USD appears to be in good shape, so you enter the market on the 1-minute chart, spot a possible bullish move, and purchase ETH/USD. After a minute, the trade goes against you, but your stop loss is set at 3 pips, so you start the day down. 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.
Leverage refers to the financial resources that traders borrow in order to acquire assets and increase their profits. Brokers offer leverage. As a result, the type of broker you choose is important. Brokers can provide up to 50:1 leverage. That is, if you have $1000 in capital, you can trade up to $50,000 with the same risk.
To be clear, the higher the leverage, the higher the profit, but also the higher the loss. So leverage is a useful tool, but you must first understand how it works.
How Much Money Can Forex Day Traders Make a Day?
Before answering this question, there are several factors to consider. However, if you look at the elements required to be a successful day trader listed above, you can quickly find an answer. But first, let’s pretend you started day trading with a $1,000 investment.
You place a maximum of 15 trades per day (too many), lose 5, and win 10. You can expect a total of 60 pips per day.
As previously stated, you earn approximately $20 per day. It will be: for a month, which is 20 days because you only trade Monday through Friday:
$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
Isn’t that good? However, keep in mind that the forex market is never as perfect as these figures appear. Getting a perfect turnout every day is unusual, let alone simple. The goal, however, is to keep losses to a minimum. You cannot completely eliminate them.
The truth is that only about 1% of day traders are successful by the end of the year. This should not frighten you because if you stick to your strategy, you will be among them. The amount of time you devote to learning and comprehending the market is critical for profitable trading.
Many people overlook the importance of trading psychology. Trading psychology is something that people should be willing to pay for. It is critical to be able to keep emotions out of trading.
What Do I Need To Be a Successful Day Trader?
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.
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.
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 Forex Day Trader
“You cannot build generational wealth with day trading,” said Jack Dorsey. Remember that you can make money if you have a good strategy and stop treating day trading as a hobby. Long-term growth plans, on the other hand, must be considered. As you are aware, day trading necessitates your presence at your computer in many situations, even when using stop-loss options.
Increase your efforts in learning new market techniques and approaches. It can be a good career option that does not require you to be physically fit. As long as you have a computer and a fast internet connection, you can work from anywhere in the world.
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.
This simple risk-controlled strategy indicates that with a 55% win rate and making more on winners than you lose on losers, you can achieve monthly returns of more than 20% with forex day trading. Most traders shouldn’t expect to make that much money; while it sounds easy, it’s actually more difficult.
Nonetheless, thanks to leverage, a dedicated forex day trader with a good strategy and a good win rate and risk/reward ratio can make between 5% and 15% per month. Remember that you don’t need much money to get started; $500 to $1,000 is usually sufficient.