This is one of the most common questions aspiring forex traders ask. But the answer is not that straightforward. Becoming rich trading forex depends a lot on your circumstances. While it is possible to make a lot of money from forex trading, it is not as easy as you think. It requires a lot of hard work — first, in educating yourself and acquiring the skills and, second, in implementing your trading plan consistently without allowing your emotions to sabotage you.
Generating profits from the market is not easy, and even when you achieve that, you can lose both the profits and your capital if care is not taken. So, forex trading is not something you dabble into because you read some social media stories of people who bought their dream houses or cars by trading forex.
Success in forex trading takes time, hard work, and money. But above all, you must have a passion for it, if not, you will give up along the line. In this post, you will learn the truth about forex trading and get an idea of what professional traders earn, but we will also discuss the things you need to succeed, how much you can realistically make, and some tips that may help you.
The truth about forex trading
Before you consider getting involved in the forex market, you need to aware of the reality so that you decide whether forex trading is actually for you or not, which is why we are starting with the following points that you should take note of before embarking on your forex trading journey.
Forex trading is not your ticket out of poverty
If you are a low-income earner or unemployed and you’re battling with debts, struggling to pay your bills, and finding it difficult to eat, you should stay away from forex trading because it can’t work for you. Rather than be a ticket out of your poverty, the market will take the little you’re surviving on, and here is why:
To have a chance of succeeding in the forex market, you have to trade with the money you can afford to lose, and the bigger that money is, the higher the chances of making more money. When you’re trading with the money you can’t afford to lose, you will be forcing all your trades to become a winner, and that could mean trading without a stop loss — a mistake that will eventually blow up your account.
You can’t buy that Bugatti in 6 months
It’s common to see a picture of a young man or a beautiful lady with the latest luxury cars in front of an oceanfront apartment, who is claimed to have made all the money from forex trading. Naturally, we desire such a life — making a lot of money without having to work for anybody.
While it is possible to make that kind of money from forex, that only happens over a long time (many years) if everything ticks well. You don’t achieve that kind of success in forex trading within a short time. It takes time for the profits to accumulate — forex trading is not a get-rich-quick business. Moreover, your account has to be big enough for you to generate good profits from trading.
You may break your screen
The real work of sitting in front of the computer — or whatever device you use for trading — and analyzing the markets, placing trades, and managing the trades is not easy in any way. It can take a toll on your emotions and leave you mentally drained and exhausted.
Watching the market go against your position and stopping you out, only to turn back and move in the direction you initially expected can be too much to bear. But that’s the reality of forex trading — all your emotions will be tested. If you’re the type that has anger management issues, such situations can make you punch your computer in anger. So, you need to be sure that you’re ready for the emotional battle.
There is a 90% chance of coming out empty-handed
Yes, you heard that right. Research has shown that over 90% of retail traders lose all their initial capital to the market. The reason is mainly due to lack of training, not using a reliable trading strategy, not knowing how to manage risks, and ultimately, lacking the discipline to implement their trading plan well.
So, if you don’t want to be among the 90% ‘also tried’, ensure you get adequately trained before you start trading live. You must be disciplined enough to stick to your plan and trade objectively. But even with all these, you will still have some losing trades and negative months. If you don’t know how to accept losses and can’t handle losing, forex trading may not be for you.
But can you really become rich trading forex?
Now that you know the reality about forex trading, let’s take a look at our question again. Can you really become rich trading forex? Well, it depends on a lot of factors:
How much skills and experience you have
Despite the failure rate, some people still make money consistently from the forex market. These few successful ones are able to do it because they have mastered the skills required to succeed in this market and have acquired years of experience practicing their trade. They have clearly thought-out strategies with an edge in the market, and they know how to manage risk and protect their trading capital.
For these kinds of experienced traders, growing a trading account to a huge amount is very possible. But are you in that category? Do you have a reliable strategy with an edge in the market, and if you do, are you disciplined enough to consistently execute it without fear and greed? Do you have a clear-cut money management plan that would protect your capital?
While all these questions may seem overwhelming, those skills are not out of your reach if you are determined enough to acquire them. It will only require you to work hard enough for as long as it takes to master the skills.
The size of your trading account
Apart from the skills and experience, the size of your trading account matters a great deal. The reason is simple: the size of your account determines the size of your trades and the amount, in dollars, you make in profit per trade.
For example, if you have a $100 account and you’re using a strategy that risks 1% of the account to make three times the risk as profit. Let’s say after all wins and losses, you make an average of 10% of your account size consistently every month. Without any withdrawals, it will take over 10 years to make up to $1 million.
With a $5,000 account, that can be achieved in about 5 years assuming the same conditions. If you are trading a $100,000 account, you may achieve that in about 2 years if all conditions are the same. So, it’s obvious that the size of your trading account can determine how fast you can become rich trading forex, assuming you have the skills and a reliable strategy that consistently makes money.
Your trading discipline
Any trader who has made money in the forex market will tell you that discipline is key. There is no success in forex trading without being disciplined enough to consistently execute your strategy and avoid emotional trading. Trading irrationally, based on how you feel, is a sure way to end up with a $0 balance in your trading account.
Trading with discipline means developing a trading strategy with a verifiable edge in the market and waiting until you see a qualified trade setup before you place a trade and, then, managing the trade according to your trading plan. It means avoiding trade execution errors, such as jumping the guns, chasing trades, risking more than your account size, having bigger stop loss than profit targets, taking profits early, and trying to revenge on the market after a loss.
How patient you are
Aside from having the patience to wait for your trade setups and managing your trades according to your plan, you need patience to grow your account to the level that can make you rich. The only way to become rich trading forex —if you are already profitable — is by reinvesting your profits and leveraging on the power of compound interest to grow your account.
Depending on your average monthly or yearly returns and your trading capital, it may take you several years to grow your account to a level where you can afford all the good things you desire. Hence, to become rich through forex trading, patience is key.
Account growth plan
Just like we hinted above, you can only become rich if your plow, at least, some of your trading profits back and use them to make more money — that is, assuming that you’re already profitable and consistently making profits.
How much of your monthly profits you withdraw and how much you retain to grow your account would depend on your financial situation and growth plan. If you depend on your profits to feed and pay bills, it will take you a longer time to grow your account and accumulate wealth than if you retain all the profits.
How much do professional forex traders earn?
To get an idea of the kind of money in forex trading — for those who have developed the prerequisite skills — let’s take a look at how much professional forex traders earn on average. Professional traders are those highly trained traders that trade for commercial banks and other financial institutions. According to Salary.com, professional forex traders earn about 180,000 USD per annum on average.
Note, however, that the amount is the average salary of professional traders and not what an average retail trader, like yourself, make from forex trading. But the point is that if a trader can be paid that amount as salary, he must have made up to five to six times that amount or more within that period.
So, it is really possible to make a lot of money from forex trading if you have what it takes to pull the money out of the market. But what exactly are those things it takes to consistently pull money from the market? Read on!
What you need to become successful in forex trading
Forex trading is not for the lazy; it requires a lot of hard work plus other factors. To succeed in the market, the following factors need to be in place:
- Adequate trading education
- A trusted broker
- A good trading strategy
- Enough practice
- Big trading capital
- A good source of income
If you want to become a heart surgeon, you must get the necessary education and hands-on training on how to open the thoracic cavity and work on the heart. It is the same way with trading; to acquire the skills that can help you pull out money from the forex market, you need to get the right training.
While you can educate yourself with all the free trading resources you can find on the internet, including books, blogs, and YouTube videos, you will learn faster and better if you are trained by an expert who is already successful in forex trading. So, it’s wise to enroll in a trading course like the one offered by Pro Trading School.
An honest broker
Trading with a dishonest broker is like trying to fetch water with a basket — you won’t get anything out of it. The unfortunate thing is that there are many dishonest brokers out there, and they are the ones that place the most appealing adverts. So, you need to be extra careful not to fall into their hands.
To be sure you are dealing with a trusted broker, make sure that the broker is regulated by any of the tier-1 financial authorities, such as the FCA, ASIC, CFTC, and IIROC. Also, make sure that the broker operates the ECN order-execution model to avoid the risk of a conflict of interest associated with dealing desk brokers. Among all the brokers that meet these two criteria, pick the biggest brand, as they will likely be more concerned in protecting their brand than stealing from clients.
A strategy with an edge in the market
You need to develop a strategy with an edge on the market. By having an edge on the market, we mean a strategy with a good positive expectancy. Expectancy in trading is a parameter we use to gauge whether a strategy can make money in the market. It is the average return for each trade when all the wins and losses are considered. Expectancy is given as:
E = (Win % x Average Win Size) – (Loss % x Average Loss Size)
A positive value shows that the strategy can make money, while a negative value shows that it is a loser. The bigger the positive value, the more profitable the strategy is. An expectancy of $150 means that on the average, the trader makes $150 from each trade. To confirm that a strategy has a positive expectancy, you need to front-test it and analyze the result.
After creating a potential strategy, you need to front-test it on a demo account to be sure it is a profitable strategy. For this, you record the outcome of every trade and other relevant data, including the amount risked and the amount gained. When you have enough sample size, you use those data to calculate the expectancy.
One more thing, as you’re practicing with a demo account, you are not only testing your strategy but also getting used to your trading platform.
When you’re sure that your strategy can make money and you’re comfortable with the platform, you need to start practicing on a live account to make sure that you can execute the strategy when real money is at stake.
However, to ensure that you don’t put too much money at risk at this stage, it’s advisable to start small and trade with a Nano or Micro account first. Continue practicing with a small amount until you’ve developed the mindset of a trader — which is to focus on the execution process and not on the outcome.
Adequate trading capital
While you are getting the training and mastering a suitable strategy, you have to start saving enough money for your mission — trading your way to wealth. Remember, all things being equal, the bigger your trading account, the bigger your profits, and the shorter the time it will take you to amass wealth from forex trading.
So, if you’re serious about making enough money from forex trading, start making your savings now. You should target to have more than $10,000 disposable income saved for your trading mission. But as we stated above, you don’t just start trading with all the money once you progress to live trading.
You have to test the waters with a small amount and be sure that you can execute your trading plan properly without your emotions getting in the way. When you are comfortable trading on a live account, start increasing your account gradually until you adapt to the full account size.
A good source of income
There are many reasons why having a reliable source of income can help your cause. Firstly, you would be able to save a sizeable capital for your trading mission. But the more important reason is that it can take care of your bills so that you can retain all your trading profits for the growth of your account.
Apart from helping in your account growth, it will remove a psychological burden from you — the need to make money at all cost — which can make it difficult for you to accept a loss, potentially setting you up for ruins. So, it helps to protect your trading capital from your sabotaging emotions.
How much can you make from forex trading as a retail trader?
The thing about forex trading is that the more you trade the more money you can potentially make. However, does this mean that scalpers and day traders, who take more number of trades, make more money than swing traders? No, it doesn’t work that way. In fact, swing and position traders may be making more money because they get better signals and have bigger profit targets.
What we mean is that, for a given trading strategy and plan, the more you trade, the more money you can potentially make. So, it’s better to trade all your setups that occur in the currency pairs you’re monitoring than trade some and miss some. Statistically, the bigger the sample size, the more your result would be closer to the expected outcome. And arithmetically, that translates to more money, as you can see below:
Potential income = Expectancy x Trade Frequency
Remember that Expectancy is the average profit of all trades, including wins and losses. So, for a strategy that has an expectancy of $150, if you trade 100 times in a year, you expect to make about $15,000 in profits, all things being equal. If you trade 50 times, expect $7,500, and if you make 200 trades, you expect $30,000.
Tips that can help you succeed in forex trading
Forex trading is not a child’s play. A great majority of retail traders lose all their money, but if you’re determined and follow all the rules, you can trade your way to good money. Here are some tips that can help you.
- Start small: We can’t say this enough — start with a Nano account and trade it until your emotional ecosystem is suitable for trading bigger amounts. It is true that you need a big account size to make more profit, but if you enter the market with all your trading capital before your emotions are ready, you stand a chance of losing all of them.
- Trade in sample sizes and analyze your trading results thereafter: Once you’re executing your strategy well, don’t even bother with the outcome of individual trades. All you should do is to record all the parameters associated with each trade. After you have completed 30 trades (whatever sample size you choose), analyze your trades to see how well your strategy is performing and make the necessary adjustments.
- Manage risk and protect your capital: Do not risk more than 1% of your account capital in each trade, and make sure you set a hard stop loss. If you’re trading with a true and honest ECN broker, you don’t have to worry about your broker knowing where your stop loss order is.
- Stick to your plan: Be a disciplined trader; always stick to your trading plan until you review it when you have completed a sample size. Dishing your plan in the middle of a trade will only lead to erratic trading, which is a recipe for losing.
- Be patient with your progress: At the initial stage, it will seem as if you are not making any progress, but be patient. Once your strategy has a positive expectancy, just focus on executing it. There will be periods of winning and losing streaks, but over the long term, your account will keep growing.
- Leverage the power of compounding: Make it possible for you to retain all your profits so that you can grow your account faster. What this means is that you should have another source of income to cover your bills so that you can afford to not touch your profits. As your profits accumulate, your account grows, and soon, you will be able to trade bigger lot sizes while still risking only 1% of your account, thereby generating more profits without altering your money management plan.
Yes, forex trading can make you rich, but it requires determination, a lot of hard work, and efficient planning. You must learn all there is to learn from those who have done it before you, find an honest broker, save enough capital, create a strategy with a positive expectancy and practice how to execute it, and above all, be making money from somewhere else.