If you’re interested in the currency markets, there are plenty of opportunities to make money. However, if you’re new to the currency markets, knowing how much money you can make trading can be hard.
So, we put together this post to give you an overview of today’s trading opportunities available in the currency market.
What is Forex Trading?
Forex trading is when a trader buys a currency and sells a different one, and the exchange range fluctuates according to the demand and supply. The trade for currencies takes place in the foreign exchange market that is open from Monday to Friday.
The Foreign exchange market is open 24 hours a day. All currencies are traded over the counter (OTC), which means there are no physical exchanges, and a worldwide network of financial institutions and banks oversee the operations. As a result, the vast majority of trading in the market is between institutional traders.
How Much Can You Make Trading Forex?
The main question that beginners usually ask is: How can they make trading Forex? $ 500 per month? $ 2000 per month? Or even more than that? And there is a straightforward answer to that question: it depends on how much you can handle.
However, when it comes to practicalities, this question has little significance because a monthly salary of a trader is rarely consistent. For example, if there is an average monthly profit of 3 %, it equates to $ 300 per month for every $ 10,000 capital present in the trading account.
| Trading Capital | Monthly Profit of 3 % |
| $ 5,000 | $ 150 |
| $ 10,000 | $ 300 |
| $ 20,000 | $ 600 |
| $ 50,000 | $ 1,500 |
| $ 90,000 | $ 2,700 |
However, in terms of the practical results, there is a good chance that this 3 % figure will fluctuate from month to month. This is because there are too many factors in play in the Forex market, and any one of them can influence the profit. Moreover, unlike jobs that offer a fixed payment, earning in the Forex market is not easy, and the income fluctuates.
To trade comfortably without any hindrances, you must have an account size that is thirty times the size of your monthly expenses. So if, for example, your monthly expenses are around $ 3000, you will need a trade account of approximately $ 90,000 to sustain a consistent and healthy income stream (but you will need to be skillful and smart). This example indicates that you need to have a substantial amount in your trading account to earn profits every month. Therefore, most experts recommend the beginners start with smaller trading accounts.
Alternative
I suppose you have $ 50,000 in your trading account; you can opt for part-time trading instead of full-time. Trading part-time in the Forex is safe and secure, keep a permanent job in hand, and start a trading account with a few thousand dollars, and in the long run, it will grow.
This alternative will also allow you to sharpen your trading skills and will help you increase your knowledge of the Forex market. For example, it is better to handle a trading account of $ 50,000 if it increased from $ 10,000 than a trading account that started with $ 50,000.
Forex Day Trading
Forex day trading is a trading strategy for the short-term, and its main purpose is to buy and sell currency pairings on the same trading day. Usually, Forex traders place numerous trades a day, and by the end of the day, close them out and rarely hold positions overnight.
The price of currency pairings fluctuates, and this provides opportunities for day traders, as they are constantly looking for volatile pairings and have high liquidity. Forex day trading can generate results abruptly and is a quick way of seeing returns on investment.
The day trading is for those traders that have time to analyze trading information throughout the day. However, day trading also requires reactions to short-term changes and fluctuations in the prices of currency pairings. Therefore, traders will need to be disciplined and knowledgeable.
Strategies for Day Trading
Traders must be aware of the crucial day trading strategies, and they involve technical and fundamental analysis. For example, the information will help traders determine when to sell or buy currency pairings. Sometimes, traders will need different strategies, as the conditions of the market can change instantly.
How Much Can you earn during Day Trading?
Unfortunately, most day traders don’t disclose their income, so it is impossible to state an exact figure. However, if, for example, you start day trading with $ 500, you will earn much less than someone who started with $ 50,000.
If on average, you make hundred trades per month, and your starting capital is $ 30,000, you will earn a profit of approximately $ 3,750 (other fees and commission will be deducted). So your net profit after all the deductions will be around $ 2,750.
Since you started with $ 30,000, you will generate a profit of 9 % per month, and reinvesting that profit will increase the annual profit. However, keep in mind that even though the numbers look promising, nothing is certain in the Forex market, it is a competitive market, and there are many risks involved.
Some studies conducted on day traders indicated that only 1 % of them were successful in making annual profits. However, this is nothing as in the market, the number of traders that lose money is always higher than those that made money.
The Risks of Forex Trading
Forex traders require leverage, and traders will also use margin, so there are risks involved. Currency prices fluctuate but not by a huge margin, so traders often need leverage to execute a trade. If the trader makes a winning bet, the leverage can help maximize the profits.
However, the leverage can also increase the losses. If the value of a specific currency falls significantly, traders that rely on leverage open themselves up to margin calls, which can force them to sell off their securities. Other than losses, transaction costs can also reduce the profit.
To become a successful Forex trader, you need to be skilled and extremely sharp, as there are many obstacles, and the risk of fraud and misinformation is high.
What is a Forex Trading Broker?
A Forex broker is an intermediary between the interbank system and the trader. The interbank system is a network of banks that trade with each other. Typically, a broker at Forex will offer the clients prices of banks that have access to forex liquidity and lines of credit.
Most forex brokers will offer prices of several banks and will help clients find the best prices.
Opening a Forex Trading Account
The process of opening a Forex trading account and a bank account are quite similar, as both require identity verification and paperwork. The entire process usually lasts a few days.
However, brokers also offer demo accounts to their clients, which require minimal paperwork. The demo account will help traders practice trading and prepare them for the tough journey ahead.
Broker’s Reputation
Forex brokers are there to help clients connect with banks that are selling and buying currencies. There are a set of rules and regulations that all brokers need to adhere to. Although the rules and regulations of Forex marketing are strict, traders can still bump into inexperienced brokers and lack information.
The National Forex Association (NFA) follows all the brokers at Forex and can also identify their reputation. Before choosing a broker, traders must first ensure that a US authority regulates them. Brokers that are regulated provide information on their websites.
Major Forex Currency Pairings
- EUR/USD (Euro and US Dollar)
- USD/JPY (US Dollar and Japanese Yen)
- GBP/USD (Great Britain Pound and US Dollar)
- USD/CHF (US Dollar and Swiss Franc
Different Ways of Trading Forex
There are three ways to trade Forex:
- Spot Market: This is the primary market for trading forex; here, pairings of currencies are swapped, and the exchange rate is determined based on demand and supply.
- Forward Market: Instead of initiating a trade, traders can have a binding contract with another trader in the forward market. The two parties will also decide the exchange rate, amount of currency, and a future date.
- Futures Market: Like the forward market, traders can opt for a contract to sell or buy a fixed amount of the currency at a specific exchange rate in the futures market.
- Global Trade Growth
What Moves the Forex Market?
Like other marketplaces, the price of the currencies is determined by their supply and demand. However, other factors in the forex market need to be considered. For example, sometimes, demand for a certain currency can be influenced by the political climate of the country, economic growth, and interest rates.
How to Make Money in Stocks?
The more time you spend in the Stock market, the more dividend you will collect. This is because the best firms increase their profits over time and are rewarded by investors to increase the stock price. The higher price results in a higher return for the investors.
However, you will need a brokerage account; click here to set up one in fifteen minutes. If you are not regularly investing in the stock market, you will miss out on the dividends because you will miss out on the critical payout points in the calendar.
Consider this, over the past fifteen years (until 2017), the return for the full-time investors was 9.9 % yearly. However:
- If you missed out on even the ten best days in the period, the return dropped by 5 %.
- If you miss the twenty best days in the period, the return will plummet by 2 %.
- If you missed the thirty best days in the period, the return would fall by -0.4 %.
To make long-term profits in the stock market, you need to stay invested all the time. No one can predict the best payout days in the calendar, but you will not miss out on the opportunity by staying involved in the market.
Frequently Asked Questions (FAQ) About the Forex Market
- Who owns Forex, and where is it located?
Forex does not have a particular owner; it is an interbank market, which means transactions occur between a seller and a buyer. Therefore, as long as the current banking system exists, Forex will exist as a specific government or country that does not run it.
- Working Hours of Forex?
Forex opens at 22:00 GMT on Sunday (Australian trading session opens) and closes on Friday 22:00 GMT (US trading session closes)
- How Much Money is Needed to Start Forex?
Some traders start trading with just a dollar; however, the starting amount varies from 100 to 100,000 dollars.
- Best Strategy for Forex?
No one strategy is better than the other one; traders must develop new strategies all the time. Some Forex strategies are only beneficial in the short term.
- Can I Lose more than What I Invest in Forex?
Not really; the broker will not let the trader face huge losses and will not allow the loss to be greater than the amount in the trading account.
Is Forex Trading Right for You?
Forex trading has its pros and cons, if you get lucky, you can earn a fortune, but there are risks involved. Nevertheless, the currency market as a whole has made people millionaires, so with the right guidance, anything is possible. However, traders must first learn the techniques and methods of Forex trading and develop a winning strategy.
Conclusion
In this article, we started by explaining what happens in the Forex market, but our main focus was on how much can you earn? And the conclusion is simple: we don’t know. We can only make speculations and predictions, but it all depends on the trader and the factors at the end of the day.
We also discussed what day trading is and how much you can earn as a day trader. Most day traders keep their income confidential, so we don’t know the actual figure. The best way of earning a profit from the Forex market is by staying up to date, sharpening the skills, and gaining knowledge regularly.