How much can a private individual earn on Forex?

Forex trading is booming around the world, but how much money can you realistically make?

Forex trading is becoming more popular, and people don’t necessarily have to be experts to get involved. The rise in the number of web-based trading platforms makes it possible to create an account and get trading in no time at all. For all those people moving into the sector, one question burns above all others: how much money might I make?

Around $5.3 trillion is traded on the Forex market every day and the total trading volume is four times the size of global GDP and it’s 53 times the size of the New York Stock Exchange.

Online forex trading platforms have opened up the sector to all sorts of people who might not have considered trading financial instruments. These provide help and support in the form of online training and extensive customer service support, as well as an accessible and intuitive interface which enables you to make trades with just a few clicks.

How much can you make?

So, if you’re one of the people thinking about jumping into the forex market, the question is: how much money might you make? The disappointing, but realistic answer, is that it all depends.

There is no guarantee of success in the forex market, and even on a good day the chances are that you will make a string of losses. The secret is to try and make sure the number of positive trades is higher than negative and that you make more money on good trades than you lose on bad.

For that you need to aim for certain targets. One of the first metric forex traders look for is win rate. A rate of 55%, for example, would mean the trader is successful 55% of the time. Most of all they need to make sure that their wins are more profitable than their losses. So, if you lose 10 pips on one trade but gain 15 on another, you’ll be pretty happy with life.

The amount you earn also predictably depends on how much you invest. A 5% yield on $1,000 might not look very good, but if that’s on $100,000, your profits look much healthier. Most platforms will also try to encourage you to make large investments by reducing the amount of commission they take.

The trading platform ROFX, for example, starts with a trial account of $1,000 rising to more professional levels of $100,000. Higher investments hold out the prospect of higher returns, but also increased risk.

Of course, wins aren’t guaranteed, but traders can reduce their risk by using a stop loss order which sells up when losses reach a certain amount. This means that the losses you incur are limited while the gains are not.

So, if you invest $5,000 of capital, with a win rate of 55% but risk only 1% of your capital, your gains should be considerable. You might use a stop loss order five pips away from the entry price and have a target of an eight-pip gain which means you’ll sell up once you’ve gained eight pips. This means your potential gain is 1.6 times higher than your risk. The amount you win, of course, also depends on the number of trades you make, but let’s take the theoretical scenario that you win 55 trades in a month gaining $80 on each one, against 45 trades in which you lose $50. The results would work out like this.

One leading analytical tool, Pyfolio, for example, offers an open source tool which can evaluate a portfolio while taking into account a degree of uncertainty and offer a number of visualisations.

These figures discount commission rates but give you an idea of how much you might make if you are successful and employ the right strategies. The one thing to remember, though, is that not all trading platforms offer the same quality of service or the same prices. It pays to do your research, work out how much they charge and what strategies they employ.