Forex (or foreign exchange) seems to be a quick, easy way to make money – if you play your cards right. You trade with different markets across the world and hope your trade will flourish against theirs. It’s not simply luck, though. Forex can be a profitable career choice, but you need to know how much you’ll make and what you’re getting yourself into.

The range of what a forex trader makes annually is based mostly on how well they perform and how much they invest into their portfolios. Typically, traders can expect to make from about $130,000 to $200,000. Somewhere in between is rated as “average,” but this number is inconsistent, with plenty of outliers ranging in either direction. 

Therefore, it’s important to consider how much you can invest before starting, how much you need to make, your experience, and plenty of other factors that go into profiting from the foreign exchange market. Read on to see the factors that play into profiting, the risks involved, and some things you should know before getting started. 

Factors Affecting How Much a Pro Forex Trader Earns

The reasons it’s difficult to nail down a flat number for how much a typical forex trader makes is because there are variables in how a trader works and earns.

Investment Capital

The most important (and stressed) lesson you’ll hear in forex trading is that “it takes money to make money.” If you want to make a lot of money, you also have to invest a lot as well.

Of course, you can build it up over time, but you will have less to work (and play) with. More money also allows you more freedom and opportunity to work on your strategy. To overcome this, there are plenty of resources to do mock trading and learn without the risk.  

Leverage

Leverage in trading is critical, but inherently risky. Since leverage means you’re playing with more money than you really have, you want to use it wisely. Leverage is most beneficial when you’re dealing with a larger amount of money for investment, as you have more to fall back on if you end up flopping.    

Positions

There comes a point in every trader’s career when they question what their next move is. This is usually a question asked when a trader has enough experience and has invested a respectable amount of time and money into their craft.

They also start asking this question when they feel enough money isn’t being made for the work they’re putting in. Or, they just want to make bigger, more productive moves.

Your next step as a trader typically goes to acquiring a professional trader position. If you want to push your side hustle to a day job, this is the way to go. You can do better by going fully into this field, as you can watch and monitor things you wouldn’t normally have time for if you work a different job.

You can’t take full-time trading as a light commitment, but if you’re diligent, expect good things will come.

You will essentially need a change in approach, as you will need to “nurse” the market more by staying up to date on the news. You will also be analyzing more information and need to use time wisely to get the most out of your day.

In short, strategy is the key when looking at news, trading, and using time wisely (especially if you’re a self-employed trader).   

Risks

The amount invested into the market isn’t definitive; it’s more so based on the trader’s overall capital. For example, 1% of your capital may be $100, and 1% of another person’s could be $1,000.

You have to keep in mind the percentage you’re willing (or able) to lose above all else.

With forex trading and its promises of quick, easy cash, it’s easy to succumb to temptation. Don’t throw in a grand if that’s all you have, hoping to double your profits. Especially if you’re just starting out! Your best bet is to have a good risk management strategy in place, as you don’t want to lose everything you have on the first day.   

Calculating Risk

Trading is pretty simple, as greater input assumes a greater output – in a snowball effect way. Your money won’t simply multiply; it will compound. One way to measure your profits is to factor the amount you’re investing and plug those into an equation. You can use the following formula to analyze what you’ll gain and risk.

Risk / Reward Ratio Formula: E= [1+ (W/L)] x P – 1

  • W represents your average wins.
  • P represents your winning rate.
  • L represents your average loss size.

You do need to make a few trades before you use the formula, but 3 or 4 should be sufficient to get an accurate gauge of your potential. Your next step is to plug your result for “E” into the next formula.

Expectancy Formula: E= [1+ (500/400)] x 0.6 – 1 = 0.75 or 75%

The number you come out with in the end represents your expectancy.

  • If you get a negative number (meaning below 0), you’re losing money.
  • If you get a positive number, you can expect to be profiting.


The percentage is reflected when you convert the decimal. So, if you make 75 cents for each dollar you invest, you’re making a 75% profit. You may even calculate above 100%!

What To Know Before Beginning Forex Trading

If you’re thinking about trading, you want to be on top of your game from the start. Here are some tips for maximizing potential and keeping your expectations in line.

Trading Forex Isn’t Always Quick Money

If you want to make, say 85%, profit, you have to expect to risk up to an equal percentage in losses.

If you have a more moderate strategy (which is recommended if you’re just starting out!), you can make about 10% on average (assuming you have leverage as well). You don’t even have to use all your savings trying to stack money!

You can quite easily use a percentage, such as $1000 to start. If you only have $1000 in savings, you have to use a judgment call to see if you can afford to lose that much.     

Pay Attention

In trading, there’s one basic thing to remember – pay attention. To the world. To the market. But most importantly? To the news.

Day traders frequently use a pattern to assess when they should sell their stocks, called the line of resistance. Foreign exchange traders need a slightly different strategy. Foreign exchange markets behave a little differently compared to regular ones, with different factors playing into fluctuations.  

Where some traders use the line of resistance as 75% of their decision and market news as 25%, forex traders should flip these percentages.

A good idea is to research macroeconomics and their effect on the stock market, which will give you a headstart on less attentive traders. You can subscribe to a newsletter that gives you daily updates or – for a more competitive edge – hourly updates. Checking for announcements, news, and the spending and policy of international markets is a great thing to do!         

Should You Trade Forex? 

So…is it worth it? Trading within the foreign exchange market is challenging and risky. With that risk, however, can be a high reward.

Perhaps don’t make this your full-time job until you really learn what you’re doing – maybe from a mentor, college, program, or the like. You can start slow, investing a little at a time. You’ll build up experience and a great portfolio over time.

Perhaps get some mentor or advisor with ample experience to assist you in leaving your current job for foreign exchange market trading. It is always easier with a little help from someone seasoned on the subject!