How much do Forex traders make per month? What is the monthly earnings potential of the average Forex trader? If you’re reading this article, you’re probably fairly new to Forex trading, so I don’t want to misguide you.
In fact, I’m going to tell you some hard truths that you probably don’t want to hear, but they are absolutely necessary to learn if you ever want to become a successful Forex trader. Your initial reaction may be discouragement, but there is a light at the end of the tunnel.
Please fight the urge to roll your eyes and move on to something more uplifting. Sometimes the truth hurts, but I will absolutely guarantee that if you don’t listen to what I’m about to tell you, you will NEVER be a successful, long-term Forex trader.
So how much do Forex traders really make per month?
This question is a little misleading for a couple of reasons:
- Most Forex traders are not profitable
- No profitable trader in any market makes the same percentage of profit each month
These are the questions you NEED to ask:
Why are most Forex traders unprofitable?
Despite what you may have heard about how easy it is to make money in the Forex market, the truth is that most traders fail. It is also true that you will probably fail at trading, but you don’t have to. The real reason traders fail is probably not what you think.
This is why traders actually fail:
Most new Forex traders have unrealistic profit expectations. They think it will be possible to make 25% – 50% or more month to month. They have dreams of turning their small account into a very large account in just a few years.
This is totally unrealistic. If it were possible we would all be doing it. Most successful traders make a much lower average monthly profit (3%-7% is common). If you’ve averaged 10% or better for more than a year, you’re a rockstar in the trading world.
Take this into consideration:
If you could sustain a 10% average monthly gain, you would more than triple your account every year.
By averaging 6%, you would more than double your account every year.
Starting with $5,000, and averaging only 3% per month, your account would grow to over $170,000 in 10 years.
Warren Buffet became a billionaire trader averaging only 30% per YEAR!
I’m not saying it’s impossible to make 25% or more in a month. I’ve done it, and many others have done it. I’m saying its impossible to MAINTAIN such a high average monthly gain. In order to shoot for such a high goal, you will be pressured to take bad trades, overtrade, and overleverage (which brings me to my next point).
Poor money management is one of the worst account killers for new traders. This goes back to greed, because traders typically overleverage while shooting for unrealistic profit targets.
You should be risking a small percentage of your account on each trade, and you should be risking the same amount on each trade. I recommend never risking more than 2% per trade. Many successful Forex traders risk 1% or less per trade, and some very successful and experienced traders risk 3%.
Risking more than a small amount per trade is a death sentence for your trading account because all trading systems go through periods of drawdown. If you’re risking too much during one of these periods, you will, at least, wipe out much of your progress, if not completely wipe out your account.
Consider these two examples:
If you lost 10 consecutive trades, risking 2% per trade, your account would be down about 18%. You would need to earn about 22% of the remaining account just to get back to your starting balance.
If you lost 10 consecutive trades, risking 10% per trade, your account would be down by more than 65%. You would need to earn nearly triple the remaining account (187%) just to get back to your starting balance.
Not only does responsible money management help preserve your capital during losing streaks, it also helps to keep you trading your edge mechanically. That’s because losing 1% or 2% on a trade does not sting nearly as much as losing 5%, 10%, etc….
It’s easier to deal with the losses, psychologically speaking. You’re more likely to pull the trigger on the next trade, and let your edge work itself out over time. And that’s exactly what you need to do, if you know you have a profitable trading method working for you.
I cannot stress this point enough. Testing is the backbone of a successful trading program. Most new traders are too impatient and undisciplined to thoroughly test new strategies. I think this, again, goes back to greed, because we all want to fire our bosses as soon as possible. You want to get that account snowballing quickly, but this is a costly, rookie mistake.
The problem is that, without sufficient testing of your trading system or any new trading setup, you’re not going to know how it will hold up during changing market conditions. You need to know if your trading system can stay profitable through increasing/decreasing volatility, growing/shrinking average daily range, impactful news events, etc….
I would not even consider a new trading strategy unless it had proven itself to be profitable after, at least, a couple hundred backtesting trades – either through my trading platform or using a backtesting software, such as Forex Tester 3.
Next, I would forward test (with a demo or micro account) the new strategy for, at least, a few months. The more time you spend doing this the better off you will be down the road because you will have absolute confidence in a system that has proven to be profitable over time.
Knowing exactly what your system is capable of, and proving to yourself that your trading system is profitable over months or (preferably) years worth of different market conditions will go a long way in helping you to mechanically trade the edge that your system gives you – even when you’re experiencing a losing streak.
Lack of Discipline
I’ve mentioned discipline a few times already, and it’s an import factor in profitable trading. It’s another psychological aspect of trading that can either make you or break you. Most new traders lack discipline in every aspect of their trading, from testing to execution.
It takes discipline, as well as patience, to properly test a new trading strategy. Most traders don’t have the discipline to do any manual backtesting at all. They simply learn a new trading method, and demo trade it for a week or two, or worse, they go straight to live trading.
It takes discipline to keep trading when you’re losing. If you’ve done your due diligence, then you already know for sure that you’re trading a consistently profitable trading system. With discipline, you will be able to keep pulling the trigger on the next trade and let your edge play out over time.
Sometimes you just have a bad feeling about a trade, although it meets your criteria. It takes discipline to mechanically trade every setup that comes along, but it’s a must. As soon as you start trading subjectively, you’ve abandoned your edge and you’re gambling.
Note: There is limited room for some subjectivity in some aspects of trading when you become much more experienced, but you should strive to trade as mechanically as possible even then.
Lack of discipline can also lead you into catastrophic behaviors, such as overleveraging (which I mentioned above) and revenge trading. Revenge trading is when you re-enter the market because you’re trying to earn back money that you’ve just lost – not because your trading system has provided another quality entry trigger.
Overtrading could be mentioned in the same breath. Successful, disciplined traders trade less, because they only take the best trade setups. They have the discipline to wait for the market and their trading system(s) to provide them with quality setups, rather than trying to force bad setups to meet some unrealistic profit target.
If you’re a new Forex trader, it’s absolutely necessary to find a consistently profitable trading system to start testing. As of right now, there are three profitable trading systems reviewed on this website that I have personally traded and recommend. However, I mostly use Day Trading Forex Live now.
Note: Read my full reviews of these trading systems to see which one will fit your trading style and schedule, as each of these systems are completely different.
If you’ve been trading for a year or two, the truth is that you’ve probably already traded a few profitable trading systems. You just were not confident enough in them, or disciplined enough to let their edge play out over time.
You probably didn’t test long enough, started trading your hard earned money, lost a bunch of it, blamed the trading system you were using, and moved on to the next system. This is a constant, destructive cycle that a large majority of unsuccessful traders are trapped in.
There is no “holy grail” in trading. The point is to find a system that makes sense to you, and test it to see if it actually works. Just as importantly, you need to test it to prove to yourself that it will be profitable in the long term.
You’re looking for something that will provide you a verified edge in the market. You need to have an unwavering belief in the trading system that you are using. Once you do, you simply have to continue to trade the edge that your system provides for you with discipline.
Many traders unwittingly give up on profitable trading systems because they don’t trade them long enough, or with enough discipline, to let the edge work out for them. Even the best traders in the world lose lots of trades, but they have the discipline to let their edge play out.
What is a realistic average monthly profit expectation for a successful trader?
This question is more in line with the way you should be thinking, although its answer may be just as discouraging: It depends on the trader, their trading system, the market, etc….
Successful traders simply trade the edge that their trading system(s) give them, and take what they can get. They don’t set goals and they don’t force trades to meet those goals.
A really good year for a successful trader might look like this:
A trader with this record, if no money was withdrawn from the account along the way, would have earned over 120% – more than doubling their starting balance! Their average monthly profit percentage would be 7%.
Even as I’m writing this I can picture the amateur traders saying to themselves, “That’s not enough! I’ll never be able to do this for a living at that rate.” That is greed and impatience doing what they do to every inexperienced trader.
You could make more than what is depicted in the example above, but if you don’t change your attitude and expectations, you will most likely make much less. Instead of asking yourself, “How much can I make per month as a Forex trader?” you should be asking yourself, “Am I willing to do what it takes to become a successful Forex trader?”