How Much Do Forex Traders Make? (2023): Total Calculation (2024)

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Why do you trade forex?

Let’s be honest—no one got into forex trading for their health (at least not directly). Rather, most people entered the forex world to growth their portfolio. 🌱

Whether you’re hoping to pocket a few extra dollars every month to supplement your income, or you’re dreaming about those mansions in The Wolf of Wall Street, forex trading can serve as a legitimate means of additional income.

But how much can you realistically make trading forex on your own?

It’s important to be realistic and understand what’s possible before you sign a lease for that yacht after a week of trading on a demo account. 🛥️. While forex is on its way to becoming the largest financial market in the world, your specific earning potential will depend a whole lot on you.

If you’re feeling confused, don’t worry—this guide will cut through mushy answers to help you calculate your earning potential in forex with hard numbers in just three easy steps. So break out a new spreadsheet (or a pen and paper if you’re old school), and let’s get started!

How Forex Traders Make Money 🔎

If you’re reading this article, we’re guessing you are trading forex independently. Employed traders will earn a base salary—but that’s not what we’re talking about here. Today, we’re focusing on an individual who understands at least the beginner’s basics of forex trading and is ready to determine how much they can make.

Essentially, forex traders make money by securing a position at a certain price, and then selling that position at a higher price. Of course, not every trade you make will be profitable (unless you’re some kind of magical modern-day King Midas). That’s okay: profitability is all about having more gains than losses over a long period. Some months might be unprofitable, but it’s alright as long as your year is profitable.

Making profitable trades will all depend on your forex trading strategy, your risk to reward ratio, and your attention to global economic and political news. Make sure you are aware of how the dollar is rising with treasury yields, or that USD/JPY has been inching higher. This awareness of global events and trends will help you make more profitable trades.

Now, let’s dive in and start calculating how much money you personally (yes, you!) can make trading forex. Get ready for the hard numbers.

Step 1: Calculate Your Potential Returns ➗

First, you’ll need to know how much money you stand to make trading forex. Your profits are referred to as your return on investment. This return is what you’ll be able to draw your salary out of—so before we calculate your salary, we need to know your returns.

Your profits will depend on your trading style, your trading frequency, and your initial portfolio size and the amount of leverage you’ll use. Your risk and reward ratio will also factor into your profitability and success as a forex day trader.

You can use a formula to calculate your potential profits if you’ve already been trading. Calculate your average wins, average losses, and your winning rate.

For example, if you made 10 trades and 7 were winning trades, you have a 70% win ratio. If these seven wins made you a profit of $4,000, then your average win is $4,000/7 = $571. If your three losses lost you $2,100, then your average loss is $700.

You can plug these numbers into something called an expectancy formula. The formula is:

E = [1 + (W/L)] x P – 1

Where E is your expectancy; W is your average win; L is your average loss; and P is your winning rate. In the above example, your expectancy would be:

E = [1 + (571/700)] x 0.7 – 1 = .271

Your expectancy would therefore be 27%, meaning your current trading strategy would give you a 27 cent return on every dollar traded in the long term. This is a positive expectancy, which means that your trading is profitable (nice! 🎉). You may also come up with a negative expectancy, which means you are losing money over the long term.

You can then use your portfolio size and your expected return to calculate your potential returns in dollars. For example, if you have $2,000 and expect a 27% return each month, that’s $540. If you have $4,000 with a monthly 27% return, that’s $1,080. As you can see, the size of your portfolio makes a big difference to your returns.

Of course, the market isn’t always an exact formula. If you have many of your assets in specific markets, your portfolio will correlate more strongly with those markets. For example, you might be waiting for oil and gold to slowly continue their uptrends before you decide to diversify. Using this formula doesn’t necessarily mean you can just sit back and relax!

Play More to Win More 💡

Trading more will bring you larger overall gains in the forex market. If you have a 70% win rate (as in the above example), that will likely give you a positive expectancy.

But if you’re only making two traders per year, you won’t be raking in a whole lot of cash. With a 70% win rate, there’s still a 9% chance of losing two trades in a row—and that would wipe out your entire year of potential profits if those are your only two trades.

If you have a positive expectancy, you’ll gain more with more frequent trades. So keep an eye on your positions and decide when to make your move: watch Bitcoin’s meteoric rise and stay aware of its potential pullback to find the best time to sell.

Larger Capital Means More Gains 📈

We’re sorry to say, but size does matter—at least when it comes to your portfolio. We’ve already seen how $4,000 in capital will give you $1,080 with a 27% return, while $2,000 will give you $540 with the same return. The more money you put in, the more you are able to make.

Reinvesting your profits also helps you increase your profitability tremendously over the long term. Say you reinvest that $1,080: now your capital is $5,080. If you have the same 27% return the next month, your profits will be $1,371.

If you withdrew your $1,080 in profits, you would just see another $1,080. This compounds each month that you reinvest your profits and can significantly increase your earning potential in the long term.

Step 2: Find Out the Costs of Trading 💰

Even the most reputable forex trading platforms charge fees and commissions. Plus, you’ll have to pay taxes on the profits you make in forex. This is important to take into consideration, as these costs cut into your profits.

Check your brokerage fees, as high fees can make certain rates of return unviable. Brokerage fees will include:

• Commissions. Some brokers charge a percentage of your trading. This may vary based on the type of trade.
• Spreads. This is a flat fee referring to the difference between the ask (sell) and bid (buy) price of your trade. Make sure that your profits more than cover your spreads.
• Swaps. Some brokers charge an interest rate on positions held overnight. Usually, interest is charged on long positions, while you may receive an interest payment on your short positions.

Your broker may reduce or eliminate some of these fees if you have an account balance above a certain threshold. Be sure to take advantage of any special offers that your broker may have. The most popular forex brokers among beginner traders will have lower fees for those who may be starting out with smaller amounts of capital.

Paying Taxes on Forex Trading 🙈

Many countries have a tax bracket system, meaning the percent of your income paid in taxes varies according to how much you earn each year. It is possible that your forex trades could bump you into a higher tax bracket.

The brackets are different for single filers, married couples filing jointly, and married couples filing separately.

Individual Filers 👩‍💼

Filing Jointly 👩‍❤️‍👨

Let’s say in your regular job you earn $80,000 per year. This would put you in the bracket that is taxed at a rate of 22%. Now, let’s also say you’ve had a good year trading forex, and your profits amount to an additional $20,000. Your income is now $100,000 this year, meaning you will be taxed at a rate of 24% instead of 22%.

In this case, the tax difference would be about $2,000. You are taxed 24% instead of 22%, which is a 2% difference, and 2% of $100,000 is $2,000. Your forex earnings are thus $18,000 instead of $20,000 after you take taxes into account. Obviously, you are still earning a significant profit from your work, but now we have a more realistic figure.

Step 3: Determine Your Forex Salary 🎯

At this point, you’ve calculated your profits as well as your costs. This gives you a realistic portrait of how much money you’ll be bringing in every month.

You’re probably ready to cash all that out and go on that luxury vacation—but wait! The amount of money you earn from forex trading doesn’t automatically equal your forex salary. Or at least—it shouldn’t.

Forex traders make the most money in the long term. Remember how we said that portfolio size makes a big difference in your profitability? Well, you can use your forex profits to increase the size of your portfolio—and thus increase the size of your future returns.

You don’t have to reinvest all of your money from trading forex, but you shouldn’t withdraw all of it either. Let’s take an example. If you start with $10,000 and you have a 10% monthly return, that means you’re pulling in $1,000 per month. Let’s say you withdraw all of that money in order to move into a bigger apartment. At the end of the year, you will have earned $12,000: $1,000 for every month of the year, added up.

Now, let’s say you have that same starting capital and rate of return. Instead of withdrawing your $1,000, you reinvest it. At the end of the year, you will have made $31,384.28 in profit. Instead of doubling your initial capital, you will triple your initial capital—all because you reinvested each month instead of withdrawing.

If you continue to reinvest over the long term, you will see even bigger results. With these same starting figures of $10,000 in capital and a 10% monthly return, you would see a $98,497.33 profit over just two years of reinvesting, and a $3,044,816.40 profit over five years. That’s $3 million in five years! If you continued to withdraw your entire $1,000 monthly profit, you would have just $60,000 over five years.

As you can see, reinvesting your proceeds exponentially increases your earning potential, as it increases your portfolio size. Reinvest as much of your proceeds as possible for as long as you can. Be patient—forex is all about the long game!

How Much Can a Forex Trader Make in Five Years?⏳

The amount you can make depends on your starting capital and your monthly return. If you are content to reinvest all of your proceeds for five years, you will see exponential growth no matter what your starting capital. Consider the following table:

5-year Capital Growth (gross) 📅

As you can see, five years of reinvested proceeds and a strategy with a 10% return can turn $300 into $91,000. Higher capital will yield higher rewards, with the same monthly return rate turning $250,000 into over $76 million. That’s some serious potential!

The bad news is that you aren’t going to make $760 million tomorrow when you just started trading forex today. Consistent, profitable trades will make you money over time. If you want to see real returns in forex, be prepared to work away at your trades over the long haul, instead of working at it for just a few months.

Is Making Money in Forex Risky?⚠️

There are inherent risks in forex trading. While we’ve seen a great increase in forex futures trading, there are still certain risks involved. It’s important that you determine your risk tolerance and manage your risk in an appropriate way.

When you’re experiencing a drawdown, it can be all too tempting to start making emotional trades to try to get back to your starting point, but this will often dig a deeper hole. A negative month isn’t necessarily bad in the grand scheme of things—but if it sends you on a tailspin of poor trading decisions, that can wreck your portfolio.

Forex is an unregulated market, making it the wild west of financial markets. Make sure you know how to spot a forex scam—usually anyone promising to get you rich quick is not to be trusted. Even the big dogs of the industry like Citigroup are often involved in lawsuits, and many smaller forex brands even have shady legal histories. Be careful, and make sure you are working with reputable people.

How to Change Your Risk/Reward Ratio ⚖️

Risk/reward ratio refers to how much capital you are risking compared to the profit you stand to gain. For example, if you stand to lose 5 pips on losing trades but gain 10 pips on winning trades, you will make more on your winning trades than you will lose on your losing trades.

The higher your win rate, the more flexible your risk/reward ratio can be—because you are winning more of the time. The lower your win rate, the more you’ll need to work in lower risk/reward ratios.

There are several factors that can influence your risk/reward ratio. Make sure you have a strong handle on the following concepts before you start making riskier trades.

Using Leverage 👇

You can use leverage in forex to control a larger position with a smaller amount of capital. It can be tempting to use huge amounts of leverage to control much greater positions, but this also makes your actual margin of capital more susceptible to market fluctuations.

Your capital can get eaten up by transaction fees or regular market changes, causing you to close your position early or even owe additional money on a trade. Work with reasonable leverage ratios and use the additional power responsibly.

Remember, trading with leverage means trading with money that isn’t yours. Although you can keep the earning made with leveraged money, keep in mind that one leveraged trade can decimate your balance if it is a loss.

Win Rate 🚀

Your win rate refers to the percentage of your trades that are wins. Most day traders strive for a win rate of at least 50%. The higher your win rate, the higher risk/reward ratios you can take on. This is because you are winning more of your trades, so losses will do less damage because they won’t accrue as much.

Risky Currency Pairs🚨

Some currency pairs are riskier than others. Some experience greater volatility. Of course, even the most stable currency pair can do something unexpected based on world events—but it’s important to know a pair’s history and projections before you open a position on it.

Vicious Loop of Losses 📉

Many traders panic when they start to see a loss. If you have a bad month or two, that’s completely normal. Remember, forex trading is all about the year, not the month or the week.

It’s vital to maintain a level head as you are experiencing losses. Find ways to minimize your risk while you are on a drawdown. If you start to panic and make tons of trades based on emotion rather than logic, that can lead you to make bad trades that increase your losses substantially.

When you’re on a losing streak, increasing your risk is not the way to go. Minimize your risk, reconsider your strategy, and wait to make trades until you are clear-headed.

Conclusion ⭐️

Forex trading is an exciting way to make money on the side or eventually replace your income. The amount you make will depend on your starting capital, your rate of return, your win rate, and how much you are able to reinvest your earnings into your forex portfolio.

Even though it will be a little bit different for everyone, you can still use the formulas in this article to analyze your forex trading to date and predict how much you stand to earn. Forex traders who can commit over the long haul will have more success than those who try their hand at trading for just a few months.

It’s important to spend dedicated time on your forex trading. Use these tools to reevaluate your strategy whenever you feel compelled, and see whether you are meeting your desired benchmarks of win rate and monthly return.

We know it’s hard to be patient—but don’t worry, if you stick with your strategy and put the time in, you’ll be putting in that pool, leasing that yacht, or quitting that day job soon enough!

Get Started with a Forex Broker

All reviews, research, news and assessments of any kind on The Tokenist are compiled using a strict editorial review process by our editorial team. Neither our writers nor our editors receive direct compensation of any kind to publish information on tokenist.com. Our company, Tokenist Media LLC, is community supported and may receive a small commission when you purchase products or services through links on our website. Click here for a full list of our partners and an in-depth explanation on how we get paid.