How Much Does The Average Forex Trader Earn? Expert Opinion

The foreign exchange (forex) market is a popular place for currency trading since it has the lowest starting capital requirements for traders. Due to the leverage offered by forex brokers, forex trades are conducted seven days a week, 24 hours a day. Every investor should be working to realise the significant profit potential available when choosing to trade currencies. Given the size of forex trading, it is unquestionably important to understand how top traders vary from the rest of the market as well as how much money they are generating.

An average forex trader earns 5%–15% of their investment per year, which averages between £80,000 and £150,000. The variation is due to experience and ability to understand technical charts and market movements.

A top trader would make an overall profit of 120%. This would imply that a total investment of £100,000 could be turned into a sum of £220,000 for a profit of £120,000. Although this is only an example, leading forex traders typically earn six figures per year, if not more.

Elements That Influence Trade Performance

Amount of Money

You've probably heard tales of traders who took a tiny account and quickly turned it into millions of pounds. What you don't hear is that thousands of other traders blow up their accounts for every trader who makes it. You shouldn't view trading as a get-rich-quick plan. Instead, approach it like a business that you want to steadily expand over time. 

The amount of money you invest will directly affect how much money you can make when trading forex. The top earners are able to play the odds and produce significant profits. There is no doubt that things can be built up gradually, but big traders tend to have a significant capital for a reason.

Let's imagine you have a yearly income growth rate of 20%. (on average).

• You're looking at an average of £200 annually with a £1,000 account.
• You're looking at an average of £200,000 per year on a £1 million account.
• You're looking at an average of £2,000,000 per year on a £10 million account.

The trader, risk management, and strategy are all the same. The only difference is the account's capital. Therefore, no matter what method or technique you employ, the fact remains that you must have money to make money in this business, which can be accumulated over time.

Leverage

Anyone who wishes to rank as a top-earning trader must successfully master the use of leverage. When used, it indicates that you have the ability to make transactions using more money than you actually have. Your attitude toward risk will influence how you employ leverage. You will need to take higher risks in order to apply leverage on a wide scale in an effort to increase your profit levels, which can lead to both positive and negative account changes.

Currency Pairs

Finally, your profit and loss levels will be greatly influenced by the currencies you actually trade. Some currencies are slow burners, which makes them favourites among beginners and high-volume traders. At the same time, there are other currency pairs that are volatile, risky, and potentially higher profits when trading them.

The frequency at which you trade

Your trade frequency is important. You'll earn more money by placing more trades (with a positive expectancy rate).

Let us assume that you use a forex trading technique with an average risk-to-reward ratio of 1 to 3 and a 70% winning rate. The winning rate is good, but you still will not make much if you only trade two signals per day. Plus, there is also a probability of 9% that both trades will be unsuccessful consecutively. 

The bottom line is that you will make more money by trading more times in a day.

How to find out if you are consistently profitable?

Let's say that your transactions may have a risk-to-reward ratio of 1 to 2. But, if you only succeed 20% of the time, you will frequently lose.

Your risk-to-reward ratio is certainly not the solution. How about your win rate?

Let us assume that your winning percentage is 90%. However, you will also consistently lose money if you risk £0.95 for every pound you invest.

Your risk to reward and win rate, by themselves, are obviously worthless. The secret is to calculate your long-term profitability, to which you must add your win rate and risk-to-reward ratio.

This is referred to as the expected return of a forex trader.

Expectancy

Every pound you risk will yield an expected return based on your expectancy.

Mathematically, it can be written as follows:

E= [1+ (W/L)] x P - 1

Where:

• "W" is the size of your typical gains.
• “L” denotes the average size of your losses.
• “P” is the winning percentage.
• “E” is expectancy.

Here's an illustration:

A forex trader has executed 10 trades. There were 6 profitable trades and 4 unsuccessful trades. His victory percentage ratio is 6/10, or 60%, according to this. If he made £3,000 from six trades, his average win would be £3,000 divided by six, which is £500. His average loss would be £400 if his total losses amounted to £1,600.

I.e: 

Average win = Profit/number of successful trades.

In this case, Average win = 3000/6 = £500

Average loss = Loss/number of unsuccessful trades.

In this case, Average loss = 1600/4 = £400

Next, plug in these numbers into the calculation for expectancy:

E= [1+ (W/L)] x P - 1

In this case, 

E =  [1+ (500/400)] x 0.6 – 1 = 0.35 or 35%.

His trading strategy's expected return, in this case, is 35% (a positive expectancy). This indicates that over the long term, his trading approach will generate 35 pence for every pound invested.

Additionally, if your high-frequency trading method generates an average of 1-2 transactions each day, you should plan on making 70 pence in forex trading profit per day when you place 1-2 trades per day.

Do you withdraw monthly or compound them?

A £10,000 account with an average annual return of 20% will be worth £383,376.00 after 20 years. But if you take 50% of your earnings every year and you earn 10% annually on average, then your account will be worth £67,275.00.

Compounding your returns will, obviously, result in the largest return. However, it depends on how you run your trading operation as to whether it is practical or not. If you're a day trader, trading is your only source of income. You must make a withdrawal from your account to cover your daily expenses. However, if you work a full-time job and trade on the side, you can compound your account's returns without having to make any withdrawals.

In the end, you need to know what you want from your trading account and be aware of how withdrawals will impact your long-term earnings.

The average earnings of a forex trader vary greatly and are influenced by factors such as location, experience, and performance. Trading can be profitable, but it also requires risk management, strategy formulation, practise, and preparation. The greatest way to increase your earnings is to improve your trading abilities.