How much is Forex income?
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amir - Blog
amirIntroduction:
The Forex market is becoming the largest financial market in the world. With the high volume of transactions in forex, trading in this market is expected to bring good profits to traders. Now the question is, what is the amount of Forex income?
To answer this question, we need to know the factors affecting Forex income. Stay with us to learn how to calculate forex income.
Earning money from forex depends on what factors?
Some people think that the forex market is like an endless treasure trove of income. It’s really like that; The forex market can be profitable both for those who trade it to earn extra income and for those who trade as a full-time job. However, it all depends on you!
If you are already familiar with the basics of forex trading, you probably know that profiting from forex generally means opening a position at a certain price and then closing it at a higher price. However, it is not the case that all trades of a trader are profitable without exception. A successful trader is someone whose profit is greater than his loss in a period of, say, one year. So, even if you don’t make profit in some months, it doesn’t matter.
Making profitable trades depends on your trading strategy, risk-reward ratio, and accuracy in world economic and political news. You should always be aware of the price changes of important trading pairs such as dollar/euro and dollar/yen, events and trends around the world and important news.
Now let’s see how to calculate the amount of income from forex.
Steps to calculate the amount of income in forex
As we said, the amount of income from trading in any market is not exact and certain. It is the same in the forex market and the amount of income of each trader is different according to the factors we talked about. However, you can estimate how much you might earn in a given period of time. Follow the steps below:
Step 1: Calculate your potential return
First of all, you should see if you are making a profit or a loss in a certain period of time. Your return on investment depends on your trading style, trading frequency and the initial amount of money you put into your account. Of course, if you use a lever, you should also include it. Day traders have to consider another factor and that is the risk-reward ratio.
Let’s take an example:
You have made 10 trades and 7 have been profitable. So your winning rate is 70%. If you won $4,000 during those 7 wins, your average win is:
7/4000 dollars = 571 dollars
Now, if you lost 3 trades and lost $2,100, your average loss would be $700. If you look carefully, even though out of 10 trades you made, you only lost 3 times and ended 7 trades with profit, still your average loss is more than your profit. what does it mean? That is, neither the win rate nor the loss rate alone can determine your profitability.
So what to do?
You need to combine the risk-reward ratio and the win rate to determine long-term profitability. To do this, calculate the amount of waiting through the following formula:
E = [1 + (W/L)] x P – 1
In this formula, W is the win rate and L is the average loss.
Therefore, in the example above, the amount of waiting is equal to:
E = [1 + (571/700)] x 0.7 – 1 = 0.27
As a result, with your current trading strategy, you are only making 27 cents per dollar traded over the long term. Although this amount is small, it is positive. If it becomes negative, it means that you are losing money in the long run and you need to change your strategy.
Now consider your initial capital to calculate your possible profit in dollars. For example, if you have $2,000 in capital and expect your return to be 27% per month, that means your potential profit will be $540. If your initial investment was $4,000, you would earn $1,080 with this strategy. As you can see, initial investment makes a huge difference in returns. Of course, you should pay attention to your trading frequency. For example, if your trading strategy averages 1-2 trades per day, you would need to double 27 cents and therefore, you can expect to make between 27 and 54 cents per day.
Again, we emphasize, the market is not always an exact formula. These calculations can only be an estimate of your strategy.
Step 2: Calculate transaction fees
All Forex trading platforms charge fees and commissions. After you have calculated your potential return in the previous step, you need to deduct the costs from it. Brokerage fees are very important; Because high fees may be counterproductive with some rates of return. The brokerage fee includes the following:
- Commissions are a percentage of your transactions;
- Spreads are fixed fees and refer to the difference between the ask (sell) price and the bid (buy) price of your trade. So your profit must be more than the spread to cover it;
- The interest rate that some brokers charge on positions held overnight.
If your account balance is above a certain threshold, your broker may reduce or eliminate some of these fees. Therefore, pay attention to the broker’s special offers. Forex brokers usually charge lower fees to beginners who have less capital.
The third step: determine the amount of withdrawal from forex
At this point, you have calculated your potential profit and costs. This will give you a realistic picture of how much money you are making each month. You’re probably ready to cash out the whole thing, right? hold your hand
The amount of Forex income is not limited to this amount. As we said, the size of your portfolio has a great influence on the amount of income from forex. You don’t have to reinvest all of the money, but don’t withdraw all of it either. Let’s take an example.
Let’s say you started with $10,000 and earned $1,000 per month with a 10% monthly return. If you withdraw all of your profits, you will have $12,000 at the end of the year. Now, if you reinvest your $1,000 profit instead of withdrawing it, at the end of the year, your initial investment will triple. Because instead of withdrawing your profit, you reinvested it every month.
If you keep doing this for the long term, you will get much bigger results. With the same figures, within two years of reinvestment, your capital will reach $98,497.33 and within five years, it will reach $3,044,816.40. This is despite the fact that if you had withdrawn your interest every month, you would have only $60,000 in capital over five years. This growth is exponential and increases your forex earnings. Remember, the most important rule of trading in forex is to be patient.
final word
As we said, making money from forex depends on your initial capital, monthly returns, reinvestment and trading frequency.
Five years of reinvesting with a 10% return trading strategy can turn $300 into $91,000. At the same monthly rate of return, $250,000 would turn into more than $76 million in five years. Of course, never forget this important point: don’t think that you will start trading today, and tomorrow you will withdraw a million dollars. If you want to see real forex income, choose the right strategy, get enough initial capital, increase the frequency of profitable trades and choose a long-term horizon. Finally, don’t withdraw all your profits and reinvest at least some of them.
