Realistic Income Goals for Forex Trading

rollinindoughHello traders! First I would like to thank Casey Stubbs and the team at Winners Edge Trading for the benevolence of providing me with a guest post. I consider it an honor to be able to be apart of this blog.

So what are realistic and acceptable income goals as a Forex Trader?

In order to answer this question we must look at other investments and careers available in the world.

I will use Real Estate as a paradigm for several reasons: there is use of leverage ( not as great as Forex, but there is Predominant element of it) and because people can be made rich with Real Estate just like they can in trading.

In Real Estate, if you are a savvy investor, you can realistically make 20-50% annually. These days you would be lucky to make 10-15%– most people are losing money. So let’s say you were one of those few savvy investors, and you were so good that you could make 30% ROI annually using the leverage that is offered. Leverage is available through the use of mortgages.

I think 30 percent annually is a pretty massive number in real estate considering the current economy, but for the sake of the argument lets just say that it is possible.

With that in mind, we come to the conclusion that in order to be more profitable in  Forex than Real Estate we must make more than 30% a year: this is a mere 2.5% a month! I mean, honestly we could risk 2.5% of our accounts on a single trade and meet our monthly goal with trade along using a risk/reward ratio of 1:1. That’s the only trade you would have to make that month in order gain what you would be averaging  in Real Estate to be considered extremely profitable. The conclusion is simple: Forex has such an incredible potential, that it can easily surpass Real Estate even with minimal risk measures in place.

I cannot think of many investments that yield anywhere near 100% ROI a year. Let’s take a look and see how hard it would be to make this with minimal to moderate risk management. It comes out to 6% a month compounding. Now that, my friend, is more than doable in this market. If you are confident in your profitability as a trader and willing to risk, say 3% of your account on each trade, then with a RR of 1:2 you could easily achieve this percentage with 1 trade in a month. This is just to show you that Forex is an excellent investment IF you take it slow and focus on the long term.

I would like to compare Forex Vs Average and above average careers. Now, looking at the average income per capita (person) in the U.S. The average Income per capita in 2011 was $41,663. Let us imagine that you would like to make at least $50,000 a year trading. After all, your doing this for the money so you want to make as much as possible. Once again using minimal-moderate risk we said you could easily accumulate 6% a month, many times this can be made off of 1 trade. So assuming that you increase your lot sizes with your account each month, instead of weekly or daily for risk management purposes. You would need to have a $20,000 account to make $50,363 a year at 8% a month. This is assuming you don’t manage to do more then 8%. Now lets say you minimized your expenses and worked a job, so you were able to build your trading account. How long would it take you to make 1 million off of a 10,000 account at 10% ROI a month? In 4 years you would have $970,000. Divide that by 4 and you get $242,500. This signifies that you made $242,500 each year. That is if you did not pull any out, instead let your account build at 10% ROI each month.

Now, lets just say that you wanted to wait until 5 years and then start pulling out all of your profits to live off of.  In 5 years you would have $3,044,816. Now you can feel free to pull out all of the profits each month, that would mean you would make $304,481 a month! Just imagine that. If you build up your 10k account for 5 years, you will be making $3,653,779 a year after that if you pull out all of your earnings. So we see that it is much better to build up your account until you feel you NEED to take the money out. I mean, can you imagine making that kind of an income 5 years from now every month. I am not even talking about something that is unachievable. 10% a month is very possible in Forex.

I would challenge you to find me another career in the world that will have you earning that kind of money in 5 years. I mean, honestly, those numbers are mind blowing, and yet not difficult to achieve. I personally have made 95% in a month before. Granted, I did suffer a great deal from not using proper management. Because of this, I recommend using proper risk management. My goal is simply to reinforce how profitable the Forex market can be if you work hard, and have long term goals in mind.

In conclusion,  if we are able to maintain a realistic view of Forex then we have a greater chance of setting reasonable goals and maintaining a profitable trading strategy that brings us a steady income over time.

I would also like to give a shout out to a great article written by Nathan here at Winners Edge Trading, this article also gives wise guidance in regards to looking at Forex as a Career and focusing on the long term.

 

Thanks for reading and please leave some thoughts and comments!

Josiah Biddle

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  • John you could try our trading room we do some money management training and we work together as a team trading. You can try it for 30 days for $27 http://winnersedgetrading.com/trade-of-the-day.html

  • John K

    Hey there,
    Very informative article. If anyone can help me out obviously I began by reading up a lot on Forex, practiced on an account for about year (successfully- however staying in the 20% range and cannot seem to get over this hump), and am just about ready to take the plunge. However, finding decent books on Risk Management in relation to trading/forex has been a bit difficult to find. Any suggestions? Also- is there anywhere one can join a team or find a mentor? Feeling all alone here.
    Thanks,
    -John K.

  • yea its a good article for sure but we all know its not easy. However the profits are truly unlimited in Forex, Lets look at what George Soros has been accomplishing.

  • NathanTucci

    I agree with Dave on this.. Making it sound too easy in my opinion as well.

  • Dave Hanna

    Josiah,

    I basically agree with your conclusion, but you’re playing a little fast and loose with the numbers to get there. For example, you say you can make 6% a month on one trade with 1:2 Risk:Reward ratio. True, assuming you’re so good that you never take a loss, and that you’re willing to risk 3% on a single trade (significantly more than most money-management experts recommend). Neither of these assumptions are realistic for most traders.

  • Emperius

    False. That number was used for first time “traders” who had no experience or even bothered to take the time to educate themselves on such possible method. The realistic number is little over 60% who do not make profits, and who are those you ask? Desperate individuals who believe the “quick rich” scheme.

  • utechfx

    Right,Good to see these useful info here..Thanks a lot for sharing them with us….

  • bruce

    thank you for the perspective, great info that will help me stay focused!

  • Mmoron

    90% of traders lose it all and fail,that’s reality.

  • Synergy Don

    Josiah,

    Thank you for your article above. I think it offers a balance between realism and incentives.