How Much Money Can I Make Currency Trading?

Although the Forex markets are there to facilitate international commerce, speculators can make living trading the volatility inherent in currency pairs. If a market where trillions of dollars in currencies changes hands every business day attracts you how can you proceed? How much money can you make currency trading? The best comparison in the stock market to currency trading is not investing where one can buy a stock for cheap and see hundred fold profits. Rather the best comparison is day trading, which is generally what currency speculators do. How much money you can make depends on how much capital you put at risk, how much you trade and how well you pick and execute your trades. And how much money you make currency trading depends on the broker you use and if they offer tight spreads. In the end profit in trading a currency pair depends on pips.

What Is a Pip?

Investopedia explains what a pip is.

A pip is a very small measure of change in a currency pair in the forex market. It can be measured in terms of the quote or in terms of the underlying currency. A pip is a standardized unit and is the smallest amount by which a currency quote can change, which is usually $0.0001 for U.S.-dollar related currency pairs, which is more commonly referred to as 1/100th of 1%, or one basis point. This standardized size helps to protect investors from huge losses. For example, if a pip was 10 basis points, a one-pip change would cause more extreme volatility in currency values.

The fact of the matter is that on an average day currency values do not change all that much. Thus speculators trade with 50 to 1 leverage and aim to win trades by a pip or two. How much money can you make currency trading in this way?

How Much Money

Vantage Point Trading discusses how much one can make as a day trader in stocks, futures or Forex.

Forex is the least capital-intensive market to trade. Leverage up to 50:1 (higher in some countries) means you can open an account for as little as $100. I don’t recommend this. If you want to make money, start with at least $3000. Only risk 1% of your capital.

Each pip of movement in the forex market results in a$10 gain/loss if you trade a standard lot (100,000 in currency). Each pip with a mini lot (10,000 in currency) is worth $1. Each pip with a micro lot (1,000 in currency) is worth $0.10. “Pip value” varies based on the currency pair you are trading, but the above figures apply to the EUR/USD, which is the recommended currency pair for day trading.

They say that with a $5,000 account in which you limit downside risk to 8 pips and take profits on the upside at 13 pips and a good system you should be able to profit 60% of the time. The net for 100 trades a month would be $2,760.