The Forex market is often presented as a get-rich-quick scheme where you can make millions of dollars overnight and solve all of your financial problems.
Is that really the case, though?
What is a realistic monthly return in Forex trading, and what makes a “successful forex trader?”
In this post, we’ll break down exactly that and see what kind of returns you can expect and how much trading capital you really need to make a living off of trading Forex.
What is a decent return in Forex trading
A decent return in Forex trading is anywhere between 5-10% per month.
5 to 10% per month is enough to make significant returns while not over-risking and potentially losing your trading capital.
Some even are so conservative as to say 1 to 5% per month is a good return, but if you have a good trading strategy and follow good risk management rules, you can certainly make over 5% per month.
Forex trading vs index funds
Even if you’re just making returns of 5% per month on your trading account, you’ll see that it’s still a LOT better than almost any other investment out there.
Historically, the S&P 500 has produced average returns of 10% per year.
If you can consistently make 5% on your Forex trading account every month, that compounds to nearly 80% per year!
Aside from winning the lottery, there are few investments that yield these kinds of returns.
Consistency is more important than short-term profits
What differentiates a profitable trader from a losing trader? The key is to focus on consistency rather than short-term profits.
Many beginner traders come into the market looking to over-leverage and over-risk in order to make a quick buck, but the harsh truth is that the only way to survive in the long term is to focus on consistency and controlling your risk rather than trying to double your account on every trade.
Experienced traders know that Forex is a marathon, not a sprint, and with the right mindset, 5-10% gains are not too far out of reach.
Money in-hand is better than potential profit
Let me ask you something: as a Forex trader, how many times have you been in profit only for the market to reverse on you and wipe your gains out?
Don’t you think you’d have a lot more money right now if you had even closed part of your trades when you were in profit?
The market is an unforgiving beast, and when it gives you money, you should definitely TAKE it!
I’ve seen this happen over and over again. I’ve done simulations where I took just one trade in every trading day, closed the trade with around 10-12 pips of profit, and gained 10% or more in a single week.
That means I was able to make 10% on a trading account with just 50ish pips of profit.
In slower weeks or weeks with a couple of losing trades, I was still able to make around 4-5%.
Remember, this is a single week with just one trade per day. In this simulation, I did not even look at multiple currency pairs: just one, in fact.
As you can see, the power of consistency adds up in the long run.
It’s difficult to do this in the live Forex markets, but it’s really the KEY to surviving and thriving.
Cut losing trades
Here’s a secret to the foreign exchange market that almost nobody announces but is the best piece of advice you’ll get:
Not losing money is the same as making money.
Let’s say you have a track record of 50:50, meaning you lose as many trades as you win every month.
If you lost the same amount as you made, you’ll be back to square one at the end of the month.
If you could lose a little less than you made, you’d be profitable!
So if you’re in a losing trade and your analysis tells you that it’s doubtful that the trade will go your way, PULL OUT of the trade and cut your loss.
If it starts going your way, you can always get back in.
One thing that I’ve often experienced is that trades will go my way for a few pips, and before even reaching my modest target of 10 pips, it will start to reverse on me and come back to my entry point.
Here, I’ll often close half my trade or just exit the position altogether.
This way, I know that I’ve controlled my risk and even if the trade goes against me, I will lose a lot less than I would have otherwise.
Reducing your risk exposure
Forex trades are like double-edged swords: every time you place a trade, you have the potential to gain and the potential to lose.
Successful traders know that the cornerstone to every profitable strategy is to control your risk exposure.
If you want to be successful in your Forex trading career, you’ll need to learn when to STOP trading.
One thing that I’ve noticed in my own trading is that my judgment tends to become poorer and poorer the more I look at the charts.
So if I started trading during early London session and took one or two profitable trades, I almost always end up losing my gains if I decide to trade again during New York session.
Most likely this is because I’m on a high from my earlier gains and my critical thinking guard has been lowered.
To stay profitable in the long run, you need to learn to walk away from the markets after a certain point.
A winning streak can make you feel invincible and make you give back all of your money to the market.
A losing streak can make you feel angry and make you give EVEN MORE money to the market.
It’s far better to walk away and come back with a fresh mind the next day.
Which trading strategy yields the highest monthly returns?
Swing trading is where you take longer term trades that last for a few days or weeks and aim to catch larger moves in the market.
Many profitable traders make their 5-10% per month by taking just a single trade in the whole month. They wait for their setup, execute, and walk away.
This can work very well if you know what you’re doing AND have the patience and fortitude to watch your profits swing up and down as price approaches your target of hundreds of pips.
However, not all of us have the stomach to handle these kinds of drawdowns, nor do we all have the patience to go multiple days or even weeks without placing a single trade.
I certainly don’t!
For those of us who need a bit more action, day trading can be a good strategy. Forex traders who day trade focus on grabbing one profitable trade or two per day.
Wining trades are often 10-15 pips each, and grabbing 10-15 pips a day with lower risk compounds over time into significant gains.
With day trading, you may lose money on many trades, but if you take around 1-2 trades a day(40 trades a month), your edge will play out over time to get you the 5-10% returns you’re looking for.
Are huge profits realistic?
Most trades come into trading Forex looking to use the Forex market to catapult themselves into riches in a single trade.
While taking HUGE trades is certainly possible, there’s a catch.
Remember, FX trading is a marathon, and you want consistency rather than huge spikes.
The only time you can hold out for a HUGE win is if you’re already in profit for the week/month and are willing to risk a little bit on a potentially big move.
For example, if you want to make 3% per week and you’re already up 5% in a given week, you can possibly take a larger risk on the last trading day to make EVEN more money, knowing that even if you lose the trade, you’ll still be up by your target of 3%.
One of my favorite examples is a trade Raja Banks took in early 2022 where he made $200,000 off of a single trade.
Most of his daily trades are a lot more modest, but since he was already up, he was able to take a bigger risk on this given trade and it paid off handsomely.
Should you follow successful forex traders?
You should absolutely follow successful Forex traders. The best way to learn any craft is from someone who already knows how to do it well.
But don’t blindly copy their trades: understand their trading strategy and replicate it in your own trading.
Take one trade or two trades per day
The most counterintuitive investment advice you’ll get in trading Forex is to take as few trades as possible.
As a beginner, this won’t make ANY sense to you: after all, how do less trades make you more money?
However, as you gain trading experience, you’ll realize that potential profits increase as you practice better risk management and have as little exposure to the market as possible.
Are Forex brokers out to get you?
Some Forex brokers don’t have their customers’ best interests at heart, so you may find a lot of slippage or poor execution in some cases. Brokers often make more money when you lose rather than win, so you should be careful when selecting a broker.
Trading Forex is not easy, but when done correctly and with DISCIPLINE, you can start trading your way to significant returns over a long period of time. It can become a lot more than just side income, eventually replacing and far surpassing your primary source of income.
However, most traders lack the fortitude and patience to see Forex through the long run. Focus on building your discipline, and the profits will come.