When discussing about forex earning potential, experts give importance to 3 aspects- whether you are disciplined and have patience, your trading strategy and your mindset.
Other factors include:
- The amount of money while starting off your trade- If you begin with an amount of $1000, your forex trading earning potential will obviously be lesser than someone who has started trading with say $10,000
- The amount of education you have about forex trading- Unless you have a complete understanding of the market, its technical terms, its oscillators, tools, software and its proper ways of market analysis, you will not be able to make a successful trade.
- The time you are ready to put into the trade- One more reason which determines your forex earning potential is the amount of time you are ready to put behind your trade. Forex trading takes time for perfection. To completely know forex trading, a year of practice is a minimum. If you are ready to give time to this venture and be dedicated to it, only then will you get the returns which you have desired.
Though it is very difficult to give you an accurate reading about the actual forex earning potential, here is an example which might help at least get an idea.
The forex venture happens to be the intensive capital market giving out a leverage ratio of 50:1. In some cases, this ratio might be higher. This indicates that you can open up your account for a small amount of $100.
However, experts say not to do that and at least have an amount of around $3000 and risk 1% of that capital for every trade. Every pip movement leads to a $10 profit or loss margin on trading a standard lot.
1 pip having a standard lot of 10,000 units of the base currency is valued $1 while with a micro lot of 1,000 units of base currency has $0.10 value. This is applicable for EUR-USD pair and which is also the most suggested currency pair for new traders.
The thing which new traders have to be aware of is that the cost of pip differs as per the currency pair.
The breakdown for forex earning potential- Suppose your trading plan allows you not to risk more than 8 pips and you plan for 13 pips on gains with account equity of $5,000. As you should not risk more than 1% out of the risky 8 pips, trade 6 mini lots equalling $48 per trade. That will make it lesser than your 1% on $5000 (which is $50)
13 pips gain means $13 for every mini lot and 8 pip loss means for each $8 mini lot. One thing which many new traders can do is make use of an ECN broker as they provide tight spreads and also their commissions will be 0.5% for every round trip trade/mini lot.
Now suppose if you incur 5 trades in a day and you trade for 20 days, it adds up to 100 trades.
So the cost of commission for the total number of trades will be
100*0.5*6 mini lots-$300
The importance of a sound trading strategy usually enables you to ensure that 60% of your trades are profitable. So if you have a good forex trading strategy.
Your profit earned will be 60x$13x6 lots-$4680 while your loss would be 40x$8x6=$1920
Your decent income will then be- $4680-$1920-$300=$2460
% of monthly income= $2460/$5000*100= 49.2%
This is a rough estimate on your forex earning potential. This may vary, but hopefully, you have gotten a fair sketch.