Limitations to Forex growth? 5-Trillion Dollars in 6 years? (Humor me)

Beginner Questions
1

Humor me,

This thread is intended to be entirely theoretical .

I have been reading threads on BabyPips for a few months now and I have also been going through the BabyPips school of Pipsology (mainly to learn the terms to understand what the heck people are talking about!). Anyways, I haven’t really stumbled upon too many numbers, as in, profit expectation.

Again, humor me.

Compound interest is a wonderful mechanism in regards to income… if one could achieve a high interest rate that was compounded very frequently then that person could achieve vast wealth in a very short time frame.

Gains through forex can be directly compared to compound interest, except there is no definite gain (as opposed to a bank account).

Here is where I beg again, humor me.

Let’s say that someone begins an account with $1,000 and (theoretically) achieves growth in their account by 50 pips a day. They are trading 3% of their account each trade, with a 100/1 leverage. They trade for 250 days a year (the max is roughly 260, because of closed markets) and always, every single day they trade they gain 50 pips. I’ve calculated that a 50 pip gain while trading 3% of your account with a 100/1 leverage nets 1.5% growth of your overall account each day. So in 250 days their account will have grown 375%, compounded 250 times. At the end of the 1st year this person would (still theoretically, and still humoring me) have increased their $1,000 account to a $41,353.34 account. In 2 years, with the same process and results, that $1,000 account would grow to $1,710,098.49… 3 years $70,718,279.62… 4 years $2,924,436,860.39… 5 years $120,935,223,493.91… and finally 6 years $5,001,075,071,788.00.

First, I would like to ask if these calculations are correct? It is hard to believe that compound interest could turn $1,000 into 5 Trillion Dollars in just 6 years. I understand that trading is not this (again theoretical) sure-fire thing. I understand that the market actions cannot be “known” that they can only be estimated based on all sorts of trends, indicators, etc.

But, this is where my main question comes in. Are there any limitations that would prevent someone from earning that 5 trillion dollars in 6 years? Limitations not associated with poor trading, or any of those variables that the market so truly loves to exhibit. I am talking about limitations like maxed out lot sizes? How much can be traded at one time? Is it limitless? Could someone trade billions or trillions of dollars in currency in intraday trading? If someone could simply gain 50 pips a day, 250 days a year, trading 3% of their account, with a 100/1 leverage, what is there to stop them from making 5 trillion dollars in 6 years?

(please no hate replies, saying “this is just another idiot thinking they can get rich quick,” I purposely applied the words, “humor me” and “theoretically” multiple times for a reason).

This is not my plan, nor anyone elses, just a completely theoretical situation that I am having a little bit of trouble defeating. It truly is a situation that seems too good to be true… then again, most theoretical situations are too good to be true!

As one last added note, I was inspired to ask this question after I saw/read so many threads that insured, “Hey, I’ve got a system, and I easily make 50-100+ pips a day, and I wager 10% of my account each trade! Wahoooo!” and then the classic, “I have never lost a trade… I show profit in every trade I have ever committed to! I know where the market is going, because, simply… I am GOD!” It makes me wonder… if this person is honestly achieving this growth then wouldnt they be a millionaire/billionaire/trillionaire in a matter of a couple years!?

Thank you,
Big Spoon

Also, I would like to thank everyone on the BabyPips forums for being so motivating and resourceful to so many people. I truly feel that this is a place where learning and growth can occur. A 2nd thanks to the BabyPips school of Pipsology, what an amazing resource for a Forex Newb!

(please no negative responses, I am looking for actual answers/opinions on the matter, this is not a thread intended for harrassment… although I do enjoy a good heated discussion every once and while! Please keep it clean and impersonal)

2

Yes, the IRS, lol

3

Please elaborate? (The IRS, how so?)

4

well, assuming you declare your earnings from forex as part of your income each year the IRS would take a large chunk of the profits therby reducing the amount you have in your account to trade with, so the 3% of your account that you are basing your calculations on, would be a lesser amount each year than your forcast presents.

5

Ok, what would have taken 6 years may now take 7 or 8 years… What could prevent the trillions from being made? And, once 5 trillion dollars was made, could you then put that 5 trillion into a bank, getting a pitiful 1% interest, and simply accrue 10 billion dollars a year and retire from Forex trading? I mean what limitations are out there… You dont have to declare interest gained in a bank as earnings do you?

Btw, thanks for the quick response!

6

There is a limitation, because you are [B]trading[/B] Forex. If you want to trade a trillion dollars worth of USD for EUR, you have to find someone (or a lot of someones) that want that amount of USD, and want to get rid of their EUR.

That’s not going to happen, at least not at the price you want, cause your buy order is going to affect the markets.

You’d be working against yourself! If you want to buy low and sell high, and your buy order causes price to go high, you are stuck in a catch-22 situation. :slight_smile:

7

ahhh ok, if it’s only for theory, then i’m all for it!

8

That is a great response Phil, thank you! But 3% of 5 Trillion Dollars is only 15 Billion… could you trade 15 billion a bit easier? What are realistic amounts that you could trade? Even 1 billion?

9

you might be suprised how much the IRS would demand from you if you were making millions of dollars I believe it would be well over 40% but I’m sure it is theoretically be possible to make that kind of money with the right trading strategy.
I dont believe any of the commonly discussed trading methods would be able to create anything like that kind of profit though, in my investigations all the evidence seems to suggest none of the publicly discussed trading methods and indicators have any hope of making large profits over the long term in fact it appears, most are doomed to lose.
I came to this conclusion partly from my own testing and partly by looking at what the smartest people around are doing.
In my opinion computer programmers are some of the smartest people around, methodical, logically minded and highly analytical in their approach, if it were possible to make good profits using the commonly discussed trading methods the programmers would be doing it with EA’s and would all be extremely rich.
If you look at what some of the best computer programmers are doing in their efforts to find a profitable strategy, they are creating their own custom indicators using very complex algorithms, neural networks, artificial intelligence etc, this tells me, a profitable trading strategy needs a lot more than a few trendlines, fib lines, moving averages etc because if thats all it took, they would all be doing it already.

10

. :slight_smile:

11

I’m not sure at what amount you’d start having problems getting your orders filled in a reasonable amount of time (I wish I had that problem so I could tell you!). I would guess it would be around a couple billion, but that’s just a guess…

Your use of high leverage in your equation is also a problem. No broker is going to offer you 100:1 leverage on a billion dollars, or even a million dollars! Once you get that high you are going to be trading very close to, if not at, 1:1.

Remember at this level the broker needs to have the money in the bank to offer the leverage, you can’t use a market maker anymore! No broker has the 1.5 trillion they would need to offer you 100:1 on 15 billion.

12

Well a couple sites said that they maxed out at 200 lots… so 100,000 / 100 (leverage) is 1,000… x 200 (if I am correct) is 200,000… so would that be the max amount that an online forex broker would trade? It also says 200 lots per order, so could you then just fill more orders back to back? So you could potentially have 5 orders worth 1 million dollars total (5 orders x 200,000— or 200 lots at 100/1 leverage)? And then how many orders of 200 lots could you execute? There is probably a limit on those as well. Interesting stuff to take into consideration… its compound interest to a point… then it slows way down.

Very helpful Phil, thank you!

Let’s continue this!

And SDC is there a website that lists how much the IRS would take off of certain amounts… i.e. Percentage brackets?

13

Taxes US

http://forums.babypips.com/forextown/117-how-do-taxes-work-forex-trading.html

and here

301 Moved Permanently)

14

Exactly, liquidity. AT what level you’d run into liquidity I’m not sure but someone has to take the other side of the trade.
If you approach a bank in the real market and have a couple mill to tarde, they’re going to think you know something. Good luck if you’re just trying to scalp 20 pips with that trade size. There’s a reason the big banks and such are position / medium to long term traders.

15

So what do you think would be the biggest lot size you could scalp 20 pips, without drawing undue attention ?

16

IMO the part where you would have trouble is in consistently gaining the 50 pips a day with 3% of an account using 100:1 leverage. Stop and figure out the risk side of those trades… trading with 3% of an account at 100:1 is a lot of leverage and risk… :eek:

Could it be done consistently day after day without huge draw downs? I think it’s harder than it sounds. :slight_smile:

17

My feelings are, it would most likely be possible to do that by making lots of small trades aiming for small pip gains all day long rather than by trying to get “the big one” every week.

18

WHat do you count as small trades?

19

I dont know, probably 5 or so pips maybe 10

20

It’s possible but the commissions in the long run will most likely wipe your account. Let’s say you trade GU and have a 4 pips spread, that is 80% commission you have to pay just to get your 5 pips.

I do scalp but I consider a scalp minimum 20 pips and even that’s a fairly hefty commission to pay. I might get 2 opportunities for this on a good day on GU of which I might only take 1 trade if I miss it. Some days I stare at the chart all day and don’t take a single trade as the price doesn’t get to anywhere near a level where I think a trade should be taken.

I know some people who target 100pips a day with 1-2% risk but they really know what they are doing and they look at multiple instruments across the entire market (indices, FX, commodities, etc.).
Just going for 6x5pips or 3x10pips on one pair a day is probably very close to gambling - I don;t see how you could get that many entries without learning how to do HFT with a computer.

I don’t know many successful 5-10pip scalpers and definitely not big money traders as they’d never get their order filled to get in and out of the trade that quickly.
Personally, I know a lot of people who are happy with 50-100 pips a week and that is my weekly target (I aim to hit that 3 out of 4 weeks).