Hi, I have a question regarding the amount of reasonable profits that I can make by trading forex. I have completed the babypips school and also followed some of the blogs. It seems that 2 rules should be followed to be a successful trader:
- Not risk more than 1% of your account on any trade
- DOnt leverage more than 3:1-5:1.
Based on this if I start with $10,000 and leverage 5:1, I will have capital of $50,000. Now even if I use 2% of it per trade i.e $1000 , and make a profit of 200 pips (which seems a lot) I will make just 20 bucks.
Is that the kind of money that I should expect to make per trade or am I missing something?
Thank a lot!
If you wanted to risk 2% of your capital on a trade, and you had $10,000 in your trading account, you would risk $200 on that trade. The amount of leverage you used in this case would completely depend on where you decided you would exit the trade if it wasn’t go your way (your stop-loss point, be it mental or pre-set on your trading platform).
If you wanted a 200 pip stop, you would divide your $200 risk by 200 pips and choose the amount of leverage that would make a pip worth $1.00. For most pairs (and for all of those where the USD is the “quote” currency, like EUR/USD, GBP/USD, etc.) a $1.00 pip would correspond to a 10,000 lot size. In this case you wouldn’t be leveraging at all.
However, if you wanted to set a 25 pip stop, and still risk 2% of your account, you would divide $200 by 25, and leverage to the point where a pip would be worth $8.00. This means your lot size would be about 80,000 on most pairs.
I know there’s a better way to explain this, but hopefully this gets you on the right track. Also, don’t start your first account with $10,000 unless you’re fully prepared to lose it. Most people decimate their first accounts, consider your first year or two to be “learning time” and not “try to make buckets of money time”.
You never get many response to these type questions. The problem is there are to many variables… I having some exprience now . Know I will have more than 8 out of 10 profitable trades. So I might be willing to risk more than someone who doesn’t have that or isn’t sure. Then if I get a larger draw down then normal I will lower my risk to compensate.
The majority of INTRADAY traders I know that are making money trade about 1 dollar for every 1,000 in there account so 10.00 per pip for 10,000. Then again I know some who don’t want that much in there account because it isn’t insured, So they figure out the most they could ever reasonablly lose and keep this with the broker, and the majority of there trading funds in the bank. With my broker I can trade a full 10.00 lot with a margin of only 333.00 So I don’t need a lot to place the order. But you better have a strategy you know inside and out . Position traders require bigger stops so it is all variable
As far as how much can you expect to make it is all up to you and your abilities. I know a actual person who went live in Jan. Now making over 50,000 a week on average. That started with a 15,000 account. This is uncommon they didn’t seem to have any of the issues most of us have to work through and happened across the right trading information that made sense to them. But it can be done. Discipline is the major problem. Plus they started right here on baby pips. So good Luck…
You clearly need to work on your understanding of the use of leverage in FX. Not your fault at all, I bet you’d pick it up really quick if you just tried opening a risk-free demo account somewhere!
And to be blunt, don’t even expect to make profits your first year of trading. Expect to make many mistakes, so mainly work on limiting the cost of those mistakes $-wise. Good luck