The big boys (professionals) only make about 10% a year. Why do so many people still believe, they can make a living with a 100,000 account (or worse: with much less) ?
For example :
10% annual return on a 100,000 account equals a monthly salary of 417 USD.
while 10% on a .5 million account equals 4,166 USD. That’s before taxes.
And let’s not forget, those 10% returns a year are reserved only to the better ones among the 5% profitable.
Because your assuming retail and commercial trading is the same, which is a common mistake. The commercial traders as you described dont use leverage like retail traders. Retail traders can live of an account balance of $100k if used correctly. It’s entirely possible to make 10% a month as a retail trader, because our account balances, unlike that of commercial accounts, are not tens of millions of dollars.
You’re making a big mistake in your calculations. The 10% returns are not annualized, its monthly. As such if you are trading with 100,000 you’ll be making 10,000 /month. You’re also forgetting leverage. If your using a 100:1 leverage (most use more), then we’re talking about a 1,000 dollar account (of course you wouldn’t use full leverage, but some people, like myself use the full 500:1 leverage). I take between 10-20 trades a week, only fast news trades scalp. I bet every last penny. My pip values are north of $100/pip. I have zero tolerance for loss, but the upside can be marvelous. Yesterday’s NFP (with massive 70pip slippage) still made me 16 pips at a $130/pip. Sure there are few times when I get margin stopped and lose 25% of my account, but I more than make up for it with the good trades. I’m able to be this cavalier because I started my account with a 1000 dollars that I didn’t care to lose. I’ve been live for a month and a half and just withdrew $2000 from my account. I will continue to be this cavalier and bet everything on every news trade. I have nothing to lose and everything to gain.
PS. I cannot recommend this strategy at all. Its insanely risky, but for me and my system and my circumstances its working very well. I can no longer lose since I already withdrew twice my initial investment.
PPS. I know its a very short track record, but if I fine tune my system (deviations of forecast vs actual in which to enter a trade) I can double my account every month. Its really not easy to do the historical research on each release, but the payoff is considerable. Of course you have to have a true ECN broker for this system to work. A MM broker would kick you out in a blink (and rightfully so, because you are robbing them with this system).
No, it’s not 10% monthly, look here : Read article - Forex Article Contest - Dukascopy Community
On a different note, if I recall, you are trading live with IC Markets, right ? How satisfied are you with them and are you still experiencing account freezing during news releases ?
I’m very very satisfied with them. The freezes happen on the mt4 platform because their bridge gets overwhelmed. With the cTrader platform its smooth and lighting fast all the time. I can only recommend cTrader (which is much better than mt4 in many ways).
I’m also really shocked at the 10% annual. It seems extremely low and not really worth the effort at all. I can’t say I agree with the article, but I also can’t really disagree because I’m not very experienced. But in essence, I would totally quit if I thought that 10% annual was the gold standard. The risk premium alone makes it a very crappy proposition. You can get 10% with so many other less risky and time consuming investments.
It’s really all about leverage and liquidity, hedge funds are the real money. You need to understand this concept in order to understand why hedge funds make typically under 50% a year compared to retail traders who can in some cases make significantly more.
Re read the article. You really don’t have to. Here’s why.
Again everyone is entitled to their opinion this is mine. Traders have different motives for trading as well as different conditions. No different than money management, price action, indicators, short term, long term university educated, public school education, tech or fundamental analysis. . .there is no one anything, statement or strategy that encompasses all. Again just my opoinion. Great post though.
S&P 2013 return …29.56%
The very BEST HF return 46.81, only two others beat the S&P .
ALL the others were from 19.50% down to minus numbers.
The worst performing HF for 2013 uses the term ‘leverage’.
Now 2014 will produce an entirely different set of results … that’s why investors look for that elusive thing called consistency.
Oh, one thing I’d like to suggest, since we are on ‘newbie island’, maybe first research some of the lesser performing hedge funds of recent years. As learner traders we often visualize those guys as ‘big boys’ etc. then see how have they performed in the real world.
You may see many talks they have given, how often they have authored articles which use terms that indicate knowledge and understanding that seem to be beyond our reach. Many of them have or use titles, they have been in highly paid jobs in the economic field.
Put them in front of a retail screen for a month…
@ JS forex:
I agree with you the fact that good traders have an annual profit of 10-20% a year …
And you should have at least 500K if you want to live by trading …
BKforex is a good proof that you have to have 500 K as a trader with a conservative trading style.
If you study Boris Shlossberg website under results.
Calculate the average payout over 6 year period ends on about $ 450 a month with a 100k account .
Backside Boris Shlossberg never inform their members about, If you only have 10 to 30 K account then you will go negative due to the yearly subscription fee .
Of course you can trade a more aggressive then you must be a hard core day daytrader …
At the opposite end of Shlossberg you find Steve Patterson who only have a maximum of 50 K in his trading account , every month he takes out all over 50K …
Trading style very aggressive earnings between 200 -400% in the year …
Time to start saving those pennies, eh?
If you want to live off trading, increasing your income is just one side of the equation. Minimising your living expenses is the other. From my reading, almost all successful investors / traders live frugally and well below their means. Drawing up a budget and lifestyle plan should be mandatory.
So why are you guys trading currencies if you beleive the risk is so huge and the payoff is so little?
Because those peoples who make 10 % per year from Forex are suck and have no talent and they should quit right away and use their money in other fields to get better income… but again since their brains are damaged because they put 500.000 $ to get 10 % per year, I’m not sure they have hope to come back to the straight path…
Poor them… 
Kind of a conundrum, huh? To build up the capital for you to live off of your trading, you’d have acquired enough money to actually just live off of that money for a rather long time (granted it would run out eventually of course).
Do understand there are some limitations that larger funds have to work with:
They have to keep risk/drawdown/standard deviation lower. So imagine they’re cranking out 10-20% returns but their drawdowns are only hitting 5-9%. Plenty of retail traders will allow for larger drawdowns (though mind you the experience / skill required to mentally endure those times is a HUGE part of being successful long-term), consequently allowing them to see those net returns become larger.
They have a specific objective, defined by their prospectus, that limits what they can do exactly. Most of what they’re doing is holding a longer-term portfolio that’s tied to the broad market conditions and also hedged against it. Active turnover prop trading like what you see in retail is only a smaller portion of that
They can have liquidity issues. You, as a retail trader, won’t be trading the size that will cause serious problems with slippage and consequent worse entries and exits.
Going back to #1, they don’t necessarily HAVE to force gains because their goal is to keep risk minimal while trying to simply beating the broad market. If equities fall 10% on the year, it’s still a solid performance to have only lost 3% at the end of the year. Clearly as a private trader trading his own account, 3% loss on the year is obviously still very poor performance and it means you’d have dipped into your capital to pay the bills (which defeats the point of trading and you should have just lived off the money itself in the first place).
Now with all that said, I still think the end point to take away is that you should have some sort of regular income to help cover your basic needs, if nothing else. Given the unstable nature of returns, it gives you some peace of mind which is two-fold. Of course, being able to pay your bills regularly is good in and of itself (duh). But second, that peace of mind allows you to trade effectively. Any scenario where you’re stressed and forced to make specific returns will likely cause your trading to fall off hard even if you were profitable otherwise.
I was just on the CBOT floor a few days ago and talked to floor traders about this topic specifically. You’ll find that most of them love trading with a fiery passion, but still tell their kids to pursue other things and not to bother with the trading business. That definitely speak volumes.
So, yeah. Stay in school kids.
No one is advocating quitting your job and becoming a full time trader. But to believe you need half a million just to make peanuts pre-tax is shocking. Seriously why would anyone ever ever ever trade. 10% annually is crap. 10% annually on $500k should be a criminal offense. The ever-present risk of FX alone dictates much higher returns. This is the most demoralizing thread ever.
Except this is PRECISELY what many people who come to this site are looking for
[QUOTE=“Zaghloul;600025”]No one is advocating quitting your job and becoming a full time trader. But to believe you need half a million just to make peanuts pre-tax is shocking. Seriously why would anyone ever ever ever trade. 10% annually is crap. 10% annually on $500k should be a criminal offense. The ever-present risk of FX alone dictates much higher returns. This is the most demoralizing thread ever.[/QUOTE]
SPOT ON! I’m in a group chat of profitable fx traders, and while you may not believe me some of them go for returns of 10-20% a month. Some months they hit it and some others they drawdown. They live quite well off of FX. I even have a friend who went full time with 10k. Don’t confuse retail with the big dogs who’s main motto is to 1. Minimize risk 2. Earn returns
They don’t take nearly as much risk as we do and for good reason. But we end up getting higher returns. If you don’t believe me fine, just know that this is a possibility, and to limit yourself to that type of thinking limits your profit potential.
Let me say again, great thread. I think here’s part of the problem; comparing apples to oranges. Traders who work for someone else, is not the same as traders who are in their own business. One of the reasons traders fail in my opinion is because they compare retail traders that are in their own business to traders who work for someone.
All small businesses are pretty much the same in that their owners have a different perspective on life They don’t consider working for someone as building for their own, they want to build for their own. Most started by working for someone and fell in love with what they do and wanted to take their experiences from working for someone, adding or subtracting some of the concepts they agree or disagree with and going out on their own. Most are under financed, don’t consider what they do as work and learn to deal with reality not theory. Not everyone should be in their own business, but those who are can’t understand why anyone who is would not work for themselves. I watched a program yesterday where a women who starting baking cookies for her family, went from starting her own business to losing everything, to scheming and working to get back into her business and turning it into a multi million dollar business. It is the same story for most small businesses. Under financed, fly by the seat of their pants win a little lose a lot but trying to make the same mistake the least amount of times, realizing that they will make the same mistake more than once. The other thing successful business owners such as traders understand is that in most cases you can’t have your cake and eat it, there are times when you can, but they are also aware that a lot of timews you can’t.