How Much Do Forex Traders Make?
by admin on 15/12/08 at 2:02 pm
Forex trading can be one of the most lucrative and exciting ways to make money. The fact that the market trades 24hrs a day, 6 days a week provides an opportunity for anyone to make money regardless of the time of the day.
So how much money can an investor make? HEAPS, & HEAPS & HEAPS. But, they can also lost just as much. The successful ones who do well, understand the markets and take the following into consideration.
Leverage
The fact that you can leverage your money is one of the main reasons a person can make quite a lot money quite quickly. Essentially, that means you are able to control a large position size of a currency only have a fraction of that position size in your account.
50:1, 100:1 or 200:1, depending on the broker and the size of the position the investor is trading. Standard trading is done in lots 100,000 units of currency.
Usually, the amount of leverage provided is either 50:1, 100:1 or 200:1, depending on the broker and the size of the position the investor is trading. Standard trading is done on 100,000 units of currency, so for a trade of this size, the leverage provided is usually 50:1 or 100:1. Leverage of 200:1 is usually used for positions of $50,000 or less.
An example would be a EUR/USD dollar trade with a margin account of100:1
If the EUR/USD was currently trading at 1.3485/88 and you decided that you thought the price would go up, you could buy the EUR/USD at the ask price of 1.3488. The average lot would be 100,000 units of currency (100,000 x 1.3488) so which costs you $134880USD. At 100:1 margin, you need $1348 in your account.
The EUR/USD goes up to 1.3505/1.3508 after 15 minutes of trading, you could sell your trade at the bid (sell) price of 1.3505 or $135050. The difference between your buy and sell price is:
1.3488 – 1.3505 = .0017 or 17 pips. The dollar difference is $135050 – $134880 = $170 for in 15 minutes.
On your margin of $1348 for a $170, that equates to 12.6% return/15 minutes work.
Conversely, if the price had dropped the 17 pips in that 15 minutes and you closed out your position for a loss, you could lose $170 in 15 minutes.
Trading Times
Trading times are very important in trading the currency exchanges. As stated previously, trading 24 hrs a day provides an opportunity for anyone to trade at any time of the day. The markets open their weekly session on Sunday 7.00pmEST and go through to 5.00pm Friday EST.
Obviously, there are times of the day which are more active than others. Generally these tend to be around the opening of the major stock markets in the world.
At the start of each day the Asian stock market kicks off and the price movements in the countries of Japan, Australia and New Zealand cross pairs can begin fluctuating. This usually begins around 7.00pm EST. Then, the European stock markets open at around 2.00am EST that begins to affect the pairs with the Great British Pound, and Euro Dollar. Then the U.S markets open at around 8.00am and essentially, most major cross pairs withe USD as it’s cross pair can move significantly
It is not unusual for a currency to move 300-400 points in a 24hr period. Usually, the most popular times are
- The European Session – primarily when the London Stock Exchange opens.
- The US Session – primarily when Wall Street in New York opens.
Price Movement
As stated earlier, some cross pairs can move significantly within a 24hr period. But what makes those prices move. Every country at some time during the week, releases economic data for that country. These can be figures relating to unemployment growth, interest rate cuts or increases, GDP etc etc. These figures are sort of a barometer of that countries economic health. The figures are generally released to the public at a fixed time and date. Prior to that release, economists predict what those figures are. If the figures released are very close to the predictions, this may not cause the currency to fluctuate at all. However, if the figures released vary differently that those predicted, than this may cause the currency to move in a particular direction, sharply and strongly.
If there has been consecutive economic releases that have painted the economic health of country in a poor state, this may cause that country’s currency to trend downwards. Conversely the same may happen, if the country’s economic figures are going well, you will see a strong uptrend of that country’s currency
The above picture depicts the movement on the gbpusd over a 2 year period. Over that time, the countries good fundamentals compared to that of the US caused it to rise against the US dollar.
At the end of the day, the money that forex traders can make depends on many factors. The traders who have mastered money management skills, mastered their trading emotions and trade with a suffiencient trading bank, do very well. Forex is one of the most lucrative trading markets in the world, but it can also be the most dangerous.
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