Realistic Returns From Forex Trading

Generating returns in the forex market is the dream of most aspiring traders. Although it isn’t possible for all market participants, those making money within the markets are typically seeing some great monthly returns! By understanding what is a realistic return from forex trading, you’ll be able to evaluate how far compounding can take your capital and how much money you’ll need in your trading account to fund your lifestyle.

The average profitable forex trader makes anywhere from 2-8% per month returns on their account. This monthly return, compounded for years, is more than enough to outperform markets and ETFs.

So, what does this return actually look like?

What Are Realistic Returns From Forex Trading

 We have all heard stories of forex traders turning £10 into £1,000,000 seemingly overnight. Although this is extremely rare, it also serves the purpose of inspiring many people to actually enter the forex markets and start learning what it really takes to become profitable. When looking at realistic returns within the markets, it’s important to first understand that many forex traders are only losing money from trading. Is this because forex is impossible? No, absolutely not. Many traders are not actually trading with any concept of risk management or education behind them. This certainly inflates the stats and metrics you see released from brokers, showing how many traders aren’t profitable!  

Regardless, the majority of profitable forex traders are averaging a return of 2 – 8% per month within the markets. To newbie traders with £100 in their brokerage account, this may seem like a fairly small number. The reality, however, is that if you’re able to make an 8% return within a month and sustain this, you’re outperforming the S&P 500 and all other benchmarks for passive investing. This opens the door for traders to start reaching different levels within their trading. By either compounding those monthly profits or taking on a funded prop firm account, those 8% months start looking a lot more interesting!

Factors That Influence Monthly Returns In The Forex Markets

When mapping out your forex trading career and eyeballing what kind of returns are possible, it’s crucial to understand the different factors that can influence the amount of profit you’ll be able to extract…

1. The Market Conditions

Market conditions can play a huge factor in the amount of return possible during different periods within a trading year. Let’s take the last few years, looking at Covid 19. During this time, on some major currency pairs like EURUSD and GBPUSD, the markets were incredibly bearish. There were quite literally countless opportunities to sell the market on all time frames from the 4H to the weekly. Therefore, many traders capitalized on this direction and market volatility to generate huge returns in their trading accounts. On the other side of this, there are long periods of time when the market will consolidate and traders will be sitting on their hands. During these periods, you’re more likely to see breakeven months or small profits, rather than large running trades.

Our job as traders is to make use of any market conditions, whether ranging or directional. This is where having multiple trading strategies can help!

Not adapting to the ongoing market conditions is one of the many reasons forex traders fail within the markets.

2. Your Trading Strategy

Different trading strategies will, of course, yield different results within the markets. There are strategies with a very small edge that will yield 1% per month, very consistently. Then there are strategies with a huge edge that have much larger swings in profit/loss. As long as you are trading a profitable trading strategy, this is all that matters! If your strategy is profitable but not yielding the kinds of returns you’re desiring, there are various ways you can increase the potential profits. Looking at things like scaling in, and pyramid entries would be a great way to potentially increase your profits overnight!

As a general rule, intraday trading strategies yield better returns but require a huge amount of time and dedication from traders. Swing trading and day trading strategies are typically lower in returns, however, they’re much more passive and can be done alongside a full-time job.

3. Risk Tolerance

 As a trader, you need to set your risk tolerance. How much money are you willing to stake on a position? What’s your drawdown limit? What is the minimum risk-to-reward ratio that makes sense? All of these are questions to answer that greatly affect your potential returns in the markets. Our Lux Elite Club-funded traders have a dedicated risk desk to help make these decisions. Since implementing a clear drawdown limit and a risk desk, we’ve seen a huge increase in consistent profits from our funded traders. This is just one of the many reasons why traders should use forex prop firms to further their trading abilities. As a ballpark, traders are usually recommended to risk 1% per trade. We would actually recommend using much less than this. To mitigate the lower percentage returns, due to lower risk per trade, we increase the rate at which funded traders can compound their accounts by providing a 100% increase in capital for every 10% milestone.

For more information on our funded trading accounts, click here.  

4. Frequency Of Opportunities

When looking at your potential returns from forex trading, understanding the frequency of trades is going to play a huge factor. If you have a 70% strike rate and an average risk-to-reward ratio of 1:4, this is brilliant! However, if that trade is only coming once every 2 years, your monthly returns are still going to be lacking. There is certainly a middle ground to this. If you’re trading a lot of positions per day, human error is more likely to play into your returns. On the flip side, too little volume isn’t great either. Finding a perfect medium of frequency is something that takes time and is completely dependent on your strategy and trading ability.

Compounding Your Trading Profits

You may be wondering how far making 2 – 8% per month can actually take you in the world of forex trading.

The answer is – really far!

Compounding is one of the wonders of the world. If you’re unfamiliar with the concept of compounding, it’s very simple. Instead of withdrawing your 5% profits at the end of month 1, you leave them in your account. Your balance is now at 105% of the starting balance. When you make your 5% return this month, the profit will be larger than last month. If you continue this for a period of months/years, it quickly snowballs into unfathomable profits. It’s the same concept as doubling £1000 10 times on a calculator. Although you only start with £1000, you reach £1,000,000 by just pressing “equals” 10 times!

Increasing The Rate Of Compound

Although compounding is great, it is slow. This dissuades many traders from even starting, as they’re self-aware enough to know that they can’t be waiting years to see any kind of meaningful return. This is where prop firm accounts come into play…

With our Elite Trading Club-funded traders, we offer realistic milestones for compounding. For instance, once a trader takes their funded account to 110% of the starting balance, we will increase the amount of capital we give them to trade with. The reason for this is we only make money through profit splits with profitable traders. If you’re a profitable forex trader, we want to give you as much capital as possible to work with! The reality of doing this means that traders are able to reach $10,000,000 under management within just 8 milestones, from starting with just $5000 of our capital. This is obviously much faster than traditional compounding.

If you want more information about how our funded accounts work, check this out.

In Summary – What Kind Of Returns Can You Expect From Forex Trading?

 In conclusion, as a profitable forex trader you can expect returns ranging between 2% and 8% per month, on average. There are many factors that influence the amount of return you’re able to extract from the market each month.  

A 2% return on a £100 account isn’t too interesting, however, on a £1,000,000 funded forex account, this starts looking much more appealing!

If you’re interested in scaling your trading capital, check out our prop firm-funded accounts for more information.