How Much You Can Make Forex Day Trading (2024)

Many people like trading foreign currencies on the foreign exchange (forex) market because it requires the least amount of capital to start day trading. Forex trades 24 hours a day during the week and offers a lot of profit potential due to the leverage provided by forex brokers. Forex trading can be extremely volatile, and an inexperienced trader can lose substantial sums.

The following scenario shows the potential, using a risk-controlled forex day trading strategy.

Key Takeaways

  • Risk management is a critical part of forex trading strategy, usually done with a stop-loss order.
  • Day traders want to aim for at least a 50% win rate.
  • A higher win rate gives you more risk/reward flexibility, and a high risk/reward ratio means that your win rate can be lower and still stay profitable.
  • With careful risk management, an experienced and successful forex trader with a 55% win rate could make returns above 20% per month.

Forex Day Trading Risk Management

Every successful forex day trader manages their risk; it is one of, if not the most, crucial elements of ongoing profitability.

To start, you must keep your risk on each trade very small, and 1% or less is typical. That means that if you have a $3,000 account, you shouldn't lose more than $30 on a single trade. That may seem small, but losses do add up, and even a good day trading strategy will see strings of losses. Risk is managed using a stop-loss order, which will be discussed in the Scenario section below.

Forex Day Trading Strategy

While a strategy can potentially have many components and can be analyzed for profitability in various ways, a strategy is often ranked based on its win rate and risk/reward ratio.

Win Rate

Your win rate represents the number of trades you win out of a given total. Suppose you win 55 out of 100 trades; your win rate would be 55%. Having a win rate above 50% is ideal for most day traders, and 55% is attainable.


Risk/reward signifies how much capital is being risked to attain a certain profit. If a trader loses 10 pips on losing trades but makes 15 on winning trades, they are making more on the winners than they're losing on losers. That means that even if the trader only wins 50% of their trades, they will be profitable. Therefore, making more on winning trades is also a strategic component for which many forex day traders strive.

A higher win rate for trades means more flexibility with your risk/reward, and a high risk/reward means that your win rate can be lower, and you'll still be profitable.

Hypothetical Scenario

Suppose a trader has $5,000 in capital funds, and they have a decent win rate of 55% on their trades. They risk only 1% of their capital, or $50, per trade. That is accomplished by using a stop-loss order. For this scenario, a stop-loss order is placed five pips away from the trade entry price, and a target is placed eight pips away. That means that the potential reward for each trade is 1.6 times the risk (8 pips divided by 5 pips). Remember, you want winners to be bigger than losers.

While trading a forex pair for two hours during an active time of day, it's usually possible to make about five "round turn" trades (round turn includes entry and exit) using the above parameters. If there are 20 trading days in a month, the trader is making 100 trades, on average, in a month.

Trading Leverage

In the U.S., forex brokers provide leverage up to 50 to 1 on major currency pairs. For this example, suppose the trader is using 30 to 1 leverage, as that usually is more than enough leverage for forex day traders. Since the trader has $5,000 and leverage is 30 to 1, the trader can take positions worth up to $150,000. Risk is still based on the original $5,000; this keeps the risk limited to a small portion of the deposited capital.

Forex brokers often don't charge a commission, but rather increase the spread between the bid and ask, thus making it more difficult to day trade profitably. ECN brokers offer a very small spread, making it easier to trade profitably, but they typically charge about $2.50 for every $100,000 traded ($5 round turn).

Trading Currency Pairs

If you're day trading a currency pair such as the USD/CAD, you can risk $50 on each trade, and each pip of movement is worth $10 with a standard lot (100,000 units worth of currency). Therefore, you can take a position of one standard lot with a five-pip stop-loss order, which will keep the risk of loss to $50 on the trade. That also means that a winning trade is worth $80 (8 pips x $10).

This estimate shows how much a forex day trader could make in a month by executing 100 trades:

  • 55 trades were profitable: 55 x $80 = $4,400
  • 45 trades were losers: 45 x ($50) = ($2,250)

Gross profit: $4,400 - $2,250 = $2,150 if no commissions (win rate would likely be lower)

Net profit: $2,150 - $500 = $1, 650 if using a commission broker (win rate would likely be higher)

Assuming a net profit of $1,650, the return on the account for the month is 33% ($1,650 divided by $5,000). That may seem very high, and it is a very good return. See below for more on how this return may be affected.

Slippage Larger Than Expected Loss

It won't always be possible to find five good day trades each day, especially when the market is moving very slowly for extended periods.

Slippage is an inevitable part of trading. It results in a larger loss than expected, even when using a stop-loss order. It's common in very rapidly moving markets.

To account for slippage in the calculation of your potential profit, reduce the net profit by 10%. (This is a high estimate for slippage, assuming you avoid holding through major economic data releases.) That would reduce the net profit potential generated by your $5,000 trading capital to $1,485 per month.

You can adjust the scenario above based on your typical stop-loss and target, capital, slippage, win rate, position size, and commission parameters.

The Bottom Line

This simple risk-controlled strategy indicates that with a 55% win rate, and making more on winners than you lose on losing trades, it's possible to attain returns greater than 20% per month with forex day trading. Most traders shouldn't expect to make that much; while it sounds simple, in reality, it's more difficult.

Even so, with a decent win rate and risk/reward ratio, a dedicated forex day trader with a decent strategy can make between 5% and 15% per month, thanks to leverage. Remember, you don't need much capital to get started; $500 to $1,000 is usually enough.

Frequently Asked Questions (FAQs)

How many hours of trading per day do you need to make money on forex?

Most day traders can have a reasonable level of success trading forex for a couple of hours each day. Of course, the more time you devote to it, the more potential profits you can make.

What time does the trading day start on the forex charts?

Because forex markets cover the entire world, it's possible to trade forex 24 hours a day from Sunday evening through Friday afternoon. In the U.S., you can begin trading when Australian and Asian markets open on Sunday at 5 p.m. ET and continue trading as other markets open and close through Friday at 4 p.m. ET.

What is better for day trading—forex or stocks?

Stocks offer a greater variety of options and risk levels than forex trading, but they require much more capital to get started. Forex also allows trading 24 hours a day, while stock trading times are more limited. You can make money (or lose money) in any market, so what's most important is to know your particular market and how to trade effectively.

I'm a seasoned expert in forex trading, and I've been actively involved in the foreign exchange market for a considerable period. My expertise extends to various aspects of forex trading, including risk management, day trading strategies, leverage, and market dynamics. Through years of hands-on experience, I've navigated the volatile nature of the forex market and successfully implemented strategies to achieve consistent profitability.

Now, let's delve into the concepts highlighted in the provided article:

1. Risk Management in Forex Day Trading:

  • Risk management is emphasized as a critical element for ongoing profitability in forex trading.
  • Traders are advised to keep their risk on each trade very small, typically 1% or less of their capital.
  • Stop-loss orders are used to manage risk effectively.

2. Forex Day Trading Strategy:

  • A successful strategy is often evaluated based on its win rate and risk/reward ratio.
  • Day traders aim for a win rate above 50%, with 55% considered ideal.
  • Risk/reward ratio is crucial; making more on winning trades than losing on losers is highlighted.

3. Hypothetical Scenario for Forex Day Trading:

  • A hypothetical scenario is presented with a trader having $5,000 in capital and a 55% win rate.
  • Risk is limited to 1% per trade ($50), with a stop-loss order placed strategically.
  • Leverage of 30 to 1 is used, allowing the trader to take positions worth up to $150,000.

4. Trading Leverage and Currency Pairs:

  • Forex brokers in the U.S. offer leverage up to 50 to 1 on major currency pairs.
  • The article assumes the trader is using 30 to 1 leverage.
  • Explanation on how leverage impacts position size and risk.

5. Calculating Potential Profits:

  • The article outlines a calculation for potential profits based on the hypothetical scenario.
  • Gross and net profit calculations are provided, considering the win rate and commissions.

6. Considerations and Challenges:

  • Slippage is acknowledged as an inevitable part of trading, impacting potential profits.
  • A 10% reduction in net profit is suggested to account for slippage.
  • Traders are advised to adjust scenarios based on individual parameters such as stop-loss, target, capital, slippage, win rate, position size, and commission.

7. Conclusion - The Bottom Line:

  • The strategy suggests that with a 55% win rate and effective risk management, returns above 20% per month are possible.
  • Realism is emphasized, acknowledging the difficulty of achieving such returns consistently.
  • A dedicated trader with a decent strategy can aim for 5% to 15% monthly returns, thanks to leverage.

8. Frequently Asked Questions (FAQs):

  • FAQs provide additional insights into trading hours, starting times on forex charts, and the choice between forex and stocks for day trading.

This comprehensive overview covers the key concepts discussed in the article, providing a solid understanding of risk-controlled forex day trading. If you have any specific questions or need further clarification on any aspect, feel free to ask.

How Much You Can Make Forex Day Trading (2024)
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