What You Need to Know About Trading Forex for a Living

by FX EA Review
What You Need to Know About Trading Forex for a Living

Most people introduced to forex have the allure of the profit potential and feasibility of perhaps trading the markets enough to make it their full-time income. While this dream is certainly attainable, the realities of achieving it are often muddied and not straightforward.

In truth, there is no one-size-fits-all, right way, and the definition of trading forex for a living will vary from person to person. For some, trading for a living might mean day trading the markets without any other income source. 

For others, this could mean swing trading at certain times of the week while working in a sustainable career. Regardless, despite the discrepancies and innumerable factors contributing to the success or failure, this article will cover some consistent aspects for any traders wanting to know the truth.

Understanding how the markets are inherently structured

Many people struggle between their expectations and the realities of forex. It’s tempting to assume the possibility of making a guaranteed daily or monthly income in the markets is similar to being employed in a nine-to-five job.

Perhaps this is one of the fundamental challenges with any market. People making a living with a regular career can rely on a consistent income at predictable weeks or months for the length of their contracts.

Unfortunately, this is not the reality in forex. Structurally, forex is designed more like a business where profits or income is measured over a quarter or year and rarely on a more frequent basis. 

Put simply, regardless of someone’s expertise and skill; no, one can determine how much they make over any shorter period. It might be possible in a greater span, though it’s still not entirely so to accurately calculate as market conditions keep changing. 

Losing traders will tend to over-trade because of needing to meet some weekly or monthly return. However, the reality is far more unpredictable, especially in the short term. 

Successful full-time forex traders deal with this uncertainty in numerous ways:

  • It’s not uncommon for traders to invest in multiple other non-forex markets to broaden their profiting opportunities. In this way, their income sources are diversified without the reliance on one instrument.
  • Moreover, successful traders may even work in normal careers regularly or passion projects as another method of supplementing their earnings.

Considering the capital requirements

Arguably, the main determinant of full-time trading is the size of a trader’s capital. There is no minimum amount a trader should have as it depends on several things such as their net worth and living expenses.

An American trader might believe a $100,000 account is the least needed to make a majority of their income through forex considering their subsistence. In less-developed nations where the cost of living is lower, someone might need a lot less. 

Time and again, traders will look at their monthly expenses against what they could realistically return over a month. This approach is partially erroneous, especially on the latter aspect. As briefly mentioned, it’s virtually impossible to determine what someone will make over a week or month.

A more sensible approach is looking at what someone could realistically earn over at least three or even six months and compare that with their expenses based on their historical drawdowns and overall risk management. At this point, they can reverse-engineer the process. 

Unfortunately, there is no universal formula for making these calculations, but the frequency of withdrawals makes a big difference in capital requirements. If the account size is smaller, it will take much longer to make what could be expressed as a sizable amount. Here are other things to consider:

  • The concept of compounding is popular in trading circles. It is a commendable approach as it seeks to increase equity steadily over time. The main challenge is, again, the withdrawals. 

More often than not, traders like to make withdrawals where possible, significantly reducing the compounding effect. Therefore, full-time trading requires balancing these two aspects; not withdrawing too much but also leaving enough money to take bigger positions with enough margin.

In this scenario, someone might either decide to add to their account or reduce their withdrawal repetition.

  • Using trading as a secondary income is a much better option even for the most experienced as it alleviates the pressure of relying primarily on trading profits. 

Experience matters

Lastly, a full-time trader is highly experienced with several years under their belt. Having the right amount of this attribute is critical for many reasons. The longer someone has been trading, the more exposed they’ve been to an assortment of market cycles.

This point links back to the ever-changing conditions; every day is different. Experience will teach someone how to react in a predominantly bull, bear, or ranging market and make the necessary adjustments.

Secondly, possessing adequate proficiency means a complete mastery of profitable trading from strategy to money management. An experienced trader will have already proven the ability to profit for a considerable period and go through the bad periods. 

Making money in forex is just like starting any business. Like in business, one needs to develop a working product first, hire the right people, have a marketing strategy, etc. Most people focus too much on the monetary aspects when it should be a by-product and not necessarily the main goal.

In trading, the process is similar. A trader must first prove themselves beforehand and maintain their performance consistently without making any detrimental mistakes.

Final word

Most traders coming into the market have the ambitious goal of turning this into a professional career. However, unlike a traditional occupation, there are no guarantees in forex. Someone depending solely on trading profits is likely to struggle due to the numerous uncontrollable variables.

After understanding the inherent structure of the markets and coupled with adequate capital and experience, full-time trading in the specific context of forex becomes likelier.

Alternatively, it’s simpler for traders to adopt a less involved trading approach while working on a passion project or any other income-producing endeavor because this drastically alleviates the pressure of trying to make money when conditions aren’t favorable.

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