We all want to make money trading. That’s a given. Even if we enjoy trading for trading sake, we still want to profit.
So the big question is:
How much money can you expect to make?
Whether trading stocks, futures, Forex, or anything else, it’s a huge question. Everybody wants to know how much they can make when they discover trading. There’s quite a wide range of outcomes so let’s start off broad and then get specific about the matter.
Follow these three steps to figure out how much money you can make trading. It’s an important question to answer, so let’s get started.
Make Money Trading – Step #1: Determine the right question to ask
The financial rewards of trading have no limits compared to how much one human could spend in a lifetime.
It’s not a question of can you make money, because the answer to that is always yes. Will you make money is the more important thing to answer.
Situation, leverage, strategy, luck and psychology affect success. They dictate how much money a trader makes or looses.
Let’s face it. Most people start trading because they want to make money trading. This isn’t a bad reasons to start trading, but it’s not the most important thing to focus on.
The most important thing to focus on is how much you can loose day trading. Start by considering the loss side of the equation. It’s less pleasant, but it matters more.
Most brokers have margin call rules in place to protect their self interests. That means if you get in trouble, they stop you short of losing everything.
Not all do stop a trader in time though. With margin accounts, excessive leverage and poor planning trouble can stack up quick. You an lose more than your initial account size.
Yup, in the worst situations traders can end up owing money that they do not even have.
The Better Question To Ask Is:
“How much can YOU make day trading?”
This is good because it focuses on you, the individual trader. Its answer relies on several factors. The most important of these factors are the answers to the following questions:
HOW MUCH EXPERIENCE DO YOU HAVE?
Who are you and what is your current situation? Are you an institutional trader from Wall Street with 5 years of desk experience? Are you a newbie that’s been hunting around the internet for 3 weeks?
Everyone starts with different skills to make money trading. Most of us start as newbies (I sure did). This is why building your experience is so important.
You don’t need to be a Wall Street pro to succeed. But you do need to understand where you’re staring from so you know how much work you’ll need to put in to learn.
HOW MUCH DO YOU CONTINUE TO INVEST IN YOURSELF THROUGH TRAINING AND EDUCATION?
Do you invest part of your money in yourself? Are you a trader who spends money on education, mentorship and training? Or are you a trader who wants to bootstrap it all and never spend a dime?
Remember the question above on your starting skill level. On of the best ways to level up is to invest in yourself. Ongoing learning is important.
You don’t have to spend countless thousands of dollars on this. A few well purchased trading books and courses can do the trick. If you have a bit more to spend, you can consider a mentor or coach.
HOW MUCH MONEY DO YOU HAVE?
You need money to make money trading, but how much?
It’s easier to generate a 20% return on a $250,000 account that to use high leverage on a $25,000 account to generate 200% return. Both scenarios make the same $50,000, but they are very different in difficulty level.
Figure out your own situation and how much money you can use as 100% risk capital for your trading. The result you discover will play a role in dictating how much you can earn day trading.
If you’re starting off small, don’t despair. Make a plan to roll in your profits over time to grow your account. If you’re starting big, beware. Don’t use extra risk because you have a financial buffer.
Analyze your own situation by answering these questions for yourself. Your answers will dictate how much you can expect to earn day trading.
If you don’t like the results of your questions right away, remember that over time these will change. As you learn and improve your trading, you grow profits and your answers change.
Your main goal is to grow your account size. Remember that everyone starts towards this goal somewhere. Don’t worry about where you start, focus on where you’re heading.
Make Money Trading – Step #2: Break down the dollars
I can already hear the shouts.
“Give me an exact number or at least a range of numbers that I can expect to make in my trading!”
Sure. I don’t mind getting more specific. But keep in mind, each trader still needs to assess their own situation.
The example below is a projection using statistics and performance figures. All all traders should track these numbers for themselves. It’s the best way to understand how you are doing over time.
This example applies to all markets. So no matter what market you want to use to make money trading the example will apply and stay the same. It works for stocks, futures, Forex, options or any other market.
Example: How much money can you make trading?
Win rate: 50% (this is how often you profit on a trade)
Average winner: $500
Average loser: $300
Number of trades in one month: 80 (4 trades a day x 20 trading days a month)
Let’s do the math:
80 trades x 50% winners x $500 average winner = $20,000
80 trades x 50% losers x -$300 average loser = -$12,000
Gross profit from trading = $8,000
Add in some realistic considerations:
100 trades x $20 average slippage and commission = $2000
$8000 gross trading profit minus $2000 slippage and commission = $6000.
Bringing The Example Together…
So this example shows a $6,000 net operating profit. This doesn’t include software fees, data fees, computer depreciation, electricity and more. But I will stop before this turns into an accounting lesson.
What’s more important is the account value needed to generate those returns. The values in the example are definitely achievable. But the attractiveness and the risks change through context.
A stock trader using a cash account of $100,000 to generate stock trading profits of $6,000 has made a monthly return of 6%.
A stock trader using 4:1 leverage of $30,000 to generate stock trading profits of $6,000 has made a monthly return of 20%.
A futures trader using $20,000 to generate futures trading profits of $6,000 has made a monthly return of 30%.
Finally, a Forex trader using $15,000 to generate Forex trading profits of the same $6,000 has made a monthly return of 40%.
Please note that this is a huge simplification to express a process of discovery. The higher returns mentioned above do not adjust for the extra risk that leverage adds.
Make Money Trading – Step #3: Identify the elephant in the room
Here is the elephant in the room when it comes to the quest to make money trading. It is an important issue so stick with me.
The issue is that there is a question far too rarely asked by aspiring traders.
That question is:
“How much do you need to make day trading to maintain a lifestyle and be happy?”
This is a lot different than “How much money can you make day trading?” The former considers what you need. The latter considers what is possible.
If you follow the latter, you could end up pursuing way more than you need. This could lead to you taking on greater risk and trading a larger account that adds more stress.
This is important to consider. No matter how much they make, traders who are not satisfied try to press harder to fill the void with more profits. The pressure to make more than they need comes in many forms.
Some see other traders who make more money and take on more risk to try to match the dollar performance. Others compare their current lifestyle to the next run up the ladder and keep pushing to climb the next rung up.
Traders who fall into these types of mental traps usually end up spending all their profits fast. They are not the type to invest their profits in their learning or in growing their trading account.
This major issue is non-technical, but it is as important as any strategy. Issues like this are why there are so many books written on trader psychology. It matters.
The Elephant Isn’t All Bad…
There is one positive side to this issue. If you can figure out what your need-number is, you beat the elephant.
To do this first you have to know how much you need to maintain your lifestyle. Second, it helps to have that number be smaller than your trading profits. This arrangement is an unbelievable asset.
Traders who systematically grow their accounts by planning tend to have an easier, longer and more stable career… and they also tend to be the traders who actually make money trading.
Think about it. Let’s take the Forex trader from the earlier example making $6,000 on their $15,000 account. If his lifestyle costs him $6,000 a month, his account is still at $15,000, and there is no change to the trading risk profile.
But if the same Forex trader cuts lifestyle expenses in half his trading account has grown from $15,000 to $18,000. If he continues this for months and years his trading account will grow. This will reduce leverage and increase the chances of long-term success.
Final Word On “How Much Money Can You Make Trading?”
Individual factors makes it challenging to give an exact answer to how much a day trader can earn. The answer is as elusive as the answer to “how fast will I be able to run if I run every day?”
But you are now equipped to get a more exact answer for yourself. You now know the key questions to ask to determine the answer for your personal situation.
Don’t forget, there are even better questions to ask than how much you can make.
- “How much experience do I have?”
- “How much do I invest in myself as a trader?”
- “What is my current account size?”
- “How much do I need to make?”
Doing so will reveal what kind of profits you will likely be able to generate soon. You’ll also get a sneak peak into what your trading future holds as your situation improves. And you’ll be a lot closer on your path to make money trading.
For more day trading techniques, tools & strategies, check out these articles:
- Important Truths To Know When Day Trading Futures
- 5 Simple Tips To Get Into Day Trading (With Success)
- Core Technical Analysis Charting Methods
Follow these three steps to determine how much money you can make trading. The more honest you are with yourself, the better poised you will be to make money trading.
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