How Much Can a Beginner Forex Trader Make? 4 Scenarios

Did you just hear about forex trading and get intrigued by the low startup cost? Allow me to answer everyone’s first question about forex trading; how much can a beginner forex trader make?

Beginner forex traders can make a 30% to 100% return on their initial investment annually using a viable strategy. If a beginner starts forex trading with $1,000, they can expect to make between $300 and $1,000 in their first year, as long as they follow a viable strategy.

Are you wondering where I got these forex profitability figures? Keep reading, and I’ll break down the basic concepts of forex trading strategies and apply the strategies to a few examples to clear any questions you may have!

Breaking Down Forex Trading Strategies

All forex trading strategies can be broken down into the same formulae:

Expectancy = (1 + Average Win / Average Loss) Win Rate – 1

If you fill in the Average Win, Average Loss, and Win Rate variables, you’ll be left with your Expectancy. Expectancy is the amount you can expect to win per dollar risked.

If you’re confused, don’t worry. In the next section, I will use the above formula with real-world scenarios to better illustrate the concept.

Scenario 1: The Conservative Forex Trader

The conservative trader wants to make their hard-earned $10,000 savings last as long as possible. Therefore, the conservative trader will perform a low volume of trades with high average win percentages but a high average win rate.

The conservative forex trader would have variables that look like this:

As a conservative forex trader, you have a stop-loss order that automatically closes your trade when you lose 5%, which mitigates the amount you can lose. Additionally, conservative traders are eager to take their profit, so they automatically close trades at a 10% return.

At a 60% win rate, which is rather high, you would earn 80% per trade or 80 cents for every dollar.

Expectancy = (1 + Average Win / Average Loss) Win Rate – 1

Expectancy = (1 + 10 / 5) .6 – 1

Expectancy = .8 or 80%

An 80% expectancy per trade may seem abnormally high, but you need to keep in mind that a conservative forex trader doesn’t execute many trades. Conservative forex trading is about mitigating downside risk and going for a high win rate.

Scenario 2: The Moderate Forex Trader

The moderate forex trader has a higher risk tolerance than a conservative forex trader, which is shown in their win percentage. However, they also have a higher win return.

Here are the expected variables for a moderate forex trader:

A moderate forex trader still keeps a positive but lower win rate than a conservative trader. However, the stop-loss order is far. They are more aggressive for a moderate trader, hoping for a higher return.

Expectancy = (1 + Average Win / Average Loss) Win Rate – 1

Expectancy = (1 + 15 / 10) .55 – 1

Expectancy = .375 or 37.5%

As you can see, the moderate forex trader takes home less profit per trade. However, their lower expected win rate means they can take on more trades than a conservative trader.

Forex trading is a long-term game, so more trades will add data points if you can make consistent profits, making it more likely to earn long-term profit.

Scenario 3: The High-Risk Forex Trader

The high-risk forex trader is looking to hit those big returns you hear about in the forex market. The forex market is volatile, making it an ideal playground for someone with the risk tolerance for employing a high-risk, high-reward trading strategy.

Here are what a high-risk forex trader’s variables may look like:

A high-risk trader is willing to take a low win rate for a higher average win return percentage. Let’s put the high-risk forex traders’ variables into our expectancy formula:

Expectancy = (1 + Average Win / Average Loss) Win Rate – 1

Expectancy = (1 + 100 / 10) .2 – 1

Expectancy = 1.2 or 120%

As you can see, with proper risk management in a 10% stop-loss order, high-risk trading strategies can turn massive profits. The problem with the high-risk trading strategy is that most high-risk traders set their stop loss percentage too high or don’t have one! A misplaced stop loss is the difference between 100% returns and 100% losses.

Scenario 4: The Education First Forex Trader

The education first forex trader is the best beginner trading strategy because you don’t have to risk any money to be an education first forex trader. Rather, you can practice in the forex market while learning the importance of saving money.

The concept of an education-first forex trader is someone who starts in a demo market instead of live trading. Demo markets set you up with a demo account, which allows you to make mock trades with fictional money in the real market.

You’re probably wondering, why would anyone want to use a demo market if you can’t make any money? Demo markets are valuable because they allow new traders to experiment with different trading strategies with zero risk.

Here’s an analogy: Think of demo markets as going to med school and trading on the live forex market as performing open-heart surgery. 

You would never attempt open-heart surgery without going to med school first; it’s too risky! You should use the same line of thinking for forex trading.

Expecting to make consistent returns live-trading forex without gaining experience in a demo market is like attempting open-heart surgery without practicing on a cadaver in med school.

Final Thoughts

I understand looking at the first scenarios could make you eager to get into live trading. However, I urge you to follow the final scenario and start on the demo markets.

I included variables that would make for a profitable trading strategy in the first few scenarios. Although, most beginner day traders don’t make a profit. Therefore, I need to reiterate that you should start in the demo markets.

While you’re learning to be a profitable forex trader, it’s the perfect opportunity to learn the importance of budgeting.