You may have heard all kinds of sky's-the-limit stories about making a fortune from your own computer through the foreign exchange, or Forex, market -- and you may have wondered which, if any of them, are true. As a 24-hour-a-day, 7-day-a-week marketplace where trillions of dollars are exchanged every day, opportunities abound to make money. The question is: How much can you, an investor, realistically expect to make?
Trader vs. Investor
Before getting into the earning potential of the Forex market, those who are thinking about investing in it should consider how much of their time and money they're willing to devote to this endeavor. Your mindset and approach could affect how much you potentially make, and from a practical perspective, determine the kind of taxes you pay. The IRS treats traders and investors differently, so it's up to you whether you choose to make a living through the Forex or use it to supplement your other earnings.
The Forex Market
Forex, or the exchange of foreign currencies, is a worldwide unregulated and decentralized market where buyers and sellers trade currencies in the hopes of profiting from price fluctuations. This market is considered the largest in the world, with high levels of liquidity and low transaction costs compared to other markets. Large or small investors can participate with relative ease. Because these transactions can be conducted online or through a smartphone, accessibility is within reach of many.
How much money you make as a Forex investor depends on numerous factors, and not only your penchant for green(backs). As an investor, you could choose to trade Forex on your own. Knowing at the outset that the odds are stacked against you -- most Forex traders lose money -- can help you keep perspective as you hone your trading skills and become more adept at making money. The size of your trading account is one consideration in how much money can be made. A starting account of $1,000 or even $10,000 is not going to give you the same benefit of compounding that an account of $200,000 could. With the latter and experience, you could earn a monthly return of $10,000 to $20,000. However, this should not be considered "average" or representative of most investors, since each investor has different aims, ambitions and resources.
Another option for the investor interested in what the Forex has to offer, but who prefers to let someone else trade his account, is managed Forex. The account remains in your name, but you give the Forex fund manager power of attorney to make trades on your behalf. For this, he receives a percentage of your profits, known as a performance fee.
It would be misguided to say that there is a standard amount of money that any given Forex investor could earn, especially considering that earnings are not regular or paid out like a salary but can experience fluctuations from day to day, week to week. Those who trade the Forex for money have different ways of gauging their progress, that may not hinge on money, per se. They might look at the percent return received per month, or the number of pips captured. Pips are the smallest unit of price change for any given exchange rate and a handy way for investors to keep track of gains. You might have a daily or monthly pip target, such as 100 pips a day. Alternately, investors might focus on lessening losing trades, rather than concentrating on making a set amount of money.
Timothea Xi has been writing business and finance articles since 2013. She has worked as an alternative investment adviser in Miami, specializing in managed futures. Xi has also worked as a stockbroker in New York City.