Many people like to trade foreign currencies on the foreign exchange market (forex) because it is necessaryminimum amount of capital to start day trading. Forex trades 24 hours a day during the week and offers a lot of profit potential thanks to the leverage that forex brokers offer.Forex trading can be extremely volatile and an inexperienced trader can lose significant amounts of money.
The following scenario shows the potential using risk managementForex Daghandelstrategie.
Key learning points
- Risk management is a crucial part of the forex trading strategy, which is usually carried out with a stop-loss order.
- Day traders want to aim for a win rate of at least 50%.
- A higher win rate gives you more risk/reward flexibility, and a high risk/reward ratio means your win rate can be lower and still remain profitable.
- With careful risk management, an experienced and successful forex trader with a 55% win rate can earn returns of over 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 element in continued profitability.
To start, keep your risk on each trade very small, and 1% or less is normal.This means that if you have a $3,000 account, you should not lose more than $30 on a single trade. It may seem small, but the losses add up and even a good day trading strategy will produce streaks of losses. Risk is managed using astop-loss order, which will be discussed in the scenario section below.
Forex Daghandelstrategie
Although a strategy can potentially consist of many components and can be analyzed for profitability in different ways, a strategy is often ranked by its objectivesprofit rate and risk-reward ratio.
Margin of profit
Your winning percentage represents the number of trades you win based on a certain total. Let's say you win 55 out of 100 trades; your win rate would be 55%. A win rate above 50% is ideal for most day traders, and 55% is achievable.
Risk reward
Risk/reward indicates how much capital is risked to achieve a certain profit. If a trader loses 10 pips on losing trades but makes 15 on winning trades, he makes more on the winners than on the losers. This means that even if the trader only wins 50% of his trades, he will be profitable. Therefore, earning more from winning trades is also a strategic component that many forex day traders strive for.
A higher win rate on trades means more flexibility with your risk/reward, and a high risk/reward means your win rate can be lower and you will still be profitable.
Hypothetical scenario
Suppose a trader has $5,000 in capital funds and has a decent 55% profit rate on his trades. They only risk 1% of their capital, or $50 per trade. This is achieved 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 price target is placed eight pips away. This means that the potential reward for each trade is 1.6 times the risk (8 pips divided by 5 pips). Remember, you want the winners to outweigh the losers.
While trading a forex pair for two hours at an active time of day, it is typically possible to execute approximately 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 executes an average of 100 trades in a month.
Trading equipment
In the US, currency brokers supplyaccelerationup to 50 to 1 on major currency pairs.For this example, assume the trader is using 30 to 1 leverage, as that is usually more than enough leverage for forex day traders. Since the trader has $5,000 and the leverage is 30 to 1, the trader can take positions worth up to $150,000. The risk is still based on the original $5,000; this limits the risk to a small part of the invested capital.
Forex brokers often do not charge a commission, but rather increase itspread between bid and ask, making it harder to trade profitably. ECN brokers offer a very small spread, making it easier to trade profitably, but they typically charge around $2.50 for every $100,000 traded ($5 rounds).
Trading currency pairs
If you trade a currency pair per day, such as USD/CAD, you can risk $50 on each tradeevery movement movementis worth $10 with a standard lot (100,000 units of currency).Therefore, you can take a position on a standard lot with a five-pip stop-loss order, leaving the risk of loss on the trade at $50. It 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 making 100 trades:
- 55 transactions 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 there are no commissions (the profit percentage would probably be lower)
Net profit: $2,150 - $500 = $1,650 if you use a commission broker (profit percentage will 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). It may seem very high and it is a very good return. See below for more information on how this return may be affected.
Slip greater than expected loss
It won't always be possible to find five good day trades every day, especially if the market moves very slowly for long periods of time.
Skiddingis an inevitable part of trading. It results in a larger than expected loss even when using a stop-loss order. This is common in very fast moving markets.
To account for variances when calculating your potential profit, reduce net profit by 10%. (This is a high estimate of slippage, assuming you avoid major financial data releases.) That would reduce the net profit potential generated by your $5,000 trading capital to $1,485 per trade. month.
You can customize the above scenario based on your typical stop-loss and target, capital, slippage, win rate, position size and commission parameters.
In short
This simple, risk-controlled strategy indicates that with a 55% win rate and more profit from winners than you lose from losing trades, it is possible to earn returns of over 20% per month with forex day trading. Most traders shouldn't expect to make that much; Although it sounds simple, it is actually more difficult.
Still, a dedicated forex day trader with a decent strategy, with a decent win rate and a good risk/reward ratio, can earn between 5% and 15% per month thanks to leverage. Remember, you don't need a lot of capital to get started; $500 to $1,000 is usually sufficient.
Frequently Asked Questions (Frequently Asked Questions)
How many hours of trading per day do you need to make money in forex?
Most day traders can have a reasonable level of success trading forex for a few hours each day. The more time you spend on it, the greater the potential profit you can make.
When does the trading day start on the forex charts?
Since currency markets cover the entire world,it is possible to trade forex 24 hours a dayfrom Sunday evening to Friday afternoon. In the US, you can start trading when the Australian and Asian markets open on Sunday at 5pm. ET and continue trading while other markets open and close through Friday at 4:00 PM A.
What is better for day trading: forex or stocks?
Stocks offer a wider range of options and risk levels than forex trading, but require much morecapital to get started. Forex also allows trading 24 hours a day, while trading hours for stocks are more limited. You can make money (or lose money) in any market, so the most important thing is that you know your specific market and how to trade effectively.
