The forex market is the most liquid market in the world. This provides a huge amount of opportunities every month for day traders and swing traders looking to capitalise on the movements of currencies. The large majority of traders lose money in this market due to a lack of risk management and fundamental understanding, however, how much do the profitable traders make? Is it possible to average 5% monthly gain trading forex? Let’s find out…
It is very possible to average 5% per month in the forex market. Depending on fundamental factors, some months may be much lower and some may be much higher when strong momentum is present. Your main objective in forex is to manage risk and the monthly returns will reflect that.
Is 5% Per Month Realistic In The Forex Markets?
With how liquid the forex market is, it’s completely achievable to average a return of 5% per month. In fact, I’d say this is a fairly average return for the majority of profitable forex day traders. As a rule of thumb you will want to risk 1% per trade when taking positions in the market. This means you would be looking for 5R throughout a whole month – which is very doable.
Making any kind of profit in forex is actually extremely tough though. Most traders come into the markets expecting to make a huge amount of wealth and quickly get humbled. The Balance
actually shows that over 70% of traders in the forex market will consistently lose money. This statistic is very worrying but needs to be taken with a pinch of salt. If you take your time to backtest, learn psychology and risk management – you will most likely not be one of these 70% of traders.
Although a monthly average of 5% is very achievable, this is definitely not going to be reflected month on month. What do I mean by this? Well, your results are more likely to look something like this…
- January +9%
- February +11%
- March +4%
- April -3%
Across this 4 month period, you will be averaging 5% monthly return but you can’t rely on banking 5% per month. Markets tend to act in stages. There are periods of time where consolidation is occurring and you will not be able to get any real returns out of the markets. Then there are periods where the market is absolutely flying and you will be able to capitalise on the moves.
Due to the changing market conditions, it’s more important than ever to manage your risk and journal your trades. Being able to recognise what stage the market is in is crucial to survival in forex. If you’re losing 20% of your account every time the market consolidates for a month, you’re going to be in some serious trouble. Likewise, if you cannot execute trades well when the market starts moving aggressively, you will miss out on huge profits potentially.
The Compounded Power Of Making 5% Per Month Trading Forex
The reality is that the majority of forex traders are smart enough to average 5% per month. However, they are chasing much larger profits and that leads to failure. I understand that if you’re trading a $10,000 account, spending hours on the chart each week to make an extra $500 may not be that appealing – but what if you compound it?
Compounding a 5% monthly return in the forex market would look like this…
| Month | Starting Balance |
| 1 | 10,000 |
| 2 | 10,500 |
| 3 | 11,025 |
| 4 | 11,576 |
| 5 | 12,155 |
| 6 | 12,762 |
| 7 | 13,400 |
| 8 | 14,071 |
| 9 | 14,774 |
| 10 | 15,513 |
| 11 | 16,288 |
| 12 | 17,103 |
Within the space of 1 year, by compounding your forex account you would get a return of around 70%. This is absolutely crazy! The average return of the S&P500 is around 7% per year, so you are massively out performing other forms of investing. Let’s look at if you kept that up for a decade…
| Year | Starting Balance |
| 1 | 10,000 |
| 2 | 17,000 |
| 3 | 28,900 |
| 4 | 49,130 |
| 5 | 83,520 |
| 6 | 141,980 |
| 7 | 241,376 |
| 8 | 410,000 |
| 9 | 697,575 |
| 10 | 1,185,878 |
Within 10 years of averaging 5% per month on your trading account you could compound the account to a HUGE amount of money. Of course, few very traders have ever been able to achieve this over such a long time but the maths doesn’t lie. If you’re interested in learning more about compound interest I’d recommend this Investopedia Article.
If you can achieve a 5% per month return, you will open yourself up to investors and other forms of capital raising as these rates of return are extremely lucrative to individuals with a lot of capital. After a few years of doing this, I’d highly recommend starting to look for investors.
Can You Live Off A 5% Monthly Return?
We’ve seen that a 5% per month return is possible. Not only is it possible, it promising to make you a huge amount of wealth if you compound that return over the space of a 10 year period. However, a lot of forex traders can’t wait 10 years to get paid – they need money now.
Due to high leverage offered by brokers like IC Markets, forex attracts investors with much lower levels of capital than say stock trading does. Low capital tends to lead to over leveraging and a lack of risk management as traders cannot afford to live off just 5% per month… So what do you do?
Forex prop firms offer traders funded accounts, with zero risk. For example, DT4X offers up to $50,000 in instant funding. You keep 60% of the profits you make – it’s that simple. Of course you will have to stay within their risk management criteria but for a profitable trader, this won’t be hard to all.
Averaging 5% per month on a $1000 account, or on $200,000 worth of funded capital is a completely different story. Luckily, you can even trade with multiple online prop firms at once by using a forex trade copier to replicate your trades onto multiple accounts. Here’s an example of what you could do…
| Online Prop Firm | Funding Possible |
| MyForexFunds | $200,000 |
| DT4X Trader | $50,000 |
| FTMO | $400,000 |
Averaging 5% per month on funded accounts is a sure fire way to kick start your trading career. I actually have a list of the best forex prop firms here, so feel free to have a browse.
In Summary – Is It Possible To Get 5% Per Month Trading Forex?
In conclusion, it’s very achievable to average a 5% monthly return by trading forex. 90% of traders won’t achieve this however, due to a lack of education and risk management. For consistent traders, compounding 5% per month return is more than enough to earn a living in the industry.
I’d highly recommend trying to get to that 5% per month average mark, then applying for some online prop firms to get access to more trading capital. More trading capital will allow you to make more profit from your monthly 5% and be able to justify dedicating more time to your trading career.
If you have any questions or feedback please do drop a comment down below, I’ll be sure to respond to any questions you may have.
