The forex market is the biggest in the world when looking at the dollar value of average daily trading. Forex trading is one of the avenues where a small investor can trade their way to a fortune with little trading capital. However, how much do professional forex traders make?
A professional forex trader earns an average of $77,593. That figure may go up or down depending on commissions, bonuses, and profit-sharing. These are added on top of the base salary. The amount earned will also depend on whether one trades for a hedge fund or himself.
Read on to learn more about how forex trading works and factors that influence a forex trader’s pay. We also tell you how much a professional forex trader earns on average.
IMPORTANT SIDENOTE: I surveyed 1500+ traders to understand how social trading impacted their trading outcomes. The results shocked my belief system! Read my latest article: ‘Exploring Social Trading: Community, Profit, and Collaboration’ for my in-depth findings through the data collected from this survey!
Table of Contents
How Does Forex Trading Work?
Forex is regulated by the supply and demand rules. That means when there’s a demand for a currency; the value goes up and vice versa. With forex trading, you buy low and sell high, like asset trading.
When trading on a downward trend, you need to short-sell assets, which entails borrowing assets from a third party, selling them, purchasing them back, and giving back the borrowed amount.
You get to make money if the price goes low between buying and selling. However, note that you’re likely to lose if you only use your intuition and depend on luck. It’s imperative to know what you are doing when trading forex.
What Makes Professional Forex Traders Different From Beginners?
Professional forex traders trade what they see and not what they predict. They don’t spend a lot of time analyzing the markets as beginners do. What’s more, professional forex traders don’t depend as much on technical indicators as they complicate the reading of charts and interfere with decision making.
Beginners spend a lot of time just studying the technical data. Professional traders will heavily use fundamental analysis to confirm what’s on the charts based on their technical analysis.
Types of Professional Forex Traders
Forex traders are divided into two-traders who work for themselves and traders working for a company.
Trading for a Hedge Fund
As a forex trader working for an investment bank or large hedge fund, you get a base salary with performance-based bonuses.
Working for a hedge fund means that its software, tools, and strategy are readily available. This software is not cheap and provides essential information in the quickest time. You also don’t risk your money when working for a hedge fund, which gives you an advantage.
Salaried traders also have access to the best training and mentoring programs since they’ll be learning from the pros. The best part is that if you prove yourself and make more money for the hedge funds, you can move up the ranks and get paid more.
The drawback to being a salaried trader for a hedge fund is that you may end up dealing with demanding clients, and you may have to work for long hours. Moreover, if you fail to reach the hedge fund’s targets, you could be demoted or lose your job.
Traders Who Work for Themselves
Some forex traders opt to work for themselves due to circumstances or by choice. Working by yourself gives you the flexibility to choose the working hours since you have no one to answer. Furthermore, you get to keep what you earn, which is different from a hedge fund that only gives you a percentage of the profits.
The downside to working for yourself is you could end up stressed if you end up risking your money and losing it. You also don’t have a base salary, which means you are depending on the income you make from trading. Accessing information can also prove costly as you have to rely on news outlets and some paid data streams.
How Much Does a Professional Forex Trader Earn?
The average amount that a professional forex trader depends on factors like:
- Seniority
- The company they work for
- Performance
- Location
Seniority
Most traders in investment banks or hedge funds start as analysts. They can stay in that role for six years before being promoted. As an analyst, the primary responsibility is to assist junior and senior traders. After some years, one is promoted to be a junior trader.
Junior traders can earn an average of $300,000 to $3,000,000 annually (including commission and bonuses), while senior traders can earn up to $10,000,000 a year (including commission and bonuses). The figure may vary depending on performance.
Company They Work For
Glassdoor estimates the average base pay for a trader in the U.S. to be about $100,000. However, this is only an average as different companies have varied incomes. For example, J.P. Morgan pays an average base salary of $92,795. Goldman Sachs $119,548, and Citibank $148,146. HSBC has one of the highest base salaries that stands at $196,024.
Note that this amount doesn’t include commissions and bonuses.
Location
The amount a professional forex trader earns also depends on the location. A good example is a Citibank trader in the U.K. earns £56,951, while a Citibank Trader in the U.S. earns $148,146. A Goldman Sachs trader in the U.K. earns £79,581, while a Goldman Sachs trader in the U.S. earns $119,548. Note that this is base salary and doesn’t account for the commissions and bonuses.
How Much Do Forex Traders Working Independently Earn?
It’s challenging to come up with a conclusive figure as the average statistics are not out. However, a forex trader who works independently will earn a salary based on their starting capital and average monthly profits.
In some cases, the higher the starting capital, the bigger the monthly profits. The difference between the amateur and professional traders is that they have huge accounts. A professional trader could have an account that is in thousands of dollars, while an amateur trader could have an account in hundreds of dollars. When both traders earn 5% on their capital, their earnings will be different.
Trading consistently can lead to more profits. These profits accumulate over time, leading to more earnings. The amount could range from thousands of dollars to tens of thousands of dollars per year.
One thing to note with trading is that those who earn the highest salary also take the most significant risks. That means a trader could lose his earnings as quickly as he made them.
Why Is It Difficult to Come Up With a Specific Figure?
The amount of money professional forex traders make can never be conclusive. These figures vary significantly because every forex trader has his/her approach to trading. There are different forex strategies, so there is no specific strategy for forex trading that works for every single trader.
Remember that forex traders also have their off months where they barely make a living, and they also experience months where they can make close to 50% of their capital. To be a professional forex trader means understanding the risk to reward ratio, money management, risk management, stop loss, and all these things. That’s the only way for long-term growth and to stay afloat in forex trading.
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Conclusion
It’s difficult to determine the exact amount a professional forex trader earns. That’s because the figure may differ based on one’s seniority, location, performance, and the company they work for. Experienced traders who work for themselves will have a salary based on their starting capital and average monthly profits. Moreover, no trader makes the same percentage of profit each month, so it’s challenging to have a specific figure.
BEFORE YOU GO: Don’t forget to check out my latest article – ‘Exploring Social Trading: Community, Profit, and Collaboration’. I surveyed 1500+ traders to identify the impact social trading can have on your trading performance, and shared all my findings in this article. No matter where you are in your trading journey today, I am confident that you will find this article helpful!
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