ProfitHow Much Can You Earn By Investing In Onlinetrading?


  • People approaching online tradingfor the first time, often ask this question: "How much can I earn?”. It is natural to ask that question, but before doing that we must take into consideration two important factors.

     

    • Risk-reward standard

    Before asking how much you can earn we should wonder how much you are willing to risk, every trader should know well that his risk appetite is based on his economic possibilities and also on his emotional ability to absorb losses.

    Risk is usually associated with something negative, but risk in itself can be both negative and positive. I can take on much risk in a single trade/position by investing all my capital, despite the outcome could go either way, positive or negative. So this point makes us understand that if we are willing to risk much we can achieve high returns, nevertheless if my risk appetite is low I'll have to settle for a low return.

     

    • The profit expressed as a percentage

    Rather than thinking about profit as monetary amount which constantly comes, we should think of profit as a percentage to be calculated on our capital. Only then can wetruly understand the actual profits we are able to achieve by investing in trading.

    Making a comparison between FOREX and other financial instruments such as stocks, real estate funds and bonds, equal investment on FOREX allows us to obtain potentially greater returns by far. In fact, making a comparison, we can estimate that a real estate fund to date can make 5-6% maximum per year, or a corporate bond with an acceptable rating does not go over 8% per year, whereas an experienced trader who works with FOREX can reach up to 35%.

    Considering a rough statistics the following are the annual percentages regarding EXPERT TRADERS

    Risk / return HIGH                         profit range -5% / 35%
    Risk / return MEDIUM                   profit range 2% / 18%
    Risk / return LOW                          profit range 8% / 12%


    Considering a rough statistics for EXPERT SIGNALS PROVIDER
    Average profit 15% / 20%

    People who approach binary options for the first time instead claim they want to achieve double-digit returns in a month. The mind of the apprentice (newbie) trader is that he wants to become "rich" within a short period of time by investing small sums.

    What kind of return should a trader who wants to invest $500 expect?
    Of course you can also earn $50 per day which translates to 10% per day in percentage terms. That calculated as a monthly return equals to 200%, meaning high risk trading and being aware that these returns could also be negative. The trading goal therefore is to have small but steady returns, this way we can beat all other financial instruments. Even if we get an average of 3/5% per month it would be an excellent result compared to the returns of other financial instruments which keep far below that profit.

Interviews

  • the Analyst's answer

    Jean Grossett - Financial analyst

    It is impossible to talk about risk to reward without mentioning the percentage of risk capital we are willing to lose in every trade signal. Furthermore percentage risk exposure cannot be accurately evaluated without identifying a stop loss level. Stop loss level established for every trade, helps a trader to easily evaluate and limit his or her risk to a certain percentage of the trading capital. Therefore this percentage risk and stop loss distance to trade entry price is what translates to the lot size used when placing  the trade.

    Other than risk to reward ratio and thinking of money in terms of percentage, another factor to include is reliability of strategy used, which is also expressed in percentage. Traders will often prefer to take the option of a strategy with high reliability and a risk to reward ratio of 1:1 or less, because this is psychologically beneficial. Humans due to the fear of being wrong will usually prefer a trading strategy with high reliability, even if the risk to reward ratio is relatively lower than ratio 1:1. It is mathematically proven that a strategy with a risk to reward ratio of 1:1 and reliability of 63% is equivalent to a strategy of 1:2 risk to reward ratio  and a reliability of 50%. Most traders will go for the first strategy for reasons mentioned earlier.

    A strategy with a high maximum adverse excursion , despite having a high reliability is still considered risky, and could lead to an eventual collapse of the entire trading capital. Maximum adverse excursion [MAE] measures the health of every trade signal in the strategy, by showing  how far a trade went into loss before it was finally closed in profit. Trade signals with high MAE, is considered risky, therefore the strategy requires further optimization.

  • the Manager's answer

    Robert Danvil - Investment Manager

    The table below illustrates that trader will require more percentage than that which he lost, in order to breakeven on his or her account balance.

     

    Let’s assume an ambitious trader with attributes of the last category above: No trading knowledge, Gambling, no strategy, more of revenge trading, fear of missing out/being wrong, he orshe is definitely going to drain his entire capital. Assuming s/he lost 60% of his or her capital on the first trade, inorder to get to break even, he will require 150% of the current accont balance.

    Given that Loss is X% and gain needed to break even is Y%.

    Then Y =( X/(1-X))*100

    where “Y” is the percentage gain required to break even and” X” is the percentage lost.

    So for a loss of 60% (0.60), the break-even recovery gain is (0 .6/(1-0.6))*100= 150%

     Original              %Loss      %Remains       Profit required to break even
         100%                  10%              90%                                11.11%
         100%                  20%              80%                               25.00%
         100%                  30%              70%                               42.86%
         100%                  40%              60%                               66.67%
         100%                  50%              50%                               100.00%
         100%                  60%              40%                               150.00%
         100%                  70%              30%                               233.33%
         100%                  80%              20%                               400.00%
         100%                  90%              10%                                900.00%

Members Comments

  1. Profile photo gravatar of Daphney Boyle
    Daphney Boyle (schmitt-sonia)
    says:

    This article is very helpful… Thanks for writing for a newbie like me. I understand now what is actually risk and reward in forex. I used to think that there is only profit in forex, people become rich in days and it goes on. I used demo account and did trading in the best way. But I didn’t consider where is my loss. But now I will calculate that how much risk gives me how much return. Thanks again.

  2. Profile photo gravatar of Caitlyn Nikolaus
    Caitlyn Nikolaus (tanner-altenwerth)
    says:

    In trading, a trader must not always aim for profit because once you have entered the market, you should ready for loss as well. Sometimes a significant profit makes a trader greedy, but a trader must follow money management and wait for a right time to trade.

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