We watch television dramas like Billions and movies like The Wolf of Wall Street, where wealthy traders make millions of dollars. On the other hand, the statistics show that the majority of day traders experience financial losses.
On the foreign exchange, a forex trader buys and sells currencies. They evaluate and profit from changes in the value of various currencies, whether they are rising or dropping, in order to generate income for a financial institution, for clients, or for themselves.
A trader in forex could be:
- Hired by a financial institution, such as an international bank or a hedge fund
- Hired by a number of clients to conduct business on their behalf
- Being self-employed as a retail trader
- Serving as a retail trader as a second source of income
The Foreign Exchange Market: What Is It?
With a market value of more than $5 trillion, the foreign exchange (FX) market is the biggest on the planet. The forex market is a web of brokerage and financial institutions that handles interbank transactions carried out by major banking organizations as well as over-the-counter (OTC) transactions by forex traders. The US dollar is the currency that is exchanged the most on the forex market.
Roles in Professional Forex Trading
The role of a forex trader involves a number of responsibilities:
In order to advise their employer and clients on the best investments to make, forex analysts conduct research on currency markets and political and economic issues that could have an impact on the forex. A currency researcher or a currency strategist are other names for this position.
Forex Account Manager/Trader
An account manager is in charge of working with one or more clients, handling big sums of money, and making choices about buying and selling on their clients’ behalf. They must achieve profit goals and frequently have a lot of prior knowledge of the currency market.
Forex Exchange Operations Associate
A forex exchange operations associate assists the forex trader by acting in a customer-service capacity and handling the essential administrative duties, such as processing customer deposits and withdrawals and validating customer identification.
Employed Forex Trader’s Salary Component
If you are a professional forex trader, the following will be included in your salary:
- Unaffected by your performance, you will earn a base wage each month.
- Bonuses and commissions will depend on your performance, the performance of the organization’s trading team, and the revenue generated by the business.
- Additionally, you can be provided with employee perks like health insurance, a holiday allowance, a profit-sharing program, or a 401(k) pension plan.
What Factors Could Affect a Forex Trader’s Wage?
Base pay for forex traders might differ for a number of reasons:
- Your level of trading and currency market expertise
- Financial and general education
- Your employer in the finance industry
- The location of your workplace
- Length of employment and seniority of your position in forex trading
The following variables affect bonuses and commissions:
- Your trading performance
- the effectiveness of the entire trade team
- Business turnover
- Current political and economic environment
- What other competing companies pay
As a hedge fund manager, or quant trader or day trader, for a business (like an investment bank or hedge fund), you are an employee who receives a base Forex trader pay as well as frequently a performance-based commission.
The following are some advantages of being a professional trader:
- You can utilize the current tools and tactics employed by the business, which have ideally previously shown to be successful.
- Since training and mentor-ship programs are frequently incorporated into organizational structures, you have more assistance than you might otherwise have.
- Because you are not going to risk your own money when you trade, some of the tension associated with it can be reduced.
- There is room for career advancement, which enables you to advance and handle more or higher-value client money.
- When you work, you earn a consistent wage, and based on the business and local rules and legislation, you can also receive health or pension benefits.
The disadvantages of being a paid trader include:
- You’ll undoubtedly have to cope with extra guidelines, limitations, and scrutiny if you don’t fulfill the company’s profit goals.
- Less flexibility exists since, despite what TV and movies portray, working as a trader is still a normal job with hours that frequently extend past 9 to 5.
- You could have to cope with tough clients or office politics.
- If you succeed, you won’t keep all of your profits; rather, you’ll only receive a portion of them as a bonus.
Benefits and Downsides of Becoming Retail (Independent) Forex Traders
Instead of receiving a salary as an independent Forex trader, stock trader, or commodities trader, you would trade and manage your own money and pay yourself with the gains from your trading.
The advantages of becoming your own boss include:
- With an internet connection, you may work from anywhere and trade whenever the market is open (for forex, this is 24 hours a day, 5 days a week).
- No cap on your earnings: If you use a successful approach, there is no upper limit to how much you can make (provided, of course, that you have the capital to engage in trading)
However, being an retail trader can have its drawbacks, such as:
- You are betting with your own money, which could make you feel more stressed.
- Since you cannot rely on receiving the same base salary automatically each month, particularly if you have a terrible month, there is less security.
- Although there are many educational resources accessible for traders, you will need to hunt for them yourself instead of having them handed to you as there is less built-in structure and guidance than with a firm.
- To boost your trading efficiency, you’ll need to find or create your own tools.
How Much Money Do Traders Make Professionally?
Depending on the trader’s precise job title, the organization they work for, and even the city they are employed in, traders who are employed by businesses might earn incomes that differ significantly. For a US Forex trader, Indeed estimates an annual salary of $98,652 + $25,000 in commissions.
The highest pay they provided, though, was $196,917 with Citi Trader. Equities traders made an average salary of $80,935, Payscale reports, with bonuses of $14,916, commissions of $21,000, and profit-sharing options of $6,000. Their base pay ranged from $47,000 to $160,000, depending on the position.
Source: Payscale.com, Equities Trader Salary
A similar range was given by Glassdoor, with an average salary of $91,642 and additional cash benefits of $32,599 on average.
Source: Glassdoor.com, Average Trader Salary
On the other hand, according to ZipRecruiter, the annual pay of a Forex trader in the United States ranges from just $16,000 to $148,000, with an average of $60,698. They discovered that most finance wages fell between $30,000 and $74,500.
The average Forex trader income in London is £65,621, according to Glassdoor. According to the current currency rate, that amounts to around USD86,000, which is a $10,000 decrease from the national average.
Source: Glassdoor, London Trader Salary
The average income for a Forex trader, according to CW Jobs, is barely £42,500. While offering a range of £45,000 to £150,000+ for experienced traders, Prospects set the beginning pay for trainee financial trainers at £26,000 to £32,000 plus commissions.
They provided a Forex trader salary range of £140,000 to £230,000 for associate traders, particularly derivatives traders, with incentives given on their gains. According to EU legislation, bonuses cannot exceed 200% of the base wage.
The majority of persons advance to junior traders after starting out as analysts (4–8 years), providing data support to junior and senior traders. According to 80000hours.org, professional portfolio managers can make over $10 million per year, while inexperienced traders often make between $300,000 and $3 million. However, these values are depending on performance.
The average is brought down because most traders won’t succeed in reaching the greatest Forex trader compensation because this is a high turnover business.
Professional Forex Trader Performance and Salaries
The pay indicated above are primarily contingent on bonuses because trading is a performance-focused job at hedge funds or investment banks.
According to 80000hours, a trader will make $600,000 if they manage a portfolio of $50 million worth of assets and achieve a 10% return. According to the Page Executive 2019 poll, their base income, which ranges from $60,000 to $90,000, will be forfeited if they don’t perform.
A senior portfolio manager with a $500 million portfolio and a 10% return on investment would make around $6 million annually.
Salaries of Professional Forex Traders by Company
By firm, salaries also differ. Glassdoor reports that Citi’s average trader compensation is $147,418 with a range of up to $252,000.
The average trader salary at HSBC is $195,061, while the highest salary was $286,000; in contrast, the average trader salary at Barclays and Goldman Sachs is $126,647 and $110,462, respectively.
The salary data from Glassdoor focuses on base pay, so once bonuses are taken into account, these amounts may be higher. Keep in mind that each of these businesses is publicly traded. Although they are a little more enigmatic, private equity traders are known to pay significantly larger base wages and bonuses than public companies.
Salaries of Professional Forex Traders by Location
The wages of traders may also vary depending on where their employers are located.
Salary of a forex trader in the USA
According to Recruiter.com, the upper east coast of the US has the highest paying states for traders when it comes to salaries for Forex traders:
|District of Columbia||$102,210|
Source: Recruitment.com, Trader Salaries by State
Nevada, Nebraska, and Idaho had the lowest trader incomes, at $58,700, $58,340, and $45,560, respectively.
Forex traders’ salaries in the UK
Let’s look at a thorough list of places in the UK, even if London has a higher average wage for Forex traders than other British cities. Here, trader salaries differed by region as well. Indeed claims that:
Source: Indeed, Average Trader Salaries
Are Salaries for Professional Forex Traders Declining?
You may be wondering whether trader salaries are decreasing now that we have discussed averages. Due to our inability to locate data on private hedge funds (such as the kind seen in Billions), we are unable to know for sure.
Anecdotally, compensation gains appear to be slowing down, and as computerized trading grows, fewer traders are needed.
How Much Does the Retail Trader Get Paid?
What we’ve discussed thus far is the pay for Forex traders who work for firms (like hedge funds or investment banks) and their customers. We’ll now discuss the potential pay for a trader that operates independently and with their own funds.
In this instance, the salary computation is different. The earnings from your trades will serve as your compensation as an independent trader, as opposed to a hired trader who receives a base salary along with commissions and bonuses.
That implies that there are other aspects to take into account. These consist of:
- Return on your investment (ROI)
- Your initial investment
- Trading expenses
We’ll now go into greater depth about each of these separately.
Step 1 in determining your forex trader salary: ROI
The profit you make from your trades represents your return on investment. Then, if you drew money from that profit, that would be considered pay.
Now, this rate of return can change significantly based on:
- Are you a buy-and-hold investor who trades for the long term? Or are you a scalper, swing trader, or day trader? Short-term traders frequently want to make more money every deal, but they also frequently take on greater risk.
- Your trading frequency: Your average return will be impacted by how frequently you trade. Your overall ROI (profit versus beginning account balance) will be substantially lower than if you were continuously trading if you make one deal with a 50% return but it is the one and only trade that you make in the whole week.
- Using leverage: Buying assets altogether, where the investor must pay the full cost of an asset up front, is a common strategy in traditional investing. Leverage, however, is a common strategy among active traders because it enables them to trade bigger positions with smaller starting balances. This implies that they may be able to receive bigger returns (as a proportion of the total amount in their account). However, it also raises their danger of suffering a loss.
A traditional investor who doesn’t use leverage may be able to get a return on their investment of between 5 and 10% annually. On the other hand, a day trader or swing trader may aim to generate a 10% return per month.
These are noticeably different rates of return, and they also have varying demands on the amount of time and risk you are willing to commit in trading and investing. So, while selecting what compensation you’d like to earn as a trader, these are both crucial factors to take into account.
2. Starting capital when calculating your Forex trader compensation
The next stage in figuring out your Forex trader pay is to consider your starting capital once you’ve established a profit target that you’d like to achieve. Suppose your goal was to earn 5% monthly on average. If you had invested $5,000 instead of $500,000, the return would have been considerably different.
On $5,000, a 5% return equals $250. You would have $3,000 if you multiplied that by 12 to determine your annual profit. That is a 60% return on your initial investment, which is a very good rate of return when compared to typical investing. It probably won’t be enough for you to leave your day job, though. On the other hand, a 5% yield on $100,000 would be $5,000. $5,000 a month for a year would equal $60,000, a much more manageable starting salary for a trader.
Step 3 in determining your Forex trader salary: Trading expenses
Your trading expenses are the next factor to take into account because they will reduce your profits and, as a result, your salary as a Forex trader.
Your broker will often charge the following fees to active traders, which includes day traders, commodities traders, swing traders, forex traders, and more:
- Spreads: These fees are assessed each time you place a trade and represent the difference between an asset’s ask (sell) and bid (buy) prices.
- Commissions: These fees, which are frequently assessed for specific products like stocks and ETFs, may take the form of a percentage or value-based cut of your transaction.
- Swaps: Swaps are an overnight interest rate applied to positions. While short positions might get paid interest, long positions will have an interest rate applied to their open positions.
You must keep in mind that all of these expenses will be deducted from your trading gains. The good news is that many brokers will provide special rates if you trade with a sizable account balance in an effort to win your business, which can help you control your trading expenses.
Another item to think about is how your trading income may impact your pay. Western nations with a tax bracket system are frequently found to include the UK, the US, Canada, Australia, New Zealand, India, the Netherlands, Switzerland, and more. You might have to pay extra tax on that income if your trading income puts your overall income in a higher tax rate.
Consider the US as an illustration. Your income will be subject to the 22% marginal tax rate if you make $60,000 from your day job and an additional $15,000 from trading. This implies that you will pay 22 cents in taxes on every dollar you make above $38,701. Your earnings will be subject to the lowest relevant tax rates if they fall below that amount.
If you had a day job paying $60,000 and made an additional $30,000 trading, your overall income would be $90,000. Over $82,500, your tax rate increases to 24 cents from 22 cents per dollar earned.
|Marginal Tax Rate||Single||Married Filing Jointly|
|10%||Up to $9,525||Up to $19,050|
|12%||$9,526 to $38,700||$19,051 to $77,400|
|22%||$38,701 to $82,500||$77,401 to $165,000|
|24%||$82,501 to $157,500||$165,001 to $315,000|
|32%||$157,501 to $200,000||$315,001 to $400,000|
|35%||$200,001 to $500,000||$400,001 to $600,000|
|37%||over $500,000||over $600,000|
Source: Bankrate.com UK Income Tax Brackets
Salary Trends for Retail Traders through Time
How much money might a trader make in the future? Will it remain the same, or will there be a chance to see your trader income rise over time?
These are the things to think about:
- monthly average return
- initial capital
- How much time was spent trading?
You may get an idea of the various incomes a trader can generate over time from this.
Potential 12-Month Trader Gain
Beginners typically make a good living as retail forex traders, but their pay is based on their level of experience.
|Starting capital||2% monthly return||5% monthly return||10% monthly return|
As you can see, your initial capital and average monthly profit can have a big impact on how much you pay yourself in income.
You wouldn’t quite be able to quit your day job with a profit of $53.65 if you started with $200 and got a 2% monthly return. With the same initial investment and an average monthly return of 10%, you would more than triple your money and end up with $427.69 in profit, but most people wouldn’t view that as a living wage.
However, if your initial capital increases, so does your remuneration – even if your profit margins remain unchanged. For example, if you started with $100,000, a 2% monthly return would equal $26,824.18 for the entire year, which isn’t terrible if this is on top of your full- or part-time salary.
If you adjusted your trading tactics and raised your monthly return to 10% every month, your annual profit would be $212,842.84 if you did so.
Potential 2-year trader income
However, things get more intriguing if you aren’t required to withdraw your winnings right soon. This is necessary since compounding will then enhance your account balance. The starting capital for the following year would be significantly higher if, for example, you started with an account amount of $100,000 and ended the year with an account balance of $126,824.18. This implies that rather than making $100k in profit, you will instead make 2%, 5%, or 10% of $126k. The next year, you’ll have a greater sum to work with if you decide to leave your profits in the account.
The identical initial capital and monthly returns are shown in the table below, along with what your account would look like after two years if you held everything there.
|Starting capital||2% monthly return||5% monthly return||10% monthly return|
You can see that your compensation would significantly grow with just one additional year. At the conclusion of Year 1, a trader with $50,000 starting capital and a 5% monthly return, for instance, would have a total account balance of $89,792.82. After deducting the initial investment, this equates to a salary of $39,792.82 year.
The trader’s account balance at the end of Year 2 would be $161,255.00 if he chose to keep the money in his account as opposed to withdrawing it and maintained using a strategy that earned him a return of 5% per month for the following 12 months. The initial capital is subtracted, bringing the total to $111,255.00, or a trading salary of $55,627.50 per year. And if you do this for five years, things keep getting better.
Potential 5-year trader income
|Starting capital||2% monthly return||5% monthly return||10% monthly return|
A trader who began with a $50,000 account balance and earned a cumulative return of 5% per month would have $933,959.29 in his account after five years. This offers us an annual trading pay of $176,791.86 after deducting the beginning capital.
The advantages of regular, lucrative trading compound over time, much like traditional saving and investing, so traders who stick with it for the long run are more likely to earn more money than those who give up after a few months.
How Long Will You be Required to Work as Retail Forex Trader?
The foreign exchange market is open 24 hours a day, Monday through Friday. Depending on the currencies you are trading in relation to the nation you reside in, there may be some overlap at the start and conclusion of that working week.
If you work as a forex trader, your workday can last 12 hours or you might be required to work in shifts so that one or more traders at your company are constantly monitoring the forex market. Additionally, you can be required to work on a weekend.
You have some flexibility as a freelance FX trader. You decide how much time you want to devote to managing your FX investment.
The amount of time you can devote to your forex trading may be constrained if you have another job and this is a secondary source of income, but it is still feasible to succeed as a part-time forex trader.
Who is The Wealthiest Currency Trader?
Forex traders aim to benefit enormously from the world’s largest market. However, many of them, especially those who are new to it, have failed trades because they lack experience and the motivation to persevere after making mistakes, learn from them, and improve.
Trading, like any other talent, needs effort and devotion. Many traders have traded with passion and tenacity over the years. However, an intriguing question is, “Who among them is the richest?”
Here are some of the world’s wealthiest FX dealers. These are persons that overcame adversity, learned from their mistakes, and are now role models:
1. Paul Tudor Jones
Paul Tudor Jones is by far one of the most skilled forex traders. He profited from the October 1987 market crisis. He is regarded as one of the richest traders alive today. In 2018, his net worth was projected to be $4.5 billion.
Jones did not begin at the top, as you may have anticipated. He was born in 1954 and attended the University of Virginia to study economics. After earning his degree in 1976, he started a career in finance as a clerk on the trading floor.
Jones is a case study that demonstrates the value of tenacity in the development of a trader.
2. George Soros
Without including George Soros, no analysis of the wealthiest and most successful Forex traders would be complete. He is one of the most infamous figures in the field. Soros gained a reputation as one of the best investors to ever exist. His notoriety was cemented, for example, when it was claimed that he made $1 billion off of a short position in the pound sterling.
It was such a huge accomplishment that, in the words of many other merchants, it “broke the Bank of England.” Before Black Wednesday, September 16, 1992, all of this took place.
3. Bill Lipschutz
It’s interesting to note that Bill Lipschutz made his money at Salomon Brothers’ Forex division in the 1980s. He is a prime example of someone who entered the currency markets with no prior expertise and went on to achieve great success via persistence and, no less importantly, dedication to creating a smart and safe plan.
The Sultan of Currencies is the moniker he was given. The Forex market is viewed as psychological by Libschutz. Like most traders, Lipshultz pays attention to the facts, but he also pays heed to market perception. He thinks it has a significant impact on price movement.
A Remark on Trader Earnings and Risk
Although trading may be a way to supplement or even replace a full-time income, it’s crucial to be aware of the hazards. All of the aforementioned figures presuming a trader is continuously profitable. But in practice, it’s really challenging to pull off.
You can occasionally place the incorrect trade, the market might not respond as you anticipate, or you might close a trade too soon or too late. You may have losses from any of these, therefore it’s extremely improbable that your monthly return will remain constant.
As an alternative, the following is more accurate:
- January: +3%
- February: +4%
- March: +6%
- April: -5%
- May: -3%
- June: +10%
Over the course of six months, this would provide you an average monthly return of 8%, but there would also be months when you lost money.
Since you can work on new trading strategies and invest in mentors and expert advisors to help make your traders more profitable, having good risk management and money management skills is crucial for long-term success in trading. If you don’t understand how to control risk, those good trades will be outweighed by bad trades, leaving you in the red.
Although it can be challenging to obtain precise figures regarding the earnings of various traders, there is a wealth of data available that we can use to make some inferences..
The typical yearly compensation including bonuses for traders employed by businesses, such as hedge funds and investment banks, is roughly $90,000. However, as a trader gains more experience and their performance improves, this salary can rise significantly.
The average monthly gains of traders who trade the market individually with their own capital, as well as their initial investment, will determine their income. The greater their initial investment and monthly revenues, the greater the income they will receive.
Nevertheless, even if they don’t begin with a sizable money or deposit, if they trade consistently and generate profits over time, those earnings will eventually increase enormously.
In any case, it’s crucial to be aware of the dangers of trading because individuals who make the highest wages frequently take the most risks, which means they run the risk of losing their money just as soon as they make it.