Turning $100 Into $10,000 in the Forex Market in a Year
Achieving a return of this scale is pretty much impossible
If you're a new entrant to the foreign exchange (forex) trading world, you have probably been bombarded with advice from various sources that promise to help you build your assets at a rapid pace. One of the more lofty pitches out there suggests that novice forex traders can start with $100 and see that money grow to as much as $10,000 within one year.
That amazing claim raises the questions of whether or not such a huge return is possible even with aggressive strategies and whether novice traders stand a chance of this kind of return, versus the more likely outcome of losing all of their trading capital.
Possibility Vs. Probability
Theoretical patterns of gain or loss do not always translate into probable outcomes in the forex market. If you work a little math using a return on investment (ROI) calculator, it can help you put into perspective what would be necessary to turn $100 in assets into $10,000 within one year. Your annual rate of return on your initial investment would need to be a staggering 9,900% to achieve such a return.
Breaking this down another way, you can use the compound interest calculator provided by the Securities and Exchange Commission (SEC) on its Investor.gov website to determine how much your daily rate of return would have to be to have a $9,900 gain at the end of one year.
The compound interest calculator (which in this case is used as a profit-compounding calculator) shows that if you entered and closed out one trade every day of the year, the average profit on each trade would have to be at least 464%. In other words, you would have to more than quadruple your money every day to come even close to $10,000 at the end of a year.
Trading Consistency and Win Rate
While you might find that you can make large profits from some trades that hit the market just right, it's the requirement for consistently profitable trades, day after day, that creates the most difficulty. Some sources say that even expert traders have a trading win rate, or percentage of successful trades, of anywhere from 55% to 70%. A novice trader would almost certainly have a lower win rate, along with facing the difficulty of finding enough profitable trades to enter into consistently each day over the span of an entire year.
A High-Level Perspective
There may be a few traders who believe they can achieve such returns on a consistent basis, but looking at the volume of easily accessible assets that exists in the entire world puts the matter in perspective. A November 2017 MarketWatch article estimated this figure to be about $90.4 trillion. Now assume that instead of $100, a few large investment banks make trades with the same 464% daily profits, reinvested daily.
For argument's sake, assume the initial trade commitments of 10 large investment banks each totals $80 million. These are serious investments, but keep in mind that the daily trading volume on the forex can range from $2 trillion to as high as $5 trillion during periods of high volatility. The 10 big banks' large investments might account for only about 0.02%-0.04% of daily forex trading volume depending on the level of activity.
If these big banks had the same 464 percent daily return needed to produce a $9,900 profit on an initial investment of $100, how much money would they have at the end of one year? According to the calculator, about $80 trillion, an amount that almost equates to all the money in the world.
Grounding Your Prospects
You might be a fan of the statement "Never say never." It may also initially seem plausible to assume a trader could turn $100 into $10,000 within one year, but breaking down the math on return rates shows how unlikely this really is. While it may sound theoretically possible, in reality, it's not a credible expectation when put into real-world practice.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.