How much can one earn in Forex. What does it depend on?
Does capital invested determine the profit one make or depends on the no of lots executed.
The capital invested plays one of the key roles in the size of profits a trader can look to make in Forex.
One cannot come with $200 in a hope to make $20 000 quick and easy.
The major obstacle for this would be the inability to cover the cost of the trading, in other words, a trader won't be able to trade large lot sizes, because he/she will quickly run out of available margin.
Running out of the available margin results in a margin call.
When trading Forex, the very first thing a trader wants to do is to protect his/her investment capital. It can only be possible when risks on each trade are managed and do not exceed the reasonable percentage of account put at risk. Reasonable risk vary from 2% to 4-5% of the account size.
To expect large profits a trader should trade standard lot sizes of 100 000 units. Trading such lots requires good starting capital of at least $20 000, because when each pip costs on average $10 you don't want to risk losing $200 in just a small 20 pip move. You can't put tight stops here to protect yourself, because stops of 20 pips will be hit way too often. But you also don't want a stop of 100 pips being hit causing a $1000 loss. Therefore only investors with large size accounts can trade large lots and earn large profits.
What is left for small size account holders in Forex? They are offered an option to trade mini lots, which is the only good choice according to any conservative or aggressive money management rules.
Smaller lot sizes offer smaller profits, but they also bring smaller losses. The primary rule for every trader is how to survive losses, before he/she begin a hunt for profits.
Conclusion: invested capital determines profits one can earn in Forex.
The lot size traded should be chosen in accordance to account size.
Taking huge risks by trading large lots with small account size leads to a quick loss of the entire investment sooner or later.