Forex Compound Calculator

01 What is Compounding in Forex?

In the context of forex trading, compounding refers to the process where profits from trades are reinvested into subsequent trades, allowing the trader to earn profits not only on their initial investment but also on the accumulated profits from previous trades. This creates a snowball effect, where the account balance can grow exponentially over time, assuming profitable trades.

02 Why is Compounding Important in Forex?

Some of the benefits of compounding in forex are:

• Exponential Growth: Compounding allows for exponential growth of the trading account, as profits are earned not only on the initial investment but also on the accumulated profits.
• Increased Profit Potential: By reinvesting profits, traders can take advantage of larger position sizes, potentially leading to larger profits.
• Time Value of Money: Compounding allows traders to benefit from the time value of money, as profits earned earlier in the trading journey have more time to compound and generate additional profits.
• Example of Compounding in Forex: Let's say a trader starts with an initial investment of $1,000 and aims to achieve a consistent monthly return of 5%. With compounding, the account balance would grow as follows:
  • Month 1: $1,000 * 5% = $50 profit; Account balance = $1,050
  • Month 2: $1,050 * 5% = $52.50 profit; Account balance = $1,102.50
  • Month 3: $1,102.50 * 5% = $55.13 profit; Account balance = $1,157.63

  And so on. Over time, the account balance would grow significantly due to the compounding effect.

03 What is a Forex Compounding Calculator?

A Forex Compounding Calculator is one of the most popular tools used by Forex traders to simulate the growth of one's trading account by compounding the gains with an assumed gain percentage per trade, over a specified period of time.

Using this tool can help traders see how powerful compounding gains can be. Even with a low-profit percentage of 1% per trade, after just 70 successful trades, the initial investment value would double!

04 How Does the Forex Compound Calculator Work?

To calculate the profits from your foreign exchange trading, over a number of periods with a set gain percentage, please follow the steps below:

• Enter your trading account starting balance
• Enter the number of periods you're compounding the starting balance
• Enter the percentage of gain you'll aim for per trade
• Click the 'Calculate' button and watch the magic happen

05 What is the Compounding Interest Formula?

Formula: FV = P(1 + r/n)^(n/t)

• FV = Future Value of your investment
• P = Principal or Initial deposit
• R = Gain % per period
• N = The number of times the investment is compounded in a period
• T = Number of periods

06 Compounding Interest Example

For instance, an annual interest rate of 10% compounded for 2 years with an initial account balance of $100 would make you a $10 profit for the first year (out of $100) and $11 profit for the second year (out of $110) for a total profit of $121.

If you compare this with a non-compounding investment, it would result in a total balance gain of only $120 (ending account balance) since you would get a fixed $10 profit each year.