A compounding calculator is useful to simulate how compounding the interest received from a savings account, or the profits from winning trades, with a set percentage, can make an account grow over time. It works by simulating the compounding, in other words, the reinvesting, of the chosen gain percentage of the account's total equity.
The use of this calculator can demonstrate traders how powerful gains compounding can be, and, that even a moderate gain percentage of 2% (for example) per trade, can turn an account’s initial capital into a substantial amount of equity over time.
How to Use the Compounding Calculator
Starting balance: This represents the initial account equity. Let's use, for our example, a starting balance of 1,000 units of any deposit currency.
Number of periods: In this field traders can simulate a winning strike of x consecutive winning trades. Please note: the period is every time you receive an interest on holdings, or, close a trade in profit, etc. For example: The bank pays 5% interest on the savings account, every month = period is 1 month.
Crypto exchange pays 10% interest on BTC, every day = period is 1 day. An investor trades XAU/USD and wins 2% return, each trade = period is each trade.
Let's use, for our example, a series of 6 consecutive winning trades.
Gain % per period: The crucial field of the calculator, used to simulate the gain percentage per any period of compounding. It can be used by the trader who does 5 daily trades with a target of 0.05% return per trade. It can also be used by a trader doing 5 weekly trades and targeting 1% return per trade, even a long-term trader, doing 12 trades per year and targeting 5% return per trade. For our example we will use a gain percentage per period of 2%.
Then, we hit the "Calculate" button.
The results: "The Ending Balance" after compounding the gains of 6 consecutive winnings and the "Total Gain" percentage. For this case, an initial equity of 1,000 units, of any account currency, after compounding the gains of 6 consecutive winnings, is now 1,126.16 units.
This means that by compounding just 6 winning trades and taking a low profit percentage of only 2% per trade, the account balance has grown by 12.6%.
On the results above there's also a detailed breakdown of how each compounded trade increased the account balance, how much each compounded trade is in total percentage and the ending account balance.
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