FOREX COMPOUNDING CALCULATOR
Have you ever thought about how big your trading account could grow if every time you made a profit, you added it to your capital and kept trading with the increased account size?
Choose YOUR PARAMETERs
Frequently asked questions
How Does Compounding Work in Forex?
To benefit from compounding, you must be a profitable trader and leave some of your trading profits in your account. The increased account size will consistently boost future gains from your trading, assuming that you don’t stop reinvesting.
How Realistic These Numbers Are?
The compound interest calculator assumes a consistent growth rate, which rarely happens in real life. In addition, taxes and other expenses are not factored in. However, if you calculate with average values, you can get a rough idea of your account’s growth potential.
What is the Math Behind the Calculator?
Here’s the traditional compound interest formula:
P = the principal
r = the interest rate, in our case, the percentage gain you realize and keep on your account
n = the number of times interest is applied per time period
t = the number of years elapsed
We use the same formula, with the difference that r is not divided with n.
To understand why, first you need to understand why the standard compounding formula works the way it does.
The interest that is charged to borrowers or paid to investors by banks is typically given as an annual percentage rate (APR).
Consequently, when the agreement specifies a monthly or daily compounding, the way people can calculate the effective interest rate involves dividing the APR rate with the number of times interest is applied per time period.
For instance, if your bank gives you a 3% APR with monthly compounding, you can calculate the effective yearly interest rate the following way:
Now, when we calculate monthly compounding for a forex account, the rate you enter is not a yearly percentage rate that must be translated to get the monthly equivalent. It’s the exact percentage gain you achieve each month. Therefore, there’s no need to divide by 12.
(Note that for yearly compounding, n would be 1, which doesn’t make a difference.)
Let’s see two examples:
Example #1
Start balance: 1,000
Return: 4%
Yearly
Number of years: 3
Total = 1,000*(1+0.04)^(1*3) = 1,124.86
Example #2
Start balance: 5,000
Return: 2.5%
Monthly
Number of years: 6
Total = 5,000*(1+0.025)^(12*6) = 29,586.14
Can I Suggest a Feature or Improvement?
Sure, you can. Shoot us an email at support@forexspringboard.com. Great suggestions will be implemented as soon as possible.
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