compounding explained
Example trading WITH COMPOUND (Let’s say account started with 100K)
On day 1, let’s say we enter with buy 10 lots of EUR/USD and profit was made 1% and now the new balance is 101,000
Day 2 (or same day next trade) we enter to a new buy trade with 10.1 lots EUR/USD and made 1% again and now our new balance is 102,010
Day 3 (or same day next trade) we enter to a new sell trade with 10.2 lots EUR/USD and made .5% and now our new balance is 102,520
Day 4 (or same day next trade) we enter to a new buy trade with 10.25 lots EUR/USD and made 2% and now our new balance is 104,570
Day 5 (or same day next trade) we enter to a new buy trade with 10.45 lots EUR/USD and made 1% and now our new balance is 105,615
Week 1 WITH COMPOUND in this example is 5.61% profit
Example trading WITH-OUT COMPOUND (Let’s say account started with 100K)
On day 1, let’s say we enter with buy 10 lots of EUR/USD and profit was made 1% and now the new balance is 101,000
Day 2 (or same day next trade) we enter to a new buy trade with 10 lots EUR/USD and made 1% again and now our new balance is 102,000
Day 3 (or same day next trade) we enter to a new sell trade with 10 lots EUR/USD and made .5% and now our new balance is 102,500
Day 4 (or same day next trade) we enter to a new buy trade with 10 lots EUR/USD and made 2% and now our new balance is 104,500
Day 5 (or same day next trade) we enter to a new buy trade with 10 lots EUR/USD and made 1% and now our new balance is 105,500
Week 1 WITH-OUT COMPOUND in this example is 5.5% profit
So in these examples, you see the first week with compound made $115 more or .11% more.
With trading there are literally a million different scenarios that can be. For example, sometimes if the market has bigger risk, we can can enter into trade only with 5 lots on a 100K balance and sometimes with the same balance, we can enter with 10 lots.
The easiest way of explaining compound would be this way. If on average, it took us 4 months to double, then if we get the same results for the next 4 months, your account would now be quadrupled (400%) and so on.
Hopefully this makes sense.
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