“Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”Albert Einstein
While there are some who doubt he said these exact words, it’s clear that compound interest is something that can be a very powerful force in your trading. We’re going to show you some examples of how compound interest is helpful to you, and give you an Excel spreadsheet so you can see it for yourself.
If you were to start a trading account with $100 USD (all amounts in this article will be USD) what could 2% do for you? Let’s say this, that 2% is much more powerful than any rate you would get from your bank on a savings account. At 2% per day you would be at $151.57 at the end of 20 trading days. After 100 trading days, or about 20 weeks, your account would be at $710.33. At the end of 200 trading days,, or about 40 weeks, you would be at $5,146.08. Of course you should understand the risks involved in trading, and understand that this is a hypothetical example.
In the first example above you started with a $100 trading account. If you were to grow 2% per day the first day you would be attempting to gain $2.00. Your account balance is now $102.
The second day of trading you are again going for 2%. However now that your account balance is starting at $102, 2% is $2.04. Thus at the end of your second day your total is $104.04. This continues each day. While your goal is only 2% per day, that 2% starts to return a larger and larger dollar amount in your account.
Calculating Compound Interest
Sometimes calculating compound interest can be difficult. Added to the confusion in Forex is knowing how to adjust your lot sizes to get the necessary dollar gains you need each day to reach the goal you have set for yourself. To help you in calculating the compounding effects of interest, we’ve made available this Excel worksheet. You tell it what your starting balance is, what your percentage goal is per day and it will calculate the next 60 trading days for you at that percentage.
This is an easy way to see the effects of compounding, and allow you to keep track of your required lot size as your account balance increases. We’ve made a few modifications to this sheet. It tracks 60 days on the left column, though originally was for 30. Thus you will only see 30 days worth on the sub-total area. (You’ll know it when you see it.)
THIS SPREADSHEET IS PROVIDED WITHOUT WARRANTY NOR ANY GUARANTEES IT WILL BE HELPFUL OR USEFUL TO YOU. WHILE EVERY ATTEMPT IS MADE TO ENSURE THIS IS FREE FROM VIRUSES OR MALWARE YOU AGREE TO ACCEPT ALL RISK ASSOCIATED WITH THIS DOWNLOAD.