What is a Compounding Calculator
Enhance your financial insights with the invaluable compounding calculator, a dynamic tool that enables you to simulate the growth of an account by compounding interest or profits with a predetermined percentage. This calculator operates by simulating the reinvestment of the selected gain percentage into the account’s total equity, showcasing the remarkable power of compounding gains.
Unlocking the potential of this calculator unveils the transformative nature of compounding gains, illustrating how even a modest gain percentage, such as 2% per trade, can progressively magnify an account’s initial capital into a substantial equity over time.
How to Use the Compounding Calculator
Starting Balance: Input the initial account equity as the starting point. For this example, let’s assume a starting balance of 1,000 units in the chosen deposit currency.
Number of Periods: This field allows traders to simulate a series of consecutive winning trades. Each period represents an instance where you receive interest on holdings, close a profitable trade, or similar occurrences. Consider the following example:
- The bank pays 5% interest on the savings account, every month = period is 1 month.
- Binance 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.
For our demonstration, let’s simulate a streak of 6 consecutive winning trades.
Gain % per Period: This critical field enables the simulation of the gain percentage for each compounding period. It caters to various trading strategies, whether you conduct multiple daily trades with a target of 0.05% return per trade, weekly trades with a target of 1% return per trade, or even long-term trades with 12 trades per year and a target of 5% return per trade. In our example, we will utilize a gain percentage per period of 2%.
Once the necessary inputs are provided, proceed by clicking the Calculate button.
The Results: The compounding calculator will promptly generate the Ending Balance after compounding the gains from 6 consecutive winning trades, along with the Total Gain percentage. In this case, an initial equity of 1,000 units, denominated in the account currency, will grow to 1,126.16 units after compounding the gains.
This signifies that by compounding a mere 6 winning trades with a modest profit percentage of 2% per trade, the account balance experiences a remarkable growth of 12.6%.
A complete breakdown of how each compounded trade raised the account amount as well as the final account balance can be found on the results page linked above.