What is compounding in trading?
Compounding means reinvesting your gains so that each period's profit is calculated on a larger balance than the last. Over many periods this snowballs — a modest, consistent percentage gain can grow an account dramatically. It also works in reverse, which is why protecting capital matters so much.
How compounding is calculated
Worked example: Start with $1,000 and gain 5% per month for 12 months. Final = $1,000 × (1.05) ^ 12 ≈ $1,795.86 — a 79.6% gain, versus only 60% without compounding.
Frequently asked questions
Is a constant percentage gain realistic?
Real trading returns vary period to period. This calculator shows the mathematical potential of a steady rate — treat it as a planning tool and a motivation to stay consistent, not a guarantee.
What counts as a "period"?
Anything you like — a month, a week, or a single trade. Just keep the gain % and the number of periods on the same basis.
Can I model losses?
Yes. Enter a negative gain to see how a recurring drawdown compounds against you.