Firstly, to successfully use the Forex Compounding calculator, one must be familiar with the concept of forex compounding. The forex compounding strategy is a long term strategy where forex traders reinvest a particular amount of their profits to increase trade volume or improve the forex trading account by having a higher initial balance.
The compounding strategy, as was mentioned above, is long term oriented rather than short term. It is more believed to be a money management technique than a trading strategy. But since compounding’s core goal is to grow your forex trade volumes, it can be considered a strategy.
During forex compounding, a particular percentage of the previous month’s balance is added to the next month.
How to Use the Forex Compounding Calculator?
- Enter the starting balance (e.g., initial deposit);
- Enter the percentage of the starting balance (e.g., 1, 2, 3, etc.);
- Enter the number of months that you are planning to make savings (from 1 to infinity);
- Hit the calculate button!
The result you receive is the ending balance you will get at the end of the selected period. Our Forex Compounding Calculator will create a balance table, indicating the account capital at the end of each month and the end of each period.
Compounding Formula and Calculations
The compounding formula has the following mathematical expression:
A = P(1+r/n)^(nt)
A – is the final amount or the result of compounding you must have on your account balance;
P – principal or the starting balance;
r – annual interest rate;
n – number of times interest acquired per the period on time
t – the number of periods.
Assume that: you have a starting balance of 1 000 $, you would like to hold aside 1% every month over the period of one year. So, it means that P = 1000, r = 12%, n =12 (months), t=1;
1000(1+0.01)^12=1126.83 at the end of the 12th month the balance would be 1126.83 USD. Increasing your funds by 126.83$ compared to the initial balance.
Each month the balance is increased by 1% compared to the previous month. Which means, that at the end of 1st month the balance will be 1010 USD, at the end of the second month the result will be 1020.10 USD, and at the end of the 12th 1126.83 USD.
To explain it even better: 1000*1.01=1010, 1010*1.01=1020.10.
Compounding trading can seem complicated. But by using our Forex Compounding Calculator, you may easily navigate your way on the forex market.