Compounding is why small, consistent gains can grow an account faster than occasional big hits. This page shows the math, and why realism matters more than an impressive number.
What is compounding?
Compounding means your gains earn their own gains. If you make 5% this month, next month you earn 5% on the larger balance — the growth accelerates over time. It's the same engine behind long-term investing, applied to a trading account.
Why traders compound
Instead of withdrawing every win, letting profits stay in the account builds size. But the formula cuts both ways: a losing month shrinks the base your next month grows from. That's why consistency beats occasional brilliance.
The compound growth formula
Worked example
Future = 10,000 × 1.0512 ≈ $17,958
Total profit ≈ $7,958 (79.6% growth)
The power of realism
A 5% monthly return sounds modest but compounds to ~80% a year — and sustaining it is genuinely hard. Use the calculator to compare plans:
- 2%/month: $10k → about $12,682 in a year.
- 5%/month: $10k → about $17,958 in a year.
- 10%/month: $10k → about $31,384 — and few traders hold that rate for long.
Compounding risks
- Overconfidence. The chart goes up forever on paper; real accounts have drawdowns that reset the base.
- Over-sizing. Compounding tempts you to add size faster than your edge justifies.
- Taxes and withdrawals interrupt the curve — plan for them.