What is forex compounding?
Forex compounding refers to the reinvestment of monthly or weekly profit in the initial balance. This Action will lead to growing your trading account exponentially. A little and consistent input will produce bigger output. This is called forex compounding.
For example, a forex trader earns about 10% profit every month. As weekly profit can be in loss and in profit so we will use only monthly compounding. Starting balance was $10000. The first month he earns $1000 and he reinvested that amount in a trading account and now the total balance is $11000.
Next month, he earns $1100 and again he reinvested now the total balance is $12100. He continues this process and after 12 months he has $31384 in his account. This is a miracle of compounding is forex. A little input like 10% profit per month will produce 528% profit in one year.
Apply this 10% forex compounding plan on a real account and you will see the magic in a few months. This forex compounding plan will also decrease psychological issues because of only a few and effective trades to earn just 10% per month. Five trades in a month using 2% per trade risk will earn you 10% per month.
compound interest is the most powerful force in the universe.Albert Einstein
Forex Compounding Plan for $3000 initial balance
The risk management strategy in which a forex trader will risk fixed percentage of account balance on every trade or after specific interval of time is called forex compounding plan.
To increase your profits exponentially, trading using a compounding plan is a must. Trading with 8% compounding every month is quite easy. A trader must have a monthly goal to achieve. Without a goal, you will not be able to manage money.
Risking 2 percent of the total account balance on every trade, placing 1 to 2 trades each week, and compounding 8% each month is a perfect trading plan. Look at the below table and try to follow this compounding plan to become a successful forex trader.
8% monthly compounding plan is very easy to follow.
you can access the forex compounding calculator here to calculate for your account.
Does compounding work in forex?
Compound trading is a way of increasing your gains exponentially. But it is challenging to apply to compound 100% accurately due to the fee and spread of brokers. However, suppose you are working on higher timeframes and generating an average of 5 to 20% monthly profit. You can apply a compounding strategy to your forex account by following the compounding as mentioned earlier plan.
You can also use our lot size calculator to calculate the lot size according to the risk amount because it is necessary to trade with a fixed amount.
Should I use the fixed lot size in compounding?
No, I do not recommend using the fixed lot size because the number of pips will change in each trade, resulting in different lot sizes for each trade. But the amount of money will remain the same.
For example. If you are trading with 2% risk per trade with an initial balance of $10000, you should calculate lot size for $200 each time.
Compounding interest in forex is very easy. For example, If you have $1000 in the account balance and you opened a trade by risking 1% ($100) then within 24 hours you made a profit of $100. Now your remaining Balance is $1100. In the next trade, when you will risk 1% of your total balance, then you are actually risking $110 instead of $100.
I will recommend you to not do compounding daily or per trade because if you are winning one trade, maybe you lose the next two trades. This will affect your risk management. You should prefer to do compounding weekly or monthly in forex.
To use this compounding interest calculator effectively to maximize profit from forex trading, apply compounding to net profit after one week (for swing traders do compounding after one month).
Yes, I will recommend following the 8% compounding per month plan. Believe me, this is the best plan. It seems to be easy but it is very difficult to follow consistency. Success is always in the consistency.