How does compound interest work in trading?

    Quick Answer

    Compound growth in trading means reinvesting profits to grow your account exponentially rather than linearly.

    Detailed Explanation

    Compound growth in trading works by reinvesting profits so your gains earn additional gains over time. Instead of withdrawing profits, you increase position sizes proportionally as your account grows. This creates exponential rather than linear growth. Even small consistent returns compound dramatically over time, which is why consistent profitability beats occasional large wins.

    Key Points

    • 1Reinvest profits to grow faster
    • 25% monthly compounds to 79% yearly
    • 3Consistency matters more than big wins
    • 4Losses compound too (preserve capital)
    • 5Time is your greatest ally

    Example

    $10,000 growing at 5% monthly: Month 1 = $10,500, Month 12 = $17,959, Year 3 = $57,918.

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