Compounding Formula for Forex Trading – A Guide for Beginners

Estimated read time 5 min read

Excessively compounding your returns in forex trading can be both beneficial and risky. Compounding is a formula used to calculate the interest earned on an initial starting balance, plus all prior periods’ interest earned. Compounding refers to the ability to earn interest on interest. When compounding profits in forex trading, it is possible to accelerate your earnings if the trades are successful. However, it can backfire if the trades become losses as the losses can also amplify quickly. Therefore, it is important to examine the risks associated with compounding in forex trading and to choose a strategy which fits an investor’s risk profile.