Focusing on Compounding Returns in Forex Trading

If you really want to make a lot of money in the Forex market, you will need to try not to take money out of your Forex trading account, at least in the beginning. Compounding returns work by keeping all of your capital inside your Forex trading account and letting it grow month-on-month, year-on-year.

If you have $100 of capital in your account and manage to make a 5% gain one month, you would quite simply end up with $105. However, what if you then took out that $5 to buy a few snacks? You would be back to where you started again. If you kept making a healthy 5% return each month overall, but kept taking your $5 gain out each month, you would go nowhere.

Now think about what would happen if you kept your $5 in your account, along with your initial $100. The next month, if you made another 5% gain, your $105 would become $110.25. Another month of a 5% gain and leaving your capital in your account would deliver a total of $115.76. After 12 months in total at a constant 5% gain per month, starting with $100, you would be left with $179.59 in your account. Your next month would then net you almost $9 instead of $5, which is of course not far off double.

To put this into perspective, imagine you began with $1 million. A 5% gain on $1 million would net you a nice $50,000. If you continued to gain 5% on your total capital for 12 months straight, the same as in the previous example, you would end up making almost $90,000 each month and this number would keep on growing each month.

Compounding returns can be pretty powerful, no matter what kind of money you have starting out. Of course if you want to make a living out of your Forex trading, you could make a salary for yourself. However, delayed gratification is something you should definitely consider. Would you rather make an amazing salary each year forever, or make a reasonable to low salary each year but one day make millions? Your decision is obviously totally up to you, but delayed gratification and compounding returns are worth thinking about as a Forex trader.

In conclusion, compounding returns can make Forex traders rich gradually over time. With decent, consistent gains, Forex traders can grow their money much faster by compounding their returns instead of taking their gains out.

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