Compounding calculator
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Compounding is the engine behind every seductive equity projection: modest per-period growth turns into startling multi-period numbers. The arithmetic is real; the assumption of steady returns is not.
Use this calculator both ways: to see what consistent growth would produce, and to notice how sensitive the result is to that word — consistent. Real returns arrive with losing months, and drawdowns do disproportionate damage to compound growth.
- Ending balance
- $12,682.42
- Total growth
- 26.82%
This is arithmetic, not a forecast. Real trading returns are irregular, include losing periods, and no growth rate is guaranteed — the point of the exercise is understanding how compounding and drawdowns interact.
How it works
Ending balance = start × (1 + rate) ^ periods.
Total growth % = (ending ÷ start − 1) × 100.
The same formula with a negative rate models decay — useful for understanding what a string of losing periods does to an account.
Common questions
Is projecting returns like this realistic?
As a forecast, no — markets do not pay a fixed percentage per month, and anyone promising steady returns is describing marketing, not trading. As an educational tool it is valuable: it shows the mechanics of growth and why interruptions (drawdowns) matter so much.
Should profits be withdrawn or compounded?
That is a personal decision about risk, not a mathematical one. Compounding accelerates both growth and the absolute size of drawdowns; withdrawing caps both. Many traders compound to a target account size, then withdraw beyond it.
Why do small differences in the rate change the result so much?
Because the rate is exponentiated by the number of periods. Over 24 periods, 2% per period produces +60.8% while 3% produces +103%. This sensitivity is also why overstated backtest returns produce absurd long-term projections.
The thinking behind this tool is covered in Lesson 03: Gestión de riesgos antes que nada..
Related terms
- Expectancy — The average amount a strategy makes or loses per trade, combining win rate and win/loss size into one number.
- Drawdown — The decline from an account's peak value to its subsequent low — the number that measures how painful a strategy is to hold.
- Equity curve — The plot of account value over time — including open positions — that shows a strategy's character at a glance.
Recibe nuevas lecciones por correo
Lecciones ocasionales y en lenguaje claro sobre trading automatizado — el mismo tono que todo en este sitio. Sin señales, sin promesas; date de baja cuando quieras.
- Una lección en lenguaje claro cada vez — sin jerga, sin humo.
- El plan de estudios completo como guía imprimible.
- Sin señales, sin promesas de rentabilidad. Date de baja cuando quieras.
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