The Compounding Formula (with a Worked Example)
Periodic: FV = P x (1 + r)^n + D x ((1 + r)^n - 1) / r
Per trade: expectancy R = win% x RR - (1 - win%); per trade % = risk% x expectancy R; FV = P x (1 + per trade %)^n
Where P is the starting balance, r the return per period, n the number of periods, and D the deposit per period.
Worked example: a $10,000 account at 2% per month for 12 months is 10,000 x 1.02^12 = $12,682, a 26.8% year. Add a $100 deposit each month and it reaches about $14,024.
Return Scenarios on a $10,000 Account
| Return | Over | Ending balance | Total gain |
|---|---|---|---|
| 1% per month | 12 months | $11,268 | 12.7% |
| 2% per month | 12 months | $12,682 | 26.8% |
| 1% per week | 52 weeks | $16,777 | 67.8% |
Why Per-Trade Compounding Is the Honest Mode
A flat percentage per period assumes every period is identical, which no trading account ever is. Per trade mode is closer to reality: it takes your win rate and reward to risk, works out the expectancy in R, converts that to an average percent gained or lost per trade, and compounds it. If the expectancy is positive the curve rises, and if it is negative the curve falls, no matter how good the individual numbers look.
The catch that averages hide is variance. A 55% win rate does not mean you win 55 of every 100 trades in a tidy order; you will hit losing streaks that draw the account down well below this smooth curve. Use the expectancy calculator to confirm you actually have an edge, and treat this compounding path as the average outcome, not the guaranteed one.
Compounding Killers: Drawdowns and Withdrawals
Compounding works in reverse on the way down, and the math is unforgiving. A 20% drawdown needs a 25% gain to get back to even, a 50% drawdown needs 100%, and it only gets steeper from there. That is why protecting the downside matters more to the final balance than chasing a slightly higher return: one deep drawdown can erase months of compounding.
Withdrawals do the same thing in miniature. Every dollar you take out stops compounding, so a plan that looks great on paper grows far slower once you start drawing an income from it. Model the real deposit or withdrawal rhythm above rather than assuming every dollar of profit stays in the account working.
