Compound Interest
The process of earning returns on both the original principal and the accumulated returns from previous periods.
Plain-English Meaning
Compound interest is the "snowball effect" of money. When your profits generate their own profits, your account balance can grow at an accelerating rate over time.
Why It Matters
Understanding compounding highlights the power of consistency and time in trading, rather than trying to double an account in a single high-risk trade.
Simple Example
If you start with $1,000 and earn 10% a month, month one earns $100. Month two earns 10% on $1,100, which is $110. Over time, the monthly return grows significantly.
This educational example uses selected assumptions for reference calculation purposes. Real conditions may vary by broker, exchange, or instrument.
Beginner Mistake
Overestimating achievable regular percentage returns, or withdrawing profits too early, which halts the compounding process.
Note: Calculations are based on selected assumptions and steady returns. Real market returns are not guaranteed and will fluctuate.