The theory is sound and you’ll find thousands of articles telling you how you will get rich using compound interest in your forex or futures trading account. Many of these articles will quote Einstein and other respected genius theorists to validate their claims. Some will claim compound interest is the “Holy Grail” of trading (spoiler here: it’s not).
So why are we going against the grain here and saying out loud and proud that Compound Interest Trading Calculators do not work? In truth, not only are these articles wrong, they are dangerous and they encourage traders to lose more and more money.
Fact: There has never been a broker documented record of any trader ever turning a small account, for example $5,000 into $500,000, anywhere in the world. Ever. (If you’d like to argue this fact please feel free to leave a constructive comment below.)
Frankly, so-called ‘Trading Educators’ who write and encourage traders that compound interest is their route to becoming millionaires are fake educators and are lying to you for their own benefit.
It is however possible for good traders to start small and end up trading significantly large accounts, just read on and I’ll explain.
Why trading compound interest calculators don’t work
In one word: Life.
No matter how many times you try to compound your winnings to eventually double your money and double again and double again, you’ll end up doubling down not doubling up.
The reality of life hits every trader hard, it seems so simple: just take keep taking trades at the same fixed percentage of your account and each time you take a winning trade it “compounds” and increases the account value so that your next trade is just that little bit bigger, and the one after that and the one after that. Simple… until life slaps you smack right in the middle of your face.
The first thing to understand is that a losing trade always loses more than the next winning trade, for example on a $5,000 account a 2% risk/reward loss trade is $100 lost. The next trade, if a winner, is 2% of $4,900 is $98. Add a few losing trades together and quite quickly the account reduces and you’ll need to take a good deal more winning trades to get back to where you were. Compound Interest Trading calculators don’t show you the loss trades for a reason. Traders consequently find it very hard – if not impossible to stick to a compounding trade plan.
Traders are real People
Traders are not theoretical algorithms. They are real people with real lives to lead. Algorithms don’t have rent to pay. Algorithms don’t need to go food shopping. Algorithms don’t have student debt to pay. Algorithms are NOT human, you are. Let’s keep theoretical forex compound interest plans for forex algos – we’ll look in more depth analysing forex algos in another article in the near future.
Lets face it, most traders have to withdraw profits to pay for their lives, not just for the luxuries in life but often for the basics. The compound interest plan goes down the pan, when you need money to eat.
Let me reiterate the fact: There has never been a broker documented record of any trader ever turning a small account, for example $5,000 into $500,000, anywhere in the world.
I’m not going to say sorry for popping that bubble. I’m not going to say sorry if I’ve destroyed your dream. You are welcome to carry on dreaming, if you do so you will never ever become a successful trader – no matter how much you think you can “manifest” your dream. Please feel free to Google “manifest trading success.” Beware you won’t find a single real successful trader here. Alternatively..
5 Steps to grow a Forex and Futures trading account into a big one
You will need some money but you can do it with an achievable and realistic sum. You will need to treat trading like a proper job and you will need to invest in your own learning.
Step 1: Work out how much it will cost you to live for the next 6 to 12 months. Include your rent or mortgage, your food and all the costs you will be likely to face.
Step 2: If you can’t cover this cost with savings or other income you will need to find yourself a part-time position that provides enough for your basics and leaves time for trading.
Step 3: Allocate a reasonable portion of each day for trading and a portion for trading education, this does not need to be the whole day and you will need to leave space in your day for rest, leisure and fitness.
Step 4: Trade a small account without putting yourself under the pressure to grow the account. Your aim is to develop your trading expertise and document your trading success.
Step 5: Get yourself funded by an online proprietary trading firm. The Funded Trading Plus Talented Trader Program pays talented traders a $20,000 starting cash bonus and gives them a $500,000 trading account.
Do your research properly, not all online proprietary trading firms have your interest at heart, when we did our research we found some big differences between firms. Find out about our research here.
If you’d like help to write your own forex or futures business plan then a realistic trading educator is Trade Room Plus. You can book a free consultation with them here.
Learn how you can earn $10,000 per month trading forex or futures here.
Please comment on this post, note anything you think this post is missing and we’ll update it. Here are some questions to help you:
How far did compounding trades get you?
Do you have a tip to help grow a trading account?
Wow, when can I start clearly springs to mind with the cautious beginner, all these links are very much clear of ware a person can decide if this idea of income is for them and the transparentises of the Blog writer as in live trader which he can demonstrate daily in his trading business room is clearly noted not only, in the steps, but also in on the website mentioned step 4
As said in recent comments all the links are working fine
“Let me reiterate the fact: There has never been a broker documented record of any trader ever turning a small account, for example $5,000 into $500,000, anywhere in the world.”
Thank you for this !!!!!
I got hooked by the same Bullsh*t dream 90% of marketers push out in this environment, lost most of my start up fund until i found Trade Room Plus. The earlier your dream bubble gets popped the quicker you will stop losing money. Trade Room Plus will pop that bubble very quickly.
I’ll say it again, “there has never…
I actually did this, almost. $600 turned into $130.000. 1:500 account on IC Markets Live account, it’s all registered on MyFXBook. Email me for the evidence.
I did this over the course of 8 hour, I hit triple sixes 3 times in a row, top tick to bottom tick, maxed out 1:500 and added to full margin.
Once I was above $100K my mind had been turned into a porridge of dopamine and adrenaline and I was high as a kite and well why not keep cranking out at 100 lot, and I blew it all up within 60 minutes.
The broker earned $6000 on me that fine day.
Needless to say I was a mess for a week after that.
Even if I have done what you say is impossible, first of all, it is truly impossible, only one in a million luck can do it, so no one else will do it because I did it. Second it is absolutely impossible to do by skill.
Thirdly, what you are cooking up here is what I’ve wished I had for years, and I’ve been funded and paid multiple times at one of the more decent props. But I never had peace of mind doing it.
I was never able to do what I really want – career shift.
Can’t wait for you guys to open the doors.
Thank you for the interesting article.
Thanks, Edgar, let me know if there are other articles you’d like to see written.
Very Interesting article and very true as well…
Working with TRP helps to keep you grounded and disciplined and would recommend joining them
Very sound advice indeed, coming from a trader of 8 years….
Not enough traders and Brokers aren’t honest enough with who can make money full time, it’s why alot of the regulators have introduced loss percentage on all brokers websites and most of them are above 75% loss. People don’t realise just like any job it takes years and money to become a full time trader and few more to become profitable, newbies only see the the profits and never ask what are the losses and would they be able handle to hold those losses or even afford it.
It is very true, what is written. Trading can give you good profits, but you have to be realistic, and that is what I think you are. Trading is hard work and a lot of studying. With the opportunity with funded trading, you really give people a chance. I think you’re great 🙂
bookmarked!!, I like your website!