On this page (6 questions)
What does a compounding calculator do?
It works out what a balance grows to when each period’s return is added to the balance and earns a return of its own. Enter a starting balance, a return per period and a number of periods, plus an optional deposit or withdrawal each period.
The period can be a month, a week, a day, a trade or a year. The calculator shows the balance after each one, so you can see how the growth speeds up, or how losses eat into the balance when the return is negative.
How do you calculate compound growth?
Balance = starting balance × (1 + return per period)^periods. At 5% a month, $10,000.00 grows to $17,958.56 in 12 months, because 1.05^12 is about 1.7959.
Worked example
- Growth factor(1 + 5%)^12 is about 1.795856
- Balance after 12 months$10,000.00 × 1.05^12 is about 17,958.563260 rounded to $17,958.56
Without compounding, 12 months at 5% would add 60%, or $6,000.00. Compounding adds $7,958.56, because from the second month on, each month’s return is also earned on the gains before it.
How do deposits and withdrawals change the result?
Each deposit grows from the period it’s added, so the calculator adds deposit × ((1 + r)^n − 1) ÷ r to the grown starting balance. Adding $500.00 at the end of each month to the example above gives $25,917.13 after 12 months.
Worked example
- Starting balance grown$10,000.00 × 1.05^12 is about $17,958.563260
- Additions grown$500.00 × (1.05^12 − 1) ÷ 0.05 is about $7,958.563260
- Balance after 12 months$17,958.563260 + $7,958.563260 is about 25,917.126520 rounded to $25,917.13
A withdrawal is a negative amount, taken at the end of each period. If withdrawals use the balance up, the calculator says in which period it happens and stops there.
What does a monthly return work out to per year?
More than 12 times the monthly return, because each month’s gain earns a return too: (1 + monthly return)^12 − 1. A steady 5% a month is 79.6% a year, and 10% a month is 213.8%.
| Every month | Over a year |
|---|---|
| 1% | 12.7% |
| 2% | 26.8% |
| 3% | 42.6% |
| 5% | 79.6% |
| 10% | 213.8% |
The calculator shows this figure for monthly and weekly periods. A week compounds 52 times a year, so a steady 1% a week is 67.8% a year.
Why do losses hurt more than gains when compounding?
Because a gain and a loss of the same % don’t cancel: +10% then −10% leaves 99% of the balance. The gain needed to get back grows faster than the loss: −20% needs +25.0%, and −50% needs +100.0%.
| Loss | Gain needed to get back |
|---|---|
| −10% | +11.1% |
| −20% | +25.0% |
| −30% | +42.9% |
| −50% | +100.0% |
The gain needed is 1 ÷ (1 − loss) − 1. That’s why limiting drawdowns matters as much as the return: the risk of ruin calculator shows the chance of a large one from your win rate and risk per trade.
Is a steady monthly return realistic?
The calculator assumes the same return every period, and trading results almost never look like that. Returns that vary compound to less than a steady return at the same average, so treat the result as arithmetic on the rate you enter, not a forecast.
For example, months that alternate between +10% and −6% average +2%, but every two months the balance grows by 1.10 × 0.94 = 1.034, which is about 1.7% a month, not 2%. Your journal’s equity curve and P&L calendar show how your own results actually vary.