Wednesday, July 25, 2012

Power of Compounding or Turn 1k into 1Million

Albert Einstein once said: “The most powerful force in the universe is compound interest”

So why don´t use it and turn a small investment of $1,000 into a 1 Million or more?

One example:

Monthly forex earnings: 100 pips
Starting Bankroll: 1,000 USD, EUR etc
Signal Provider uses 50 pips StopLoss

You decide to risk only 5% of your bankroll per trade, which is 50usd.
So you set your Lot size to 1 mini lot.

After 1 month you earn 100 pips, which aprox. equals to 100usd.

So you have just made 10% of your Bankroll (BR)

Now you have $1,100.

So as you risk 5% per trade, which is now $55 you can increase your lot size to 1.1 mini lot.

After second month and 100 pips earnings you earn $110 usd

Now you have $1,210 and you can increase your lot size to 1.2 mini lot.

And so on....

Let´s do some calculations now.

This way you earn about 10% of your BR monthly.

Normaly it would be $1,200 /year , but if you compound your earnings monthly as shown above, you earn $2,138 usd , so your total BR after one year will be $3,138 !!!

Do you see the difference, instead of 100% profit you get 200%.

Now you can play with any interest calculator and see yourself how much you can earn in couple of years.

Just a sneak preview of total size of your BR if compounding 10% monthly:
Starting capital: $1,000
1. year: $3,138
2. year: $9,000
5. years: $243,000
7. years: $2,187,000

Now here comes question...what is a max. lot size allowed by your broker, because it is obvious you can not go to billions, but I quess you have realized by now that with a reliable SP that do not risk your money with huge DrawDown, little starting capital and patience you can become rich in 5,6,7 or eight years.

Enjoy and Happy Trading :)

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