As a forex Trader, your first and foremost goal is to build a sustainable structure for a desired return on investment (ROI). Now, to do this, essentially you would require a proper money management. You would require a habit or system that helps you not only optimize your profit but to also celebrate your loss, to make them go to your advantage. Sure, you can just prepare your investment in advance by predicting how much profit you aim and how you anticipate to lose, but there is also another technique people use to exponentially grow their assets under management over time. We call this compounding.
The whole idea about compounding is to hold certain sum of money in your account to use them in your future investment. Over time the numbers will grow due to your projected profit, and then you can withdraw the money when it reaches the desired amount. You can just hold the entirety of your money in your account, or just withdraw a certain percentage of it. The choice is yours, you have the freedom to set it however you want but I’ll have you know that it is very great for long-term investment. Let’s picture this scenario for a moment:
Say that you have $100 for your very first investment. Now your projected profit is 10%. Here’s how much you get when you compound your money.
Month 1: $1000 + ($1000 x 10%) = $1100
Month 2: $1100 + ($1100 x 10%) = $1210
Month 3: $1210 + ($1210 x 10%) = $1331
Year 1: $2853.116706 + ($2853.116706 x 10%) = $3138.428377
Year 2: $8954.302433 + ($8954.302433 x 10%) = $9849.732676
Year 10: $84280971.65 + ($84280971.65 x 10%) = $92709068.82
With the scenario above, we may conclude that your initial investment of $1000 could grow to over more than $90 thousands. It doesn’t even have to be $1000, you can start with $100 and double the amount with proper compounding. Here are a few tips to help you grow your forex account with compounding!
Constantly review your trading strategies
No matter what platform you’re using, which signal you trust, by the end of the day, it all comes back to you. Don’t worry, compounding is applicable to every kind of trading techniques, so it is better to find which suits you most and decide your investment goals early on. Discipline and adjust yourself to the habits of trading. Remember that there is no shortcut to this and nobody becomes an expert Trader overnight. Constantly review your trading strategies, surround yourself with like-minded people in the industry, and you should be good to go.
Keep your profit for next investment
Even the most successful traders and investors compound their money to double the amount for their next investment. One thing to remind yourself here is to not overdo your trading and set unrealistic profit goals. We find that 10% is pretty much logical to set as a goal for both newcomers and expert Traders, but feel free to lower the goal if it intimidates you. Never put more than 20%-30% for your profit goal. You might profit that much sometimes, but not all the time.
Let it grow
After you mentally prepare your trading strategies with certain amount of money ready to compound in your next investments, all you have to do is just wait and let it grow. It is the hardest and most challenging part of your investment. To prevent you from withdrawing your money from your investment, make sure to spare a certain amount of money for your investment purpose only. Remind yourself that you can only withdraw your money after a certain period of time — like our ten years scenario above.
Lastly, you need to be prepared of risks. Know that there is no right or wrong decision for this and that all it takes is discipline. Restrain yourself from withdrawing and most of all, enjoy your trading. The journey is always more exciting than the goal — even though the goal leads you to over more than $90 thousands.
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See also: How to Tell If a Trading Platform Is Sketchy
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