Forex compounding calculator is used to measure how much time would a trader need to reach a certain financial goal in terms of a stable and growing income. Different trading strategies suggest a different level of monthly and weekly profits.
Depending on that, traders could figure out how soon could they get to the point when trading is getting profitable with enough volume of monthly income.
In other words, the Forex compounding calculator is a powerful trading tool, helping traders to predict possible interest from trading on a long-term distance with a stable rate of profitability of a trading strategy and a fixed amount of the initial investment. The instrument is also useful in terms of determining the most efficient amount of the account balance to start trading Forex and reach the general target after some time.
How to use Forex Compounding calculator?
Forex compounding calculator is used in the planning of the best initial amount to invest in forex trading and it gives an opportunity to figure out what would be the result after a certain period. The calculator has three input factors including the initial amount, performance of the trading strategy and the number of months. After entering all these data into the calculator, a trader gets the resulting amount of the trading account balance. There is also an option to use forex compounding calculator to figure out the best initial investment amount in order to reach a predetermined target of the account balance within a fixed number of months.
For example, a trader needs $10,000 in a trading account to be able to withdraw profits on a monthly basis. At the same time, he picked up a trading strategy with a monthly performance of 20%. So two questions remain. The first one will be the initial amount of the investment to reach the target in 10 months. Otherwise, a trader can invest a lower amount but the time to reach the target will be increased. All of this data helps the trader to develop an individual trading strategy and reach the financial goals with minimal investment or increase the initial account balance to reach the target faster.
Calculate interest of different assets
Different assets in the financial markets have different interest rates, meaning that the pace of growth of their prices can be changed depending on market conditions. For example, the US dollar index measuring the greenback's strength the volume-weighted basket of six major currencies added 0.4% to value in 2019 with a peak growth of 3.4% in September. However, that average value does not necessarily mean that all of the currency pairs were moving at the same pace. The British pound strengthened versus the US dollar by 1.85%, while the Euro declined by 1.72%. Therefore, currency pairs have a different level of interest, which has a direct impact on the profitability of trading. Forex compounding calculator was developed to solve the task of choosing the best asset to trade on and calculating possible profits in the long run, depending on the starting amount and the level of monthly income.
Forex compounding calculator, trading strategies and market conditions
Trading strategies are also different in the scope of potential monthly profit. Experienced traders average value of profitability when it comes to choosing the trading strategy because it can differ from month to month. Besides, a wide variety of trading approaches based on several factors such as the basic time frame, frequency of entries, the average time of holding a trading position and average distance of stop-loss and take-profit orders will result in different levels of a trader's monthly earnings. Another important factor in the financial planning of the Forex trading system relates to different market conditions. Sometimes markets are calm and quiet, showing a low level of volatility and quite modest profits. Sometimes it happens that markets produce strong trends for several assets, influencing a sharp rise of earnings from the same trading strategy used in both periods. Forex compounding calculator was designed exactly for the purpose of predicting and averaging those spikes to determine the average level of interest for the long-term perspective.
Examples of Forex compounding calculator
Imagine a trader decided to use the buy-and-hold trading strategy for gold with a long-term approach. The initial investment amount was $5,000. The price of gold showed an average monthly performance of 1.53%. The trader used quite a conservative trading strategy with the limit for simultaneously opened positions of 10% of the account balance and leverage 100 to 1. As a result, the trading system brought 15.3% of monthly profits. Entering all of that data into the forex compounding calculator, a trader could have predicted that the trading account balance would soar to $27600.8 in 12 months.
Another example is related to a smaller amount of the initial investment and scalping trading strategy aiming to open a large number of short-term deals with comparatively low level of take-profit order on a daily basis. The average monthly interest of such a trading strategy is 23.4%, for example. The trader invested $1000 initially.
Forex compounding calculator is an important tool for planning an investment in Forex trading. It helps traders to figure out the best initial amount to invest in Forex trading, calculate the time required to reach the financial goal and balance a trading system with risk management and money management rules. The compounding strategy is useful for beginners in terms of choosing the best trading strategy, gaining the experience needed to get a stable and growing income thanks to Forex trading and to build a significant trading account up with low initial entry.