Compounding is the ability of an asset to generate earnings, which are then reinvested in order to generate their own earnings. In other words, compounding refers to generating earnings from previous earnings.” – Investopedia
If you invest $100,000 and make 20% first month, your account balance is $120,000 in the end of the month. If you make 10% second month, you calculate 10% not from $100,000 but from $120,000. So your balance in the end of the second month would not be $130,000 but $132,000.
Example below is growth of the balance without and with compounding per 1 year considering $100,000 investment.
Qmanaged forex account no compounding
Without compounding total profit would be 120%
Qmanaged forex account with compounding
Using compounding total profit would be 213.84%.
Our managed accounts use compounding method. Whatever amount of percents you make per month, profit or loss is always calculated from the balance in the end of the previous month.
As Investopedia quotes Albert Einstein: ”The power of compounding was said to be deemed the eighth wonder of the world.” To achieve this there has to be profit on the account in the end of the month. We advise you to build your portfolio from different traders who make profit each month to lower an exposure. If you invest all into the only one trader, if there is a negative month, your whole investment suffers. However if you split your funds between 4 traders and you risk 20% for all, if one looses 5 percents, you still get covered by remaining three traders so your investment is in a good health in overall.