Let’s we understand the magic of a 10% compounding return every month in this article. In fact, the best way to save money is to grow it over time.
In the rush to get quick returns on the principal amount, numerous intraday or swing traders end up losing money.
10% return every month might be hard for many intraday or swing traders, but it is not difficult for those who have a time-tested method or experienced setup. It will depend on how effective their trading setup is.
What is compounding?: the return earned each month is added to the principal amount, and this new amount earns the same rate of return for the next month. The opening balance for each month is the closing balance of the previous month.
Compounding Return Calculation
We are considering a basic trading scenario where a trader is trading an amount of $100,000 and earning a return of 10% every month. Try to understand with the following simple formula:
Investment amount at the end of the month = Investment amount at the beginning of the month + (Return rate * Investment amount at the beginning of the month). For example, $110,000 = $100,000 + (10% * $100,000).
Using this formula, we can calculate the investment amount at the end of each month for a total of 12 months, as shown in the table below:
| Month | Investment | Return | Balance |
|---|---|---|---|
| 1 | $100,000 | $10,000 | $110,000 |
| 2 | $110,000 | $11,000 | $121,000 |
| 3 | $121,000 | $12,100 | $133,100 |
| 4 | $133,100 | $13,310 | $146,410 |
| 5 | $146,410 | $14,641 | $161,051 |
| 6 | $161,051 | $16,105 | $177,156 |
| 7 | $177,156 | $17,716 | $194,872 |
| 8 | $194,872 | $19,487 | $214,359 |
| 9 | $214,359 | $21,436 | $235,796 |
| 10 | $235,796 | $23,580 | $259,376 |
| 11 | $259,376 | $25,938 | $285,314 |
| 12 | $285,314 | $28,531 | $313,845 |
As you can see in the above table, the investment amount grows substantially over the course of the 12 months, reaching almost $315,000 at the end.
Extra Compounding Calculation: (at the end of the 12th month)
- 5% per month: $179,585
- 15% per month: $535,024
- 20% per month: $891,610
- 25% per month: $1,616,767
Decide your return percentage. A new trader can test with his own setup. Many things are possible with discipline, but a single greed can ruin the whole calculation.
Slow and steady wins the race. Give it a try! Have a happy day.