How forex compounding works, trade by trade
In forex you do not compound a monthly percentage, you compound trades. If you risk 1% of your balance on every trade, each win adds about 1.5% when winners are 1.5 times the risk, and each loss takes 1%, always as a share of the balance at that moment. Position size therefore grows when the account grows and shrinks when it shrinks. That is the compounding, and it works in both directions.
Enter your starting balance, the risk per trade, your win rate, the average win and loss as multiples of the amount you risk (R), the trades you take per month, and optionally a monthly withdrawal. The calculator returns three views of the same plan:
- The average path. Every trade earns the average result, so the balance follows a smooth curve. This is what a spreadsheet shows, and it is the same logic as the compounding calculator, with the monthly return worked out from your trading numbers instead of typed in.
- The typical run. Wins and losses arrive in a random order, and the middle outcome of many simulated sequences is lower than the average, because a loss is taken from a larger balance than the gain that follows. The gap grows with the risk you take.
- The range and the drawdowns. The 10th to 90th percentile of the end balance, the median worst fall from a peak, and the share of runs that fall 30% or more along the way.
Why the average is not what you should expect
A balance that falls 50% and then rises 50% does not break even: it ends at 75% of where it began. The same arithmetic runs through every sequence of trades. Take a modest example: $1,000, 1% risk, a 45% win rate and 1.5R winners (an average of +0.125R per trade), 20 trades a month for 12 months. The average path ends at $1,350, a monthly growth of +2.5%. The typical simulated run ends at $1,325, with 10% of runs below $1,032 and 10% above $1,700. 6% of the runs end below the starting balance even though the edge is positive, because 20 trades a month for a year is still a sample in which luck matters.
The cost of more risk
The same edge at different risk per trade. The average grows faster with more risk, which is the number most calculators show, while the typical outcome grows more slowly and the drawdowns explode:
| Risk per trade | Average monthly growth | Average end balance | Typical end balance | Median worst drawdown | Runs with a 30% drawdown | Runs ending below the start |
|---|---|---|---|---|---|---|
| 0.5% | +1.3% | $1,162 | $1,156 | 6% | 0% | 6% |
| 1.0% | +2.5% | $1,350 | $1,325 | 12% | 0% | 6% |
| 2.0% | +5.1% | $1,821 | $1,691 | 24% | 24% | 8% |
| 5.0% | +13.3% | $4,461 | $2,829 | 52% | 99% | 14% |
| 10.0% | +28.2% | $19,715 | $3,276 | 81% | 100% | 28% |
At 5% risk the average end balance is $4,461 but the typical run ends at $2,829, and 99% of runs fall by 30% or more on the way. At 10% risk the average is $19,715, a number that comes from a few lucky runs; the typical run ends at $3,276 and the median worst drawdown is 81%. A loss of that size needs a much bigger gain to recover, as the drawdown recovery calculator shows, and the risk of ruin calculator and the guide how much to risk per trade cover the same trade-off in more detail.
Withdrawals
Enter a monthly withdrawal to model paying yourself. The money is taken at each month end, never more than the balance, and the drawdown and "ending below the start" figures count the money you have already taken out so that a withdrawal is not mistaken for a loss. With the modest example and $50 a month, you withdraw $600 over the year and the typical balance at the end is $640: withdrawals slow the compounding, because the money is no longer working, and a withdrawal in a losing month comes out of a smaller account.
Daily, weekly or monthly steps
The table can show the average and typical growth by month, by week or by trading day. These are the same growth expressed in smaller steps, using 52 ÷ 12 weeks and 21 trading days in a month. For example, a steady month of 5% is about 1.13% a week or 0.233% a day when compounded, and not 5% ÷ 4 or 5% ÷ 21:
| Return per month | Same growth per week | Same growth per trading day (21 a month) |
|---|---|---|
| 2% | 0.46% | 0.094% |
| 5% | 1.13% | 0.233% |
| 10% | 2.22% | 0.455% |
A reality check on the numbers
Compounding turns small differences into very large ones, which is why high monthly returns should be treated as a claim to check and not a target. The table shows what a constant return would produce from $1,000. It is arithmetic, not a prediction, and no strategy is guaranteed to deliver a constant return of any size:
| Return per month | $1,000 after 1 year | after 3 years | after 5 years |
|---|---|---|---|
| 1% | $1,127 | $1,431 | $1,817 |
| 2% | $1,268 | $2,040 | $3,281 |
| 5% | $1,796 | $5,792 | $18,679 |
| 10% | $3,138 | $30,913 | $304,482 |
| 20% | $8,916 | $708,802 | $56,347,514 |
| 30% | $23,298 | $12,646,219 | $6,864,377,173 |
A steady 20% a month would turn $1,000 into $8,916 in a year and $708,802 in three. When a calculator, a course or a social media post shows growth like that, ask what win rate, payoff, risk and trade count it assumes, and compare them with your own trade history (the trading journal is a way to get them). Returns also get harder to repeat as an account grows: bigger positions can slip, and the opportunities that suited a small account may not scale.
The formulas
typical trade factor = (1 + r × W)p × (1 − r × L)1 − p
balance after n trades = start × factornr is the risk per trade as a fraction of the balance, p the win rate, W and L the average win and loss in multiples of the risk. The average path uses the first factor (so it is the expected balance), the typical path the second, which is the growth of the middle outcome and is never larger. Withdrawals are subtracted at each month end. The range and the drawdowns come from simulating thousands of random sequences of wins and losses with these odds.
The typical factor is below the average factor for any risk above zero. For small risk, the difference in growth per trade is about r² × the variance of the trade result ÷ 2, where the variance is p × W² + (1 − p) × L² − (p × W − (1 − p) × L)². It grows with the square of the risk per trade, so halving the risk cuts that penalty to a quarter while cutting the average growth only to a half. That is the compounding penalty for volatility.
Worked examples
A modest plan for a year
$1,000, 1% risk, a 45% win rate, 1.5R winners and 1R losers, 20 trades a month. Average monthly growth +2.5%. The average path ends at $1,350, the typical run at $1,325, and 6% of simulated runs end below the start.
The same edge at 5% risk
The average end balance rises to $4,461, but the typical run ends at $2,829, the median worst drawdown is 52%, and 99% of runs fall by 30% or more.
No edge, 2% risk
A 40% win rate with 1.5R winners is exactly break-even on average, so the average path stays at $1,000. Compounding still erodes the typical run to $931, and 57% of runs end below the start. Compounding multiplies an edge; it does not create one.
Withdrawing $50 a month
The modest plan with a $50 withdrawal at each month end: $600 withdrawn over the year, and the typical balance at the end is $640 instead of $1,325.
Frequently asked questions
How do you calculate compounding in forex?
Risk a fixed percentage of the current balance on every trade, so position size grows with the account. Each trade multiplies the balance by 1 + risk × payoff on a win and 1 − risk × loss on a loss, where payoff and loss are in multiples of the amount risked. After n trades the average balance is the start times the average factor raised to the power n.
What is a realistic compounding rate for forex?
There is no figure that applies to everyone, and this site does not give one. Your rate is set by your win rate, payoff, risk per trade and trade count, so use your own tested numbers. Be sceptical of growth above a few percent a month sustained for years: the table on this page shows what it compounds to.
Why does the typical outcome come out lower than the average?
A loss is taken from a larger balance than the gain that follows it, so the middle outcome compounds more slowly than the average trade suggests. The difference grows with the square of the risk per trade, which is why big-risk plans have averages driven by a few very lucky runs.
Does the calculator work for daily or weekly compounding?
Yes. Compounding follows your trades, not the calendar. The table shows the same growth by day, week or month, using 21 trading days and 52 ÷ 12 weeks a month, and you can enter your trades per month.
Can I include withdrawals?
Yes. Enter a monthly withdrawal and it is taken at every month end, never more than the balance. The drawdown and the chance of ending below the start count the money already withdrawn.
How is this different from the compounding calculator?
The compounding calculator multiplies a constant return you type in, with deposits. This one starts from your win rate, payoff, risk per trade and trade count, shows the range of outcomes and the drawdowns, and models withdrawals. Use the first for a plan with a steady return and this one to test how your trading numbers behave when compounded.
Is this financial advice?
No. It models the numbers you enter. Forex and CFD trading carries a high risk of loss, results are not guaranteed, and a past win rate does not predict a future one.
Compounding multiplies an edge. Finding it comes first.
The growth above rests on a win rate and payoff you believe in. These indicators help you look for setups with a consistent payoff, which your journal can then confirm.
Last updated November 2026. For education only. Not financial advice. Results depend on your inputs and cannot predict future performance.