To Compound or Spend?
You have started this journey because you want financial freedom or wish to supplement your current income. Either way, you are on this journey to make some coin. In this article, we highlight why you should delay your first withdrawal and compound your account.
Delayed gratification is the act of ignoring the impulse to take the reward available with hopes of a greater payout on a later date; describing the concept of compounding.
The5fers.com defines – ‘Compounding a forex account is a money management technique that lets you take the money you had made in profit and invest it in more weight. Over time, you will build up your trading account capital in an exponential and highly profitable way.’
There are trading plans out there, but in essence, it all boils down to discipline. By not withdrawing from your winnings, your profits add to your account balance. Through compounding, you increase your pip size and the margin on your trades. Simply put, the bigger the account, the faster the growth.
To help you understand, we use a Compounding Calculator to illustrate the concept:
The above example highlights a steady 10% growth on a $50 account. Remember that the table shows the same percentage increase per month. In true Forex fashion, the winnings and account size will vary monthly.
Keep in mind that should you withdraw all the profits every few months you return to square one. In this way, you limit the growth potential of the account.
The above results may not hold your attention, so apply the same percentage return on a bigger starting capital:
The withdrawal of the $300 in month three is a small treat but consider the payout nine months later. It does warrant some thought.
We need to mention that with more money comes a greater chance for loss. The increased balance opens the account to bigger losses and, so, risk management is vital.
The temptation to withdraw some funds now and then will come, but keep in mind that it takes money to make money. Look at your Forex trading as a business and not a job. You will find that the pay-off is worth the wait.