Course 2

Compounding


What you will learn :

  • What is compounding

  • Why it can make you rich

  • Why it is key in building a small account into a BIG account

The power of compounding is one of Warren Buffett’s success factors.

Compounding is why you can make a lot of money over time. You MUST understand the power of it, and use it. That’s it.

Compounding is basically reinvesting what you earned into earning more. Why is this so powerful?

Because each time you earn a percentage, that earning is in fact percentage of the initial + a percentage of the previous gains. Then, as you go on, the sum of all the small gains is growing exponentially, making you earn more and more!

Take a look below:

Day 1, I trade $1,000 and earn 2%. This is $20. My total account balance is $1,000 + $20 = $1,020.

Day 2, I trade $1,020 and earn 2%. This is $20.40. My total account balance is $1,020 + $20.40 = $1,040.04.

Day 3 … again, 2%

Day 4, …

….

Day 30, my account balance is now $1,775.84. I earn 2%. This is $35.52. My final account balance is now $1,811.36.

This is a $811.36 gain over $1,000. Or, it is a 81% gain.

See below:

Not impressed?

Check now if you do this for 6 months:

Compare this to not compounding your gains:


You can see if you were not compounding your gains in the first month, you would make $600 (60%) instead of $800+ (80+%). After 6 months, your $1,000 is turned into $35,000. The money is there on the market, people do it, it is possible.

Conclusion:

Compounding should be a no brainer. Most of us won’t get rich by trading high leverage a few times and make big bucks. Yet, you can get very rich by compounding your gains, steadily, day-in and day-out.