Performance
Trading Compounding Calculator
Project how an account grows with a fixed return per period and regular deposits, with a period-by-period table and a note on volatility drag.
| Period | Balance |
|---|---|
| 12 | $7,682.42 |
| 24 | $11,084.37 |
| 36 | $15,398.87 |
How compounding is calculated
Each period the balance grows by the return rate, and any deposit is added at the end of the period. Returns in later periods are earned on earlier returns as well as on the original capital.
balance(t) = balance(t−1) × (1 + r) + deposit
Why real trading returns compound less than this
The calculator assumes the same return every period. Real returns vary, and variation costs money: a month at +10% followed by a month at −10% leaves the account 1% lower, not flat. The more volatile the returns, the further the compounded result falls below what the average return suggests. Traders call this volatility drag.
A rough rule: compounded growth per period is close to the average return minus half the variance of returns. Two strategies with the same average monthly return will end far apart if one swings much more than the other.
Sense-checking targets
Small monthly figures compound into large annual ones. Two percent a month is about 26.8% a year, and five percent a month is about 79.6%. Very few professional managers sustain returns like that, so a plan that depends on them deserves skepticism. Use the drawdown recovery calculator to see what a bad stretch does to the same plan.
Questions
What is 2% a month compounded annually?
1.02 to the power of 12, minus 1, which is about 26.8% a year.
Is compounding guaranteed in trading?
No. The calculator shows arithmetic under a constant return. Real returns vary and include losing periods, which lowers the compounded result.