Compounding is the quiet engine behind every account that grows for years: each month’s gain is earned on all the gains before it. In forex it happens in one way only. The size of each trade follows the account as it is now, so a bigger account trades a little bigger, and a smaller one a little smaller.
Watch it bend
- 20,399what 10,000 becomes in 36 months at 2% a month, compounded
- 17,200the same monthly gain, with the trade size never raised
- 36months to double at 2% a month: the rule of 72, 72 ÷ 2
How it works in a trading account
- 1Risk a percentage, not a lot
1% of the account on each trade, for example: the lot size is worked out from it every time.
- 2The account grows, the size follows
At 10,000, 1% is 100. At 15,000 it is 150, from exactly the same rules.
- 3The account falls, the size shrinks
Ten losses in a row at 1% take the account down 9.6%, not 10%: each loss is a little smaller than the one before.
- 4Nothing else changes
The stop, the target and the rules stay as they are. Only the size follows the account.
It multiplies losses as faithfully as gains. That is why the percentage at risk must be small: compounding a reckless risk only reaches the end sooner.
The one rule of compounding: stay in the race
- Fixed % risk, a stop on every tradeStill compounding
- MartingaleOne long losing run: account gone
- GridA trend, then a margin call
- HedgingFrozen losses, paid for every day
- ArbitrageAgainst many brokers' terms: trades cancelled
Compounding needs time, and time needs survival. A strategy that gives back the account once in five years never collects the fifth year, however good the first four looked.
Why the popular shortcuts cannot compound
Built to compound, or built to blow up
Built to compound
- A stop loss on every trade
- A size worked out from the account, on every trade
- Exposure that shrinks in a drawdown
- Each month’s gains kept by the months that follow
- Allowed by every broker
Built to blow up
- Losses left open, or “managed” with more trades
- A size that grows after losses
- Exposure that grows in a drawdown
- Years of gains given back in a week
- Against many brokers’ terms
Why K3Bxn Expert Advisors are built to compound
A predefined stop loss and take profit, placed when the trade is opened.
Choose a percentage of equity to risk and the lot size is worked out from the account on every trade. A fixed lot is there too, but it does not compound.
The size is never raised after a loss, and trades are never stacked against a losing position.
No trade is ever opened to offset or lock in another’s loss.
Nothing that brokers prohibit: no latency or price-feed tricks.
Included with your licence, for as long as it lasts.
Compare them on the Expert Advisors page. Compounding rewards one more thing: taking every trade, the same way, for long enough. That is the subject of edge, risk, then discipline and consistency.
Check yourself
3 questions
10,000 grows by 2% a month for 36 months, compounded. Roughly where does it end?
1.02 to the power of 36 is about 2.04: the account doubles. 17,200 is the same gain without compounding.
An account risks 1% of its balance on each trade and loses ten in a row. How far down is it?
Each loss is 1% of a slightly smaller account: 0.99 to the power of 10 is about 0.904.
Why can a martingale never compound for long?
Its size doubles with every loss, so a run of losses that is close to certain over a few hundred trades takes everything.
