Compound Interest: World’s Eighth Wonder For A Trader

 

“Compound interest is the world’s eighth marvel. Whoever comprehends it earns it; whoever does not pays it. Einstein, Albert
Since this subject has many different aspects, I’ll limit my discussion to the trading industry and the benefits of compounding returns. Any traded financial market is affected by this.

Let’s first look at two straightforward money management strategies that a trader might include in their trading plan.

  • Fixed-size trades (monetary)
  • Trade size in percentage (proportional to trading balance)

The first choice would imply that no matter the result of the prior transaction (win or loss), the same set monetary deal size would remain on all future trades. So how would this relate to a successful trader?

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