Use our forex compounding calculator to figure out the future value of a foreign exchange trade with an interest compounding effect. The Forex compound calculator is based on the initial investment, interest rate, time (in years), compounding frequency, additional contributions, and contribution frequency.
To use the forex compounding calculator, follow this step-by-step guide:
- Add your initial investment.
- Insert your interest rate %.
- Add the time in years.
- Select the compound frequency.
- Add the additional contributions.
- Select contribution frequency.
- Click Calculate!
What is a forex compounding calculator?
A forex compounding calculator is a tool used by traders to figure out the futures value of a foreign exchange trade over time.
The calculator takes into account the compound effect, which is the process where the value of an investment increases because the earnings on an investment, both capital gains and interest, earn more interest as time passes.
This is a tool for investors trying to get a good picture of how reinvesting capital in a long-term investment will affect results in the long run.
The factor of exponential growth is the key component of the calculator which will be displayed in the form of numbers and the yield chart.
Calculations results are never guaranteed and risks cannot be controlled simply by using a caluclator.
How does it work?
A forex compounding interest calculator works by showing the power of compound interest, which is most often called the “eighth wonder of the world”.
It calculates the future value of a foreign exchange investment by reinvesting the capital earned by the interest rate earned over each period.
To use the calculator you need to know these inputs:
- Initial investment
- Interest rate %
- Time in years
- Compounding frequency
- Additional contributions
- Contribution frequency
By using these factors, the calculator will display a growth projection of your investment showing how small consistent gains can accumulate over time.
How to calculate compound interest in forex
Calculating forex compound interest requires you to know at what rate your results are reinvested when the compounding effect occurs, and also what the interest rate will be.
You can either calculate it manually or use our forex compounding interest calculator which will automatically give you the correct answer with a yield chart to show the future growth.
Unlike simple interest, compounding interest in forex takes into consideration the initial investment together with the accumulated capital made from the interest of the previous period.
This means that each time the interest is compounded, it is done so with an even larger amount of capital.
You can calculate compound interest in forex by having three different compounding frequencies:
- Monthly
- Quarterly
- Yearly
If you are planning on adding further investments during the investment period, you can do so by adding additional contributions which can be done:
- Monthly
- Quarterly
- Yearly
A quick look at the formula
The basic formula for compound interest is A = P (1 + r/n)^(nt), where:
- A is the future value of the investment/loan, including interest.
- P is the principal investment amount (initial deposit).
- r is the annual interest rate (in decimal form).
- n is the number of times interest is compounded per year.
- t is the time the money is invested for in years.
This formula is crucial to use when calculating future growth that is exponential and not linear where the term “interest on interest” is referred from.