Use our forex compounding calculator to figure out the future value and total profit 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 potential profitability 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 great tool for investors trying to get a good picture of how reinvesting profits in a long-term investment will affect profitability in the long run.
Together with a liquidation price calculator, the forex compound calculator becomes a powerful toolset for any investor who is looking for long-term growth while conserving risks.
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.
The key features of the calculator are:
- Overview of future growth: The most important factor of the forex compounding calculator is to show how an investment can grow over time with the compounding effect of interest-bearing FX trades.
- Customizable inputs: Users can freely input their own values and test different data points to simulate different scenarios and plan accordingly.
- Strategic planning: By showing the long-term projection of an investment, investors can plan ahead of time with the knowledge of the potential profitability of a certain setup.
It can be used in combination with our forex spread calculator to calculate the initial cost of the investment.
How does a forex compounding interest calculator 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 all the profits 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.
Using leverage for long-term investments should be done carefully as there are several factors such as increased costs and the obvious liquidation risk.
A new addition to our tool set that will help you combat risk is our forex risk calculator which will calculate your total risk per trade and recommend the appropriate lot size.
How to calculate compound interest in forex
Calculating forex compound interest requires you to know at what rate your profits are reinvested when the compounding effect occurs, and also what the interest rate will be.
Strategic forex traders use a stop loss calculator to figure out at which point the investment has lost too much and it’s time to cut losses.
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 profits 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
When you calculate leverage in forex, a different approach is used which is based on the margin requirement, the total position size, and the leverage ratio.
Forex compound interest 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.
Why do you need a forex compound calculator?
In long-term trading in forex, the forex compound interest calculator is a valuable tool that can help predict the future growth of an investment scheme.
It not only helps you visualize long-term growth, but it can also help in risk management by giving a clear picture of where the investor should place the capital when choosing between several different investments.
Another reason why investors might want to use this calculator is because it gives an instant image of the future profit potential.
To make the calculation manually would take a long time and if you might want to make several calculations you would save a lot of time with the compounding forex calculator.
When the planning is done and the risk is calculator I recommend using our risk reward calculator to get the final view of the total risk reward ratio for the trade.