I know many of you would open this article to read how possible this can be achieved. The ugly truth is; this can be done and it has been done. Before you criticize me, I want to make the following points clear to everyone:
- I NEVER gave a time limit like most people does. Telling you, how you would “make $10,000 in 2 weeks or how to become a millionaire overnight” like we normally see in most online advertisement.
- I also DID NOT say that this can be achieved WITHOUT HARD WORK and PATIENCE.
Having this knowledge at the back of our mind, let’s proceed. Making a roaring $10,000 from a deposit of $100 is possible, If we can use this powerful concept which am about to tell you.
CHECK THIS OUT: How To Survive In The Forex Business Part II?
What is this concept?
Many of you will be so eager to know what this concept is; unfortunately it’s not a strategy or a trading system. This concept is non-other than a word we call COMPOUNDING. There are various definitions of the word compounding when related to finance. But mine is a little bit similar to theirs but totally different.
Compounding according to this article is the aggregation of profits over a period of time without withdrawal.
Let me explain further, let’s say you have a deposit of $100, just like this article is based on. And you decided to be trading on that account for a complete 1 year period without withdrawal of the profit made. There is a tendency that after the one year period you would have made quite a lot of profit, though the total profit will not be up to $10,000. But it should definitely be quite large enough depending on the risk taken and trading frequency of the trader.
The above explanation is an example of COMPOUNDING. This is similar to building a structure. You start from the bottom (foundation) and you build it upward (roof) until the beauty becomes visible.
How Can This Be Achieved?
Compounding can be done by anyone and mostly practiced by investors and luckily most young investors are implementing this into their portfolio.
NOTE: that compounding works on all financial instruments be it stock, index, etc. but since I am a forex trade, I will focus more on the currency market.
The general law in compounding is:
- Do not withdraw your profit until your target period is reached
- Use a reasonable lot size
- Good Money management should be implemented
- Hard work
Most people will ask why these rules but let me explain them:
The reason why you shouldn’t withdraw your profits is that once your profits is withdrawn, it automatically means you will have to trade to recover those profit and if you constantly withdraw your profits then there is no way this (compounding) can be achieved because there will not be any “cluster of profits” instead it will just be your trading capital which be available and nothing else –since you constantly withdraw all profit made.
Using a good lot size and money management should be a MUST. Remember we are accumulating profits and trying as must as possible to reduce loss, though they are inevitable.
Just imagine a scenario where you trade using 0.05 lot size and a trade goes against you which result to a loss and the next trade is a loss automatically you have lost more than 10%-20% of your trading account if your stop loss is few pips, but if in the hundreds then the probability of a margin call is sure for a $100 deposit. But when you use a lot size of 0.01 it will take a much more number of losses before such an account can be wiped down to 50%.
Money management should not be neglected. Equity and your free margin should be checked before entering into any trade at all.
Nothing come easy, as such to make this $10,000 hard work is required along with patience. We all know the currency market is very risky but tell me what in life isn’t risky the probability of you going out for a ride and coming back is ½ because there is very chance you could be hit by a drunk driver or get shot by a criminal, I am not saying that any of those things would happen to you but am just giving an example.
Risk can be minimized that’s why we have a stop loss order – to limit the loss. Loss is inevitable no doubt, but our target should after a month should be that the profit from a winning trade should exceed that of a losing trade.
If we decide to implement this (compounding) into our trading with a deposit of $100 and we target 10% each month – which is the lowest return with the lowest risk.
I know you can get more than and something get above or below that. I once made a profit of 39% in just two weeks.
But let’s assume 10% monthly, we would make the following:
After the 1 year period, the total balance available in our trading account would have been $313.5. You can see the power of compounding.
Remember that doing this calculation we use a fixed calculation regardless of the lot size and we didn’t withdraw a single dime from the account.
ALSO READ: Trade Forex Like a Sniper to Be Profitable
Most people will object with this style of trading, possibly because of the period of time it takes. That will bring us to the conclusion that this mode of trading isn’t for everyone but for those who want to save for retirement and young investor who wishes to diversify their portfolio.
I would love to hear from you and about this system of trading, what do you think about it? Please do comment below.