In the first part of this article which you can find here: How To Turn $1000 into A $Million in 30 months I showed you the power of compounding.
One cent per day doubled turns in to more than $10 Million in 31 days!
The following example is based on taking $1000 to a $million from trading forex or any commodity for that matter.
In truth the stakes & winnings in the 1st few months would be so small that most of us would be bored rigid. But it is key to becoming a successful trader. Lets face it if you have $1000 in the bank at the moment you might be able to earn $15 interest for the year !
Here is an article I wrote a few years ago. It has been copied all over the internet but it was me “wot rote it” originally 🙂
How to Turn $1000 into $2.6 Million in 30 Months With Just 15 Pips a Day
What if we could successfully make just 15 pips/$15 a day in forex & reinvest the profits? The initial calculation is based on risking 5% on $1000. The next day you will be risking an amount based on $1015 and so on. Therefore as time goes on and you are hopefully winning, your stake increases slightly per pip and so do your winnings. Its important to adjust your risk on every trade based on your current account balance, especially if you are losing.
Most novice traders tend to still think of an account as being a $1000 one when there is say only $500 left in it. THAT is why so many blow up accounts.
Here is a link to a great free tool which will do the calculation for you in a matter of seconds: Free Forex Currency Calculator
| Day 1 | 1000 |
| Day 2 | 1015 |
| Day 7 | 1105* |
*By day 8 our daily stake has increased to $1.10 per pip = $16.50. We are now gaining $1.10 per pip. By the end of the 1st month we would be looking at an account balance of approx
| Day 13 | 1204* |
| Day 20 | 1330** |
*By day 13 we are investing $1.20 per pip x 15 = $18
**Month 2’s (20 trading days) stake will be $13.30 per month & so on. This is 33% return in 1 month. This is what attracts the big boys to forex. If you carry the sum forward, the 1st 6/8 months show steady rapid growth. Then compounding kicks in & the growth is phenomenal. If you can maintain 15 pips a day for just over 2 years your reward is multi millions.
Lets say we carry on with the chart, but only increase our stake at the end of the month which is the correct way to do this. Therefore month 2 our 15 pips a day x 1.33 x 20 (trading days a month) =
| End Month 2 | $1729 |
| End month 3 | $2245 |
| End Month 4 | $2918 |
| End Month 5 | $3791 |
| End month 6 | $4928 |
| End Month 12 | $23.784 |
| End month 24 | $554.093 |
End Month 27 $1.217 Million. Then it starts to get really scary !!!!
Month 30: $2.674.499
Now I know that realistically we would reduce our stakes as the value of our account gets larger (personally I reduced my risk to 3% at $10.000 and then 2.5% at $50.000 BUT the important fact here is that mathematically this principal is correct. The only thing that screws this up is human emotion. Fear and greed after all rule forex. There you have it. Change your expectations. Be realistic. Concentrate on winning a little and often and big profits could be yours in just a few short years. How many other industries give you that opportunity?
I can not count the number of people who I have met who started to become successful only for impatience to spoil their dreams. Many folks fail at forex simply because they don’t put in enough time and effort before throwing say $1000 into an account and promptly losing most of it BUT there is another group who start to do well. Some become over- confident and fail but a bigger group in my experience start to take too big a risk (due to boredom), lose money and quit when in actual fact many of them were on a few feet from gold!
What do you think? We have all experienced compound interest working against us in the form of mortgages, loans and credit card bills, do you have any experience of compounding working for you? Please feel free to add your comments below
Author: Marc Walton
You’re right on the money (pardon the pun) about this. I recall when it was first made clear to me by a fellow trader who showed me a table that showed cumulative profits on a 3% daily gain, starting out not with your whopping $1,000, but with only $100 (so, in the beginning we’re talking about just making 8 or 10 pips a day trading, say, 5 micro-lots) – and sure enough, one is over the million dollar mark within just a couple of years.
But as you rightly point out, it is very, very difficult for most people (myself included!) to exercise the necessary discipline to be satisfied with just making those small daily/weekly gains, which in the beginning look like next to nothing, making it tough to imagine that such trading will actually take you to being a millionaire.
Well, I’m following that path as best I can. I’ve had several setbacks – nearly every single one of them can be attributed to impatience and greed – but am nonetheless moving ahead, slowly growing my account. As time goes by, and those small daily and weekly gains start to become large enough to look like “real money”, it’s easier to believe that one will reach the million dollar + goal.
The bottom line is that your point can’t be stressed too much – that small, consistent profits in forex, along with the tremendous leverage offered (well, as long as you trade with a non-U.S. broker that still offers that tremendous leverage), are all that you need to build your fortune in a relatively short period of time.