Luke Donald R Davis

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What is compounding in forex and how does it grow capital?

Compounding occurs when profits are reinvested, allowing exponential growth over time. For example, risking 2% per trade and averaging 3% monthly can double an account in ~24 months. Institutions apply compounding carefully, balancing returns and drawdown risk. Retail traders can use fixed-percentage position sizing to harness compounding while limiting exposure. Benefits: significant wealth growth without needing extreme leverage. Risks: compounding works both ways—losses compound too if risk is unmanaged. The lesson: small consistent gains with discipline outperform reckless attempts at doubling accounts overnight. Compounding is the engine of long-term trading success.