What is compound interest?
Compound interest is interest that earns interest. Every period your money earns a return, that return is added to the principal — and the next period's return is calculated against the new, higher balance. The longer you let this run, the more dramatic the difference between compound interest and simple interest becomes. Albert Einstein reportedly called compound interest "the eighth wonder of the world" — and whether or not he actually said it, the math behind why he might have is hard to argue with.
How does compounding actually work?
The mechanism is simpler than the term makes it sound. Start with $1,000. Earn 10% in month one — you now have $1,100. Earn another 10% in month two — but that 10% is now calculated on $1,100, not $1,000. So month two adds $110 instead of $100. By month twelve at the same rate, you're at $3,138, not $2,200. The first $1,200 came from the original principal earning 10% per month; the other $1,938 is interest earning on interest.
That "interest on interest" is the entire engine. The longer your money compounds, the larger the share of your final balance that came from previous interest rather than your original deposit. After enough time, the principal becomes a rounding error in the total.
The compound interest formula
- A = final amount (what your money becomes)
- P = principal (your starting deposit)
- r = annual interest rate as a decimal (e.g. 0.10 for 10%)
- n = number of compounding periods per year
- t = time in years
When you add recurring contributions (e.g. funding the account every month), the formula extends to include the future value of an annuity:
A = P(1 + r/n)nt + PMT × [((1 + r/n)nt − 1) ÷ (r/n)]
The calculator above runs this exact formula every time you move a slider, so you don't have to.
Compounding frequency: why it matters
How often your interest compounds — daily, weekly, monthly, quarterly, annually — affects how much you actually earn. The more frequent the compounding, the slightly higher the effective annual yield (APY) for the same nominal rate. Examples at 10% nominal annual:
- • Annually compounded: 10.00% APY
- • Quarterly: 10.38% APY
- • Monthly: 10.47% APY
- • Daily: 10.52% APY
The difference between annual and daily compounding at 10% is half a percentage point. Over 30 years on a $10,000 stake that's an extra ~$2,000. Small per-period, real over time.
Compound vs simple interest
Simple interest is calculated only on the original principal, no matter how long the money sits. Compound interest builds on itself. The chart below shows the gap on a $10,000 stake at 10% per year:
AfterSimple interestCompound interest
1 year$11,000$11,000
5 years$15,000$16,105
10 years$20,000$25,937
20 years$30,000$67,275
30 years$40,000$174,494
By year 30, compound interest has produced more than 4x what simple interest would have paid out. This is why long horizons matter so much — the gap doesn't grow linearly, it grows exponentially.
Using this calculator for forex
For forex traders, the model is straightforward: enter your monthly return target, optionally add the amount you fund each month, and see how the account grows. The calculator assumes you compound — meaning each month's profit becomes part of next month's trading base. Most prop firms and disciplined retail traders work this way.
GoldRock's historical monthly closes have ranged 15–35% net, after fees. The calculator default sits mid-range; calibrate the input to whatever your own track record shows — past performance is not indicative of future results, and aspirational numbers compound aspirational outcomes.
Frequently asked questions
What is compound interest?
Compound interest is interest calculated on both your original principal and the accumulated interest from previous periods. Unlike simple interest, which only pays on the principal, compound interest 'earns interest on interest' — so each period's profit becomes part of the base that earns next period's profit.
What is the compound interest formula?
The standard compound interest formula is A = P(1 + r/n)^(nt), where A is the final amount, P is the principal, r is the annual rate (as a decimal), n is the number of compounding periods per year, and t is time in years. For recurring contributions, add PMT × [((1 + r/n)^(nt) − 1) / (r/n)] where PMT is the contribution per period.
How does monthly compounding differ from daily compounding?
More frequent compounding means interest is added to the principal more often, so the next period's interest earns on a slightly higher base. The difference between daily and monthly compounding at the same nominal annual rate is small — about 0.05% APY for a 10% nominal rate — but it adds up over decades.
What is a realistic monthly return for forex trading?
Disciplined forex traders typically target between 5% and 15% per month. GoldRock's actual monthly band has been 15% to 35% net, after fees, but anything above 10% per month sustained over years is exceptional. Calibrate the calculator to your own track record, not aspirational numbers.
How long does it take to double your money with compound interest?
The 'Rule of 72' gives a quick estimate: divide 72 by your periodic rate (in percent) to get the number of periods needed to double. At 15% per month, money doubles in about 72 ÷ 15 ≈ 4.8 months. At 7% per year, doubling takes about 10.3 years.
Should I add monthly contributions?
Recurring contributions amplify compounding dramatically. A $500 starting stake with $500 added every month at 10% monthly compounds to about $34,000 after 24 months — versus $4,950 if you just left the original $500 alone. The earlier you start adding, the more those contributions get to compound.
What is effective APY?
Effective Annual Percentage Yield (APY) is the true yearly return after accounting for compounding. A nominal rate of 10% compounded monthly produces an APY of (1 + 0.10/12)^12 − 1 ≈ 10.47%. For a forex account compounding at 15% per month, the APY is (1.15)^12 − 1 ≈ 435%.
Are the calculator's projections guaranteed?
No. The calculator assumes a flat monthly return with no losing months and no withdrawals — useful as a planning tool, not a forecast. Real markets vary, fees compound the other direction, and past performance never guarantees future results. Use the calculator to compare scenarios, not to project actual outcomes.