Compound Interest
The process of earning returns on both your initial investment and on previously accumulated returns, creating exponential growth over time.
Explained Simply
Compound interest is often called the "eighth wonder of the world." Instead of earning returns only on your original investment, you earn returns on your returns. A $10,000 investment growing at 10% annually becomes $11,000 after year one, $12,100 after year two, and $25,937 after ten years — not $20,000 as simple interest would suggest. The key variables are rate of return, time horizon, and contribution frequency. Compounding works best over long periods — the difference between 20 and 30 years of compounding is enormous. For traders, compounding means that consistent small gains can build substantial wealth over time, but it also means that consistent losses compound in the opposite direction.
How Tradewink Uses Compound Interest
Tradewink's performance analytics track compounded returns over time, showing users how their trading results compound across weeks, months, and years. The system's position sizing approach inherently leverages compounding — as the account grows from profitable trades, position sizes increase proportionally, allowing gains to build on previous gains. The dashboard displays compound annual growth rate (CAGR) alongside raw returns so users can see their true growth trajectory.
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