How compounding works in prop trading
Compounding is the process of reinvesting profits so that each subsequent gain is calculated on a larger base. In trading, this means that consistent percentage returns — even modest ones — produce dramatically larger absolute returns over time. A 2% monthly return on a $100,000 account is $2,000 in month one, but $2,040 in month two, and grows from there. Over 24 months, this produces over 60% total growth without any change in the percentage return.
Realistic targets for funded traders
Many new traders overestimate what they can compound. A consistent 3–5% monthly return places you in the top tier of professional traders globally. Use this calculator to model realistic scenarios, not best-case ones. If your strategy historically produces 1.5% per month on average, model that — not the 10% months you occasionally have.
The risk of overestimating your compounding rate is that it creates unrealistic expectations and encourages over-leveraging to chase those returns. A steady 2% monthly return compounded over 3 years is a far better outcome than a volatile strategy that averages 4% but regularly comes close to the drawdown limit.
Compounding across multiple accounts
Most prop firms allow traders to manage multiple accounts simultaneously once they have proven themselves. This is where compounding becomes particularly powerful: rather than compounding within a single account (where there may be payout minimums or restrictions on reinvesting profit), you can use payouts from one account to fund evaluation fees for additional accounts — effectively compounding your capital base across an expanding portfolio.
For example, a trader with a $50,000 funded account making £500/month could use that income to purchase a second evaluation after 2–3 months, then a third, building a portfolio of funded accounts that generates significantly more income than any single account could.
The drag of fees and withdrawals
Real-world compounding is impacted by evaluation fees (which you pay to upgrade or replace accounts), withdrawal schedules (most firms pay out monthly or bi-weekly), and taxes on trading income. Model your compounding with these costs factored in, not just the gross return. A funded trader who withdraws all profits monthly is not compounding — they are earning a fixed income. Both approaches are valid, but they produce very different outcomes over time.
Compounding and drawdown risk
As your account grows through compounding, the absolute value of your risk per trade increases — even if the percentage stays the same. A 1% risk on a $100,000 account is $1,000; on a $200,000 account it is $2,000. Make sure your position sizing system is percentage-based and automatically adjusts as the account grows. If you are manually entering dollar amounts for each trade, you may be inadvertently under- or over-risking as your balance changes.
This calculator is for educational purposes only. Past compounding rates are not a guarantee of future returns.