What if you made one percent a day?

How compounding actually works

Compounding multiplies rather than adds. Each period's return applies to the balance the previous period produced, so the growth curve bends upward instead of running straight. The formula is final = start × (1 + rate)^periods, and the exponent is what makes small rate changes produce enormous differences in outcome.

This is also why the arithmetic feels wrong at first. A 1% daily return is not 252% over a trading year — it is roughly 1,155%, because every gain compounds on every prior gain. The same mechanism runs in reverse on the way down, which is what makes drawdowns so expensive.

A worked example

Start with $10,000 and compound 0.5% per trading day across 252 days. That is $10,000 × 1.005^252, or about $35,100 — a 251% gain from a rate most people would dismiss as negligible.

Halve the rate to 0.25% per day and the year ends near $18,700 instead. Halving the per-period return did far worse than halving the outcome, which is the exponent at work: compounding rewards consistency disproportionately, and punishes small shortfalls the same way.

Where this calculator misleads you

It assumes a constant rate, and no trading strategy delivers one. Real equity curves are lumpy — clusters of gains, sharp drawdowns, flat stretches — and the same average return delivered unevenly compounds to less than the smooth version. Volatility is a genuine tax on compounded growth, not just a comfort issue.

It also ignores everything that leaks capital along the way: fees, spread, taxes on realised gains, and withdrawals. A 0.5% daily gross return can be a materially smaller net one by the time those land, and it is the net figure that compounds.

Most importantly, position sizes cannot scale indefinitely. A strategy that works at $10,000 may not fill at $1,000,000 without moving the market against itself. The curve on screen assumes liquidity the real strategy may not have.

Terms on this page

Compounding

Applying each period's return to the balance produced by the previous one, so gains build on gains.

Trading days

About 252 per year. The right period count for active strategies; calendar days suit longer horizons.

Volatility drag

The gap between average return and compounded return caused by an uneven path. Always negative.

Capacity

The size at which a strategy stops working because its own orders move the market.