# What is compounding?

Compounding is the process in which an asset's earnings, are reinvested to generate additional earnings over time. This growth, calculated using exponential functions, occurs because the investment will generate earnings from both its initial principal and the accumulated earnings from preceding periods. Compounding, therefore, differs from linear growth, where only the principal earns interest each period.

EXAMPLE

So, Say you start with 2000GBP, in the first month we increase the capital by 20%. So the second month you would be on 2400GBP as you gained 400GBP profit for the first month. Instead of withdrawing your profit therefore going back to your original investment, you would leave the profit in the trading account,Then the following month we hit 20% again, so that 2400GBP then turns into 2880GBP.