Compounding as a passive income.
Albert Einstein described Compound interest as the 8th wonder of the world, this is one of the important things that a trader should know and utilise properly. The full quote by Einstein is
"Compound interest is the 8th wonder of the world. He who understands it, earns it. He who doesn’t, pays it"
This is one to pay close attention to, as it leads to a successful portfolio overtime.
Compounding can be said to be a process of reinvesting interest on an asset to generate additional earnings over a period of time. This means the investment will generate earnings from the principal capital and the earnings accumulated from previous periods,the principal capital is not the only one that earns interest in the case of Compounding. In more simpler terms, compounding interest involves using increased capital for the next interest period.
Using a capital of $7,000 as a case study, and 10% as the interest over an interest period. After the first interest rate, the new capital will be $7,700. Instead of the next interest period to be linear and still use $7,000 as the new capital, $7,700 will be the new capital for the next interest period. Which will make the capital grow to $8,470 at the end of the second interest period, making $8,470 ready as the capital for the next interest period.
How traders can make use of this:
The two things every trader will need to make this work is patience and time,these two are needed to get a good outcome from this. A good capital will be required in a crypto exchange with liquidity and enough assets to trade, an exchange like OKX.
Next thing to do is to set a fixed target for each trade. For example, a 10% gain on each trade. And this is to be for every trade, making this trading pattern to be a form of interest period. The next trade will be an accumulation of the capital and the 10% gain, which is to be repeated over a period of time as decided by the trader. Steady and slowly, the trader's portfolio will experience an exponential increase.
This compounding technique will require a lot of discipline and determination, but it is something that can be done. Seasoned traders have identified this as a great way of growing a portfolio without having to undertake any major risk. Stop-loss can be set a bit lower than the gains,like a 9% SL for a trade that projected a 10% gain.
OKX, a world leading cryptocurrency exchange, is a great trading platform to build a portfolio. There lots of crypto assets with liquidity that can be traded and grow as a trader.
About OKX
A world-leading cryptocurrency spot and derivatives exchange, OKX offers the most diverse marketplace where global crypto traders, miners and institutional investors come to manage crypto assets, enhance investment opportunities and hedge risks.
We provide spot and derivatives trading — including futures, perpetual swap and options — of major cryptocurrencies, offering investors flexibility in formulating their strategies to maximize gains and mitigate risks.
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