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What is compound interest? How to make a profit on the stock exchange?

What is compound interest? How to make a profit on the stock exchange?

Composite profit increases the rate of profit over ordinary profits. In fact, compound profit is a type of profit in which the interest rate will be added to the principal and in the next turn, both the principal and your profit will be awarded. With this type of profit, you can make a lot of profit in the long run and create a huge revolution in your life in the long run. But what is compound interest? How do we get compound interest in the stock market?

The concept of compound profit

As the name implies, compound interest is a combined and double profit, which means that in calculating compound profit (unlike simple profit, which in calculating profit only belongs to the principal of capital) in addition to calculating the profit that is attributed to the principal of capital. , The profit that is given to profits is also considered.

In other words, compound profit is the profit from the principal of capital plus the profit from previous profits, which is also called “profit profit” or “profit profit”.

Simply put, it is a type of profit, interest, or compound interest that, to calculate it, is both the interest on the principal and the amount of interest on the accrued interest on pre-deposit or loan periods on the principal. Is added.

Of course, it should be noted that the effect of compounding in the long run grows a lot and shows itself.

 

Important principles in compound interest

Based on the definition of compound interest, you will find that if you use compound interest, your capital will be multiplied by simple profit, but there are two very important principles to consider, two important principles in profit. The compound is as follows;

Time plays an important role in compound profits, and the longer you wait, the more profits you will make.
The principle of sustainability governs compound interest, which means that you must allow it to grow, and in no way should you manipulate the initial capital and the profits that result from it.

How to make a profit on the stock exchange?

Certainly, banks’ interest payments will not be based on compound interest, because if they use the compound interest method, they will quickly go bankrupt. Accordingly, you will not make a compound profit with the capital savings in the bank, and one of the best ways to make a compound profit is to buy securities and participate in the capital market.

If you are familiar with technical, fundamental analysis, or stock market investment in general, you can benefit from investing and buying and selling securities at certain times.

But how do we make a profit on the stock market? The way to make a profit from the stock market is to buy stocks again with the principal and interest earned each time you make a profit from the sale of stocks, and actually add the profits to the principal each time.

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How to calculate compound interest

In fact, we need a steady income and enough time to make a compound profit. You must use this formula to separate the principal from the total amount and only calculate the profit:

Note that at the end of the formula, P, which is the principal of the capital, will be deducted from the profit.

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A = The amount of profit earned on the investment
p = initial capital
r = annual interest rate
n = The number of times the profit is compounded during the year
t = number of years of investment

Initial capital: The amount of money you initially invest, for example, 10 million tomans of participation bonds.

Profit rate: Annual interest rate

Investment period: The time you plan to invest your money. (You have to consider the number of months)

Composite Profit Period: At what time period does the profit be compounded?

(For example, you have bought a 3-month participation bond and you decide to buy a bond again after 3 months using the capital and profits from the bonds, and you will continue the same process again. In this case, the combined profit period should be Enter three months.

Example:

You invest with 5 million Tomans and with an annual profit of 20% for 30 years. What will be our compound profit at the end of 30 years?

p = 5000000
r = 0.20
n = 1
t = 30

By placing numbers in the formula, we will have a compound profit:

The answer will be 1181881568.9, which shows the combined profit in 30 years.

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