{"term":{"slug":"compound-growth","term":"Compound Growth","definition":"Growing your position size proportionally as your account balance increases, so profits generate larger future profits. In prop trading, compounding must be balanced against drawdown limits -- increasing size too fast amplifies losses.","extendedExplanation":"Compound growth is the mathematical advantage of percentage-based risk. If you risk 1% per trade, your risk amount grows as your account grows. A $100K account risks $1,000; after growing to $120K, 1% risk is $1,200. This means winners get progressively larger.\n\nIn prop firm trading, compounding is a double-edged sword. While it accelerates profit accumulation, it also means losses get larger as the account grows. With trailing drawdown, this is especially dangerous because the floor is also rising. More of your room is consumed by the increased position size.\n\nMany experienced prop firm traders use a hybrid approach: they compound on the way up but switch to fixed dollar risk when in drawdown. Some lock in position size once they reach a certain profit level, sacrificing maximum growth potential for stability.","exampleWithNumbers":"FTMO $100K, 1% risk compounding. Start: risk $1,000/trade. After 10 winning trades at 1:2 R:R: account grows to ~$120,000. Now risk $1,200/trade. After another 10 winners: ~$144,000. Without compounding (fixed $1,000 risk), account would be $120,000. Compounding gained an extra $24,000. But in a losing streak at the $144K level, each loss is $1,440 vs $1,000 flat -- 44% larger.","category":"strategy","relatedTerms":["position-sizing","drawdown-recovery","scaling-plan","risk-per-trade"]},"_links":{"self":"https://runvigil.app/api/glossary/compound-growth","page":"https://runvigil.app/learn/compound-growth","allTerms":"https://runvigil.app/api/glossary","learn":"https://runvigil.app/learn"}}