# Compound Interest for Stocks? QUESTION

Hi there,

I am wondering as it is not explained anywhere or i may not be able to find the information about it regarding T212 compound interest.

Can someone from T212 please explain how the compound interest works:

Which of the following method is correct, how it is calculated as a compound interest:

• the 24hr cycle of pre market > market open > after market = 1 day
• just market open to market close
• 24 hours then added on

When is it added onto the interest? Does it calculate all 3 processes before compounding as in pre market, market open and after market?

Most brokers take into consideration the pre market, market open and then after market before adding the compound interest for the day?

Many thanks.

Are you refering to the daily interest on the free cash available in your account?

We offer compound interest when it comes to the interest you earn on your uninvested funds. There are more details about the whole process in this article, and the formula used to calculate the interest is the following:

(1+r/n)^n - 1, where

• r = interest rate
• n = compounding frequency (365.25 days - .25 as we account for leap years)

When it comes to interest earned on your shares via share lending, compound interest cannot be guaranteed, as share lending is based on supply and demand.

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I am referring to stocks i hold, not uninvested funds.

As a fellow customer and as far as I’m aware, T212 does not calculate compound interest on any stock investments.

For example:
Say you had bought a specific stock or a specific ETF named “XYZ plc” listed in Pounds Sterling (GBP or £) in the London Stock Exchange and you bought 10 shares at £5 per share for a total of £50.

If say 2 months later, you checked how much it was worth T212 would simply look at the current stock price, say £7 a share and multiply it by your number of shares and show you it is currently worth £70 which is £20 over the price you bought them for.
This £20 difference would then be indicatively shown as a +40% increase, as £70 is 40% higher than rhe initial £50 invested. This would only be indicative as you don’t actually “receive” any money until you sell the stocks or ETFs.

Remember, money can be lost very quickly in the stock market. Don’t invest unless you understand the investments.
Please seek financial advice from a professional if you need help to understand things.
I am just a fellow T212 user.

What i mean by COMPOUND DAILY INTEREST on a stock position (not share lending) is the following:

Day 1: £100 + 100% gained = £200
Day 2: £200 + 100% gained = £400
Day 3: £400 + 100% gained = £800

This is based on leaving your money in the stock for 3 days? Is this how it works on Trading212? Thank you @Momchil.G

You don’t get compound daily interest on stocks you own, unless you are in an accumulation money market fund.

What I think you are trying to suggest is showing a time weighted rate of return at a stock level? I’ve not seen many brokers show this.

So if a stock gains 100% overnight and you put £100 you get £200?

Then the next day it gains another 100% you would get £400?

Is that not the case with T212?

You buy a share with any broker, you own the share, and are entitled to the gains/losses in the value of that share as the market moves up until the point you sell the share.

4 Likes

Yes hence why i was asking, maybe i overcomplicated the question

If you do not sell the shares it is a Paper Gain.

Stocks move up and down so you cannot effectively get a daily compound amount. You can only calculate it on a lengthy scale.

Unless you can trade in an out on a consistant basis and gain profits it is not possible.

1 Like

What has prompted the Question?

There is no such thing as “compound daily interest on stocks” (Shares).
Shares do not pay daily dividends, so no compounding is possible.

As others have said, profits or losses after each daily revaluation is notional.
Until sold, there is no return - so no compounding.
(…and not “daily” - unless you literally sell and buy each day).

Of course it is always possible to calculate a notional “compound interest” - but on stocks this is rarely pointful - as prices move down as well up.
i.e.“compounding” implies one-way traffic.

The ONLY# way to achieve daily compounding is on cash balances.
And that requires the broker to lend cash in the money-markets - so receive interest each day.
Then the broker has to pass on that interest.
T212 is rare in doing so.

#Unless there is some Bond out there that I don’t know about.

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So basically if i left my stock swing trading for 3 days after investing £100 and it gained 100% each day, i would not get £800? I would get £400?

I’m sorry, I just don’t think you understand anything. Either that or we don’t understand your question.

Unfortunately I don’t see how we can explain it better.

How about you email T212 and ask them?
They might explain it better

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I’ll try again.
I will use an analogy.

Buying a stock is a bit like buying a small piece of land and getting part of the returns that the land produces.

For example, let’s say you buy part of the land for £100 today.
Then let’s say that the people running the land harvest the crops and sell them in September for £20. They then subtract the costs of their wages, the cost of water and machinery which all adds up to £12.

Once you subtract it, there are £8 of “profits” which is then given off to you as the owner of the land in September once the money has come in and expenses paid. This is the “dividend” of the company, which is often paid once a year or every 6 months.

Once you decide to sell, the return that you can make on the “land” is a combination of the re-sale price you can sell the land for plus the part of the profit (dividend) you have been receiving.

So no, a stock investment does not “compound” as such (compounding is what a savings account with a yearly interest) as you get most of the investment when you sell (except for regular yearly dividends or whatever)

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Mathematically £100 increasing at a rate of 100%, compounded daily - and did so for 3 days - it would indeed reach £800.

But that is so far out at the edge of reality as to be a pointless theoretical exercises.

The only vaguely possible scenario when someone might calculate “compounding” might be this:
Company B announces bid to buy-out company A.

Price goes up from 100p to 330p.

Next day Company C announces a counter bid for Company A.
Price leaps to 570p.

On the 3rd day Company D announces bid price of 700p per share.

Meanwhile the Market, anticipating further bids, takes the price over 800p.

Holder decides to sell in the market at 800p.

Aside from being deliriously happy at his luck…
…he decides to calculate his profit as a notional return in the form of “compound interest”.

That exercise is entirely theoretical as, if taxable, it would be taxed as a Capital Gain not “interest”.

More realistically…
…has there ever been an asset so undervalued that its price rises from 100p to 800p in 3 days ?
(Not sure that the great Tulip Bubble (1630s) reached such dizzy price rises.)

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FFIE stock went up over 700%+ in 6 days.

There is the South Sea Bubble that kind of did this and it was the Government that caused it.