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.
As a fellow customer and as far as Iām 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 āXYZ plcā listed in Pounds Sterling (GBP or Ā£) in the London Stock Exchange and you bought 10 shares at Ā£5 per share for a total of Ā£50.
If say 2 months later, you checked how much it was worth T212 would simply look at the current stock price, say Ā£7 a share and multiply it by your number of shares and show you it is currently worth Ā£70 which is Ā£20 over the price you bought them for.
This Ā£20 difference would then be indicatively shown as a +40% increase, as Ā£70 is 40% higher than rhe initial Ā£50 invested. This would only be indicative as you donāt actually āreceiveā any money until you sell the stocks or ETFs.
Remember, money can be lost very quickly in the stock market. Donāt 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.
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.
There is no such thing as ācompound daily interest on stocksā (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.
(ā¦and not ādailyā - unless you literally sell and buy each day).
Of course it is always possible to calculate a notional ācompound interestā - but on stocks this is rarely pointful - as prices move down as well up.
i.e.ācompoundingā 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 donāt know about.
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, letās say you buy part of the land for Ā£100 today.
Then letās say that the people running the land harvest the crops and sell them in September for Ā£20. They then subtract the costs of their wages, the cost of water and machinery which all adds up to Ā£12.
Once you subtract it, there are Ā£8 of āprofitsā 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 ādividendā 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 ālandā 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 ācompoundā 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)
Mathematically Ā£100 increasing at a rate of 100%, compounded daily - and did so for 3 days - it would indeed reach Ā£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 ācompoundingā 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 luckā¦
ā¦he decides to calculate his profit as a notional return in the form of ācompound interestā.
That exercise is entirely theoretical as, if taxable, it would be taxed as a Capital Gain not āinterestā.
More realisticallyā¦
ā¦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.)
