The process of reinvesting profits to generate additional returns over time. In prop trading, compounding occurs through scaling plans.
Compounding is the most powerful force in prop trading. A $25K account at 5% monthly return with 80% split generates $1,000/month. But if the account scales to $100K through a scaling plan, the same 5% generates $4,000/month. The key to compounding in prop trading is consistency — maintaining steady, modest returns rather than chasing large gains that risk drawdown breaches.