Compound
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Compounding is defined as the action of “continuously re-investing”. Whether you are in profit or loss, your position can be compounded by being closed and reopened instantly, which is the rebalancing technique mentioned above.
A financial instrument is either compounding or not lasting.
If you deposit some money in a bank, the bank pays you a flat (non-compounding) interest rate of 10% annually; would you keep that money there for more than 2 years?
You want to maximize your capital efficiency and open a perpetual position to Long an asset with the maximum allowed leverage; if that asset price keeps increasing, would you keep that position even after your position value gets doubled?
As an exchange liquidity provider, you are lending your money to a trader; when the trader's balance is halved, would you still want to lend him the same loan?
Non-compounding financial instruments were invented in historical times when technology was limited. Balances, debits, credits, and interests have to be done on paper, cross-checked daily, and manually re-compound periodically. With today's computing technology, there's no reason we should use any non-compounding finance systems anymore.
