Calculating Rate of Return - not that easy

[PBS]

How do you calculate Rate of Return (ROR) in trading? Did you think about how unobvious it might be?

For instance:
You starting equity on Mar 1st was $100k. You made $15k in net profits during the month. You also paid in $10k of additional capital on Mar 5th and paid out $30k on Mar 25th. Your ending equity on Mar 31st is $95k. What was you ROR for this month?

I know that there are some methods of calculation recommended by NFA but are there any other possible approaches?

When someone says "I made x% this year" it does not mean much, really, as it all depends on how you calculate it - differences can be huge.

 

[newwurldmn]

Look up: Time weighted returns and money weighted returns.

pick the one that works for you (based on the nature of your capital inflows and outflows)

 

[SumZero]

How do you calculate Rate of Return (ROR) in trading? Did you think about how unobvious it might be?

For instance:
You starting equity on Mar 1st was $100k. You made $15k in net profits during the month. You also paid in $10k of additional capital on Mar 5th and paid out $30k on Mar 25th. Your ending equity on Mar 31st is $95k. What was you ROR for this month?

I know that there are some methods of calculation recommended by NFA but are there any other possible approaches?

When someone says "I made x% this year" it does not mean much, really, as it all depends on how you calculate it - differences can be huge.

If you don't want to complicate things, calculate it like you were a fund.

You start with 100K and "issue" 100.000 "shares". Each one is $1

You made 15K so the "fund" value is 115K. Each "share" is now $1.15

You added 10K to the "fund". That means you "purchased" 8.695 "shares" at $1.15.

You added another 15K to the "fund". That means you "purchased" 14.285 "shares" at, let's say, $1.05.

The fund valued is 95K in the end. You have 122.980 shares. Each one is worth $0.77

Your ROR is -23%

 

[countryBoy641]

Ameritrade tracks both Realized Gains and Losses, and Unrealized Gains and Losses.
Although I understand that most people here are scalping or day trading,
AMTD also sorts those by holding period, Short Term and Long Term (1 year and a day).
Total Rate of Return is shown in the Positions - Profits/Loss view.
Deposits and Withdrawls are a separate category.
Merrill Lynch offers something similar, but less user-friendly.

 

[mason macgregorson]

read up:
https://www.toptal.com/finance/financial-analysts/return-on-investment

 

[Q.E.D.]

Look up: Time weighted returns and money weighted returns.

pick the one that works for you (based on the nature of your capital inflows and outflows)

Suggest you search "VAMI in trading." That is Value of one thousand invested.

That is for RT trading. To evaluate back testing trading results, I always used ending profit divided by max DD. That I found was best way to view results over many systems, time lengths, etc. It is about the only way one can properly capitalize an account.

 

[newwurldmn]

Suggest you search "VAMI in trading." That is Value of one thousand invested.

That is for RT trading. To evaluate back testing trading results, I always used ending profit divided by max DD. That I found was best way to view results over many systems, time lengths, etc. It is about the only way one can properly capitalize an account.

it doesn't answer the OP's question of how to handle the intra-month disbursements of cash.

 

[PBS]

I think I will settle on the time-weighted method and VAMI suggested by the NFA for CTAs. If I become one one day it will come in handy

 

[isabellavillareal]

r=sum 1/(t1-t0)*log(v(t1)/(v(t0))where the partition t(n) is the credits or debits. Usually they take it as 1/(t1-t0)*(v(t1)/v(t0)-1) where t1-10 is one year. If you want to compare you need to add 0.5*returnsamplevariance*(t1-t0) to the log .

 

[mason macgregorson]

How do you calculate Rate of Return (ROR) in trading? Did you think about how unobvious it might be?

For instance:
You starting equity on Mar 1st was $100k. You made $15k in net profits during the month. You also paid in $10k of additional capital on Mar 5th and paid out $30k on Mar 25th. Your ending equity on Mar 31st is $95k. What was you ROR for this month?

I know that there are some methods of calculation recommended by NFA but are there any other possible approaches?

When someone says "I made x% this year" it does not mean much, really, as it all depends on how you calculate it - differences can be huge.

ROI gave way to IRR then came WACC and now Net Present Value. You might consider that also.