# How to calculate return



## Sicilian Trader (9 April 2009)

when refer to their annual compounded return as 30% p.a, does this factor in the leverage multiple as well.

ie. if one is trading a leverage instrument, say a full contract futures that has an initial (intrday / overnight) margin component as well as a maintence margin compement, total a 3:1 debt/equity ratio. And they achieve a 30% return for the year using that trading that instrument :

- does that really mean a 90% return on equity (30%  x 3)? 

- or is the return on equity 30% (and on the instrument actually 10%) 

I am just curious to see how people calc this?

Also, say for instance some has a 100K in their trading account but they only touched about 50K to trade with. If they say they achieved a 20% return, are they basing it on the 50K or are they referring to the 100K?

just curious, thank s


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## beamstas (9 April 2009)

Start year with 400,000 equity
End year with 562,000

Return on equity = (562000/400000)-1
= 40%


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## Sicilian Trader (9 April 2009)

beamstas said:


> Start year with 400,000 equity
> End year with 562,000
> 
> Return on equity = (562000/400000)-1
> = 40%




thanks beamstas

so whether its 3:1 or 40:1 leverage that was applied to the 40% trading year, then that's already factored into that 40% return? 

cheers


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## beamstas (9 April 2009)

Sicilian Trader said:


> thanks beamstas
> 
> so whether its 3:1 or 40:1 leverage that was applied to the 40% trading year, then that's already factored into that 40% return?
> 
> cheers




I trade cfds
Not sure what leverage as i never really know the price of the total shares.. just my margin

But i disregard everything

Just calculate the money i actually recieved


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## Mr J (9 April 2009)

Return is the return for the capital under management.



> Also, say for instance some has a 100K in their trading account but they only touched about 50K to trade with. If they say they achieved a 20% return, are they basing it on the 50K or are they referring to the 100K?




The return would be on 100k. How much they touched or risked is irrelevant; what matters is how much they were prepared to risk, and in this case it's 100k.


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## Trembling Hand (9 April 2009)

Don't worry about return on margin. Worry about learning how to trade. you will exceed all benchmarks you have ever dreamed of,


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## nomore4s (9 April 2009)

Trembling Hand said:


> Don't worry about return on margin. Worry about learning how to trade. you will exceed all benchmarks you have ever dreamed of,




You're a freak TH


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## MS+Tradesim (9 April 2009)

Lol. Put 5 traders in a room, ask a simple question and get 10 different answers.

ST, calculate it in whatever way is meaningful and significant for you, but only compare apples with apples ie. compare your returns to say, some hedge fund, only if you're using the same measures.

I use a number of different ways depending on what and why I'm assessing certain stats.

But at the end of the day what's important is maintaining consistency in how and why you measure a given way so that you can track excessive drawdown/growth etc to keep an eye on appropriate risk levels, strategy outcomes and potentially detrimental variance. ie. you could be losing touch with the market and need to pull back, reassess and refocus.

Ps. Well done as usual, TH.


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## Cartman (9 April 2009)

Trembling Hand said:


> Don't worry about return on margin. Worry about learning how to trade. you will exceed all benchmarks you have ever dreamed of,




looks like CMC's fees will be on the rise again soon !!   ---


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## Naked shorts (9 April 2009)

How do you calculate expectancy as a percentage? 

I know how to get to tick/$ expectancy per trade, but stumped when trying to turn that into a percentage. Anyone know? (lol its been a long day and brain juice has run out)


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## Sicilian Trader (9 April 2009)

isnt it as follows?

($Avg W trade x %w) - ($Avg L trade x %L)
= $expentancy (x)

x = $expectancy
y = risk per trade (ie. 2% of 50,000 account, $1000 would be y)
z = %expectancy (x/y)

lets plug numbers into an example (applying same %risk and same trading account as above):

($125 x 52%) - ($100 - 48%) = $17
x = $17
y = $1,000
z = 1.7% ($17/$1,000)

therefore every trade you make you can expect an average return on risk of 1.7%

can someone correct me if i am wrong?


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## Naked shorts (9 April 2009)

Sicilian Trader said:


> ($125 x 52%) - ($100 - 48%) = $17
> x = $17
> y = $1,000
> z = 1.7% ($17/$1,000)
> ...





Isnt that 1.7% just alpha? (risk adjusted return)

Im looking for something that looks like "52%", where anything above 50% is a positive expectancy.


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## Sicilian Trader (9 April 2009)

Naked shorts said:


> Isnt that 1.7% just alpha? (risk adjusted return)
> 
> Im looking for something that looks like "52%", where anything above 50% is a positive expectancy.




$17 = expectancy expressed as dollar
1.7% = expectancy, same figure expressed as a percentage

what i think you are making reference to is %W (your percetange of winners based on the number of trades taken)

sticking with my example for simplicity.

Trades taken = 500 (100%)
winning trades = 260 (*52%*, 260/500)
losing trades = 240 (48%,240/500)

total $ amount of winning trades = $32,500
total $ amount of losing trades = $24,000

avg $ winning trade = $125 ($32,500 / 260 winning trades)
avg $ losing trade = $65 ($24,000 / 240 losing trades)

based on the figures in my example:
_{($125 x *52%*) - ($100 - 48%) = $17}_

is this what you were after?


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## Naked shorts (9 April 2009)

Sicilian Trader said:


> $17 = expectancy expressed as dollar
> 1.7% = expectancy, same figure expressed as a percentage
> 
> what i think you are making reference to is %W (your percetange of winners based on the number of trades taken)
> ...




Nah I know what your getting at but it isnt it. I'll do some digging and post it here.


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## tech/a (9 April 2009)

Trembling Hand said:


> Don't worry about return on margin. Worry about learning how to trade. you will exceed all benchmarks you have ever dreamed of,




So you started the day with $22533
and ended the day with $22536.11

Quiet day.


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## Cartman (9 April 2009)

tech/a said:


> So you started the day with $22533
> and ended the day with $22536.11
> 
> Quiet day.




??  

decimals Tech ??  (stirrer) 

ps my sympathies with the shingles --- have an older mate who suffered with them pretty badly for a while --- hes right now though, so just a matter of hanging in there !!

i'm most concerned about TH putting these bucket shops out of business (and im not joking) --- some of us poorer b@stards rely on them to make a few bucks !!   ----- inspirational stuff though ----  (practice... review ..etc etc ... lol )


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## Sicilian Trader (9 April 2009)

whats a bucket shop?


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## tech/a (9 April 2009)

Sicilian Trader said:


> whats a bucket shop?




Bunnings


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## Naked shorts (9 April 2009)

tech/a said:


> Bunnings


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## Sicilian Trader (9 April 2009)

ha, 

tech, i dont care what they say about you on these forums. You're alright kid  ...you're alright.


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## beamstas (9 April 2009)

Naked shorts said:


> Isnt that 1.7% just alpha? (risk adjusted return)
> 
> Im looking for something that looks like "52%", where anything above 50% is a positive expectancy.




Yeah

Its pretty simple maths

((Avg Win*Win%)/(Avg loss*Loss%))/2

That will show 0-50% = Negative Expectancy
50%-100% = Positive Expectancy

Not sure if thats the exact one your after -- i just made it up then (but it works)

Brad


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## Naked shorts (9 April 2009)

Sicilian Trader said:


> whats a bucket shop?




From Wiki


> _bucket shop_ came to apply to low-class pseudo stock brokerages that did not execute trades.




http://en.wikipedia.org/wiki/Bucket_shop_(stock_market)

Its basically a bad broker. Examples are CMC markets, IG Markets etc


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## beamstas (9 April 2009)

Sicilian Trader said:


> $17 = expectancy expressed as dollar
> 1.7% = expectancy, same figure expressed as a percentage
> 
> what i think you are making reference to is %W (your percetange of winners based on the number of trades taken)
> ...




Thats just the same old formula
Expectancy = (Agv win * Win%)-(Avg Loss * Loss%)

brad


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## Naked shorts (9 April 2009)

beamstas said:


> Yeah
> 
> Its pretty simple maths
> 
> ...



Hey yeah, that looks like what i'm after


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## beamstas (9 April 2009)

Naked shorts said:


> Hey yeah, that looks like what i'm after




Disregard my post
If you put in obscenely high amounts of avg win compared toa  small avg loss it will screw up 

Don't give up on me shorts. i'll keep tinkering

Brad


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## beamstas (9 April 2009)

I am so stupid 
(bad time to ask me maths q's thursday night when friday is a day off  )

Here you go mate-- tried and true (just made it up 5mins ago)

% = (AvgWin * Win%) / ((AvgWin * Win%)+(AvgLoss * loss%))

Basically you are dividing the avg win expectancy into the total expectancy
So if your win expectancy is $100 and your expectancy is $100  your total  is expectancy (win+loss) is $200, it will return 100/200 = 0.5 (break even)

If your win expectancy is $200 and your loss expectancy is $50 your total will be $250. so 200/250 = 80% (positive expectancy as is > 50%)

there you go

Brad


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## Sicilian Trader (9 April 2009)

beamstas said:


> I am so stupid
> (bad time to ask me maths q's thursday night when friday is a day off  )
> 
> Here you go mate-- tried and true (just made it up 5mins ago)
> ...




you're a smart cookie beamstas, i didnt know that one

out of interest NS, is there a reason you were after that one? Does this serve a different purpose to the profit factor, $ or % expectancy?

im still learning about this stuff so im still a little green


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## beamstas (9 April 2009)

Sicilian Trader said:


> you're a smart cookie beamstas, i didnt know that one
> 
> out of interest NS, is there a reason you were after that one? Does this serve a different purpose to the profit factor, $ or % expectancy?
> 
> im still learning about this stuff so im still a little green




I didn't know it either 

Brad


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## Naked shorts (9 April 2009)

Sicilian Trader said:


> you're a smart cookie beamstas, i didnt know that one
> 
> out of interest NS, is there a reason you were after that one? Does this serve a different purpose to the profit factor, $ or % expectancy?




I have seen it used before, so I wanted to work out my % expectancy so I could compare it to the people I have seen use it. Serves no real purpose otherwise (I'm still trolling around trying to find where i've seen it)

Oh and that equation you used before that I called alpha, isnt acutally alpha because it doesn't factor in a benchmark performance index.
http://www.investopedia.com/terms/a/alpha.asp

I've had better days


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## Trembling Hand (10 April 2009)

tech/a said:


> So you started the day with $22533
> and ended the day with $22536.11
> 
> Quiet day.






LOL Tech no wonder you little retail traders always stay retail. You cannot add. $2323 (capital) + $20210 (profit) = $22533 :


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## tech/a (10 April 2009)

Educate me.

Start of day
End of day
$3 difference.
Slow day.

I can smell another $500 coming on.

Is this Realtime or a SIM
Is this a one off or a daily event?
Sim or otherwise.


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## pilbara (10 April 2009)

tech/a said:


> Educate me.
> 
> Start of day
> End of day



B/FWD = balance from the previous period, brought forward to start the current period.
C/FWD = balance from the current period, to be carried forward to start the next.


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## Cartman (10 April 2009)

tech/a said:


> Educate me.
> 
> Start of day
> End of day
> ...




arh --- now i see what u mean Tech ----- TH has accidentally put a line from the "start of day" to the end of day profit

CMC accounts  --- B/forward is the daily start ---- (2 odd grand)

*Mark to market* is the daily profit/loss --- (20 odd grand)  *thats the one that matters* in this exercise

beat me to it by *"that much"*  Pil --- lol ---


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## tech/a (10 April 2009)

Thanks Cartman Now I see it.

That profit could have accumulated over a day/week/month.


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## Naked shorts (10 April 2009)

tech/a said:


> Thanks Cartman Now I see it.
> 
> That profit could have accumulated over a day/week/month.




That b/fwd is what he started the *day *with. So that profit was accumulated over the *day*, not over weeks or months.


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## tech/a (10 April 2009)

Naked shorts said:


> That b/fwd is what he started the *day *with. So that profit was accumulated over the *day*, not over weeks or months.




I dont know in this case.
But with IB your accumulated profit appears on a daily basis and can start as $20 and finish at $20K over X period before liquidating the position/s.

So it could appear exactly as this but only on the DAY I close out.
Hence the comment.


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