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

beamstas · 9 April 2009

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

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

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

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

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.

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,

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

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.

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 !! ---

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)

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?

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)

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

can someone correct me if i am wrong?

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.

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?

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)

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?

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

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.

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 )

Sicilian Trader · 9 April 2009

whats a bucket shop?

tech/a · 9 April 2009

Sicilian Trader said:
whats a bucket shop?

Bunnings

Naked shorts · 9 April 2009

tech/a said:
Bunnings

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.

How to calculate return

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