Return calculation
Return is the profit or loss gained on a trading account over a specific period, expressed as a percentage. The return shows the change in account equity regardless of deposited and withdrawn funds. A positive return indicates a profit, while a negative return indicates a loss.
Formulas
Returns are calculated for periods between balance operations, such as deposits, withdrawals, or internal transfers, as follows:
Return = Equity_end / Equity_start
where:
- Equity_start is the account equity at the beginning of a period, that is, just after a balance operation.
- Equity_end is the account equity at the end of a period, that is, before a balance operation.
The return for several periods is calculated by multiplying the returns for those periods:
Return = Return P1 * Return P2 * Return P3 * … * Return Pn
To express the obtained return ratio as a percentage, the following formula is used:
Return (%) = (Return - 1) * 100
Example
Suppose that a trader creates a master account and deposits $500 to the account.
During the period before the next balance operation, the account equity has increased from $500 to $1,800.
The Period 1 return is calculated as follows:
Equity_start = $500
Equity_end = $1,800
Return P1 = 1,800/500 = 3.6000
Return P1 (%) = (3.6000 - 1) * 100 = 260.00%
The trader makes another deposit of $400. Suppose that during the period before the next balance operation, the account equity has increased by $800.
The Period 2 return is calculated as follows:
Equity_start = $1,800 + $400 = $2,200
Equity_end = $2,200 + $800 = $3,000
Return P2 = 3,000/2,200 = 1.3636
Return P2 (%) = (1.3636 - 1) * 100 = 36.36%
Next, the trader withdraws $500. Suppose that during the period before the next balance operation, the account equity hasn’t changed.
The Period 3 return is calculated as follows:
Equity_start = $3,000 - $500 = $2,500
Equity_end = $2,500
Return P3 = 2,500/2,500 = 1
Return P3 (%) = (1 - 1) * 100 = 0%
The return for three periods is calculated as follows: