ROI Calculations

[kngavl]

Now I know how to calculate ROI, that's not the problem. All those calculations seem to only calculate ROI for the initial capital and the amount that's grown by, but how about if 2 months in you add more capital. For instance say I trade with 300 From January to March and increase it too 350. So my ROI is 16% yeah. So in April I increase my size to 10000 and then turn it into 11000 for a ROI of 10%, then in May I trade 50000 and increase it to 60000 my ROI is 20% for those couple months.

My question is, if someone asked you what your ROI to date was would you tell them it was 15.33% (average of 3 ROI's) or is there a weighted calculation where the 300-350 trade is given less leverage in the calculation due to the smaller amount you traded with compared to the 50000-60000 trade?

 

[Rhody Trader]

When I'm dealing with a situation where I'm adding and/or subtracting funds from an account I actually set up the accounting like a mutual fund. By that I mean I keep a running tally of "shares" whereby each deposit increases the share balance and each withdrawl reduces it. Those transactions are done at a share price that comes from the NAV.

For example, I have a $10,000 starting account. I might say that's 10,000 shares at $1 in NAV. If I make a 10% gain (account up to $11,000) the shares are worth $1.10. If I then add another $5000 to the account, that would be about 4545 shares (5000/1.10). If I make another 10% from there the account is now worth $17,600 and the shares are worth $1.21.

 

[kngavl]

Alright thank you for your response. Is this the only method of doing so?

 

[Vaco]

When I'm dealing with a situation where I'm adding and/or subtracting funds from an account I actually set up the accounting like a mutual fund. By that I mean I keep a running tally of "shares" whereby each deposit increases the share balance and each withdrawl reduces it. Those transactions are done at a share price that comes from the NAV.

For example, I have a $10,000 starting account. I might say that's 10,000 shares at $1 in NAV. If I make a 10% gain (account up to $11,000) the shares are worth $1.10. If I then add another $5000 to the account, that would be about 4545 shares (5000/1.10). If I make another 10% from there the account is now worth $17,600 and the shares are worth $1.21.

In this example I would say the roi is 17.34%

use this calculator and work back wards Compound Interest Calculator

 

[No one Knows]

Now I know how to calculate ROI, that's not the problem. All those calculations seem to only calculate ROI for the initial capital and the amount that's grown by, but how about if 2 months in you add more capital. For instance say I trade with 300 From January to March and increase it too 350. So my ROI is 16% yeah. So in April I increase my size to 10000 and then turn it into 11000 for a ROI of 10%, then in May I trade 50000 and increase it to 60000 my ROI is 20% for those couple months.

My question is, if someone asked you what your ROI to date was would you tell them it was 15.33% (average of 3 ROI's) or is there a weighted calculation where the 300-350 trade is given less leverage in the calculation due to the smaller amount you traded with compared to the 50000-60000 trade?

I think that if the time periods of these were all equal then you will have calculated the average ROI per/timeperiod so if you work out your percentage returns per month for example, then average them this will be your average ROI/month.

regards

mark

 

[Rhody Trader]

In this example I would say the roi is 17.34%

You're getting that figure by $2600/$15,000. I can see the argument for going that route if you're just adding to your account, especially in smallish increments as it's a conservative approach (if inaccurately representing your true performance). But what if we'd taken $5000 out rather than adding it and had the same 10% then 10% gains? That would be $1000 in the initial $10k, and then $600 on the $6k left in the account after the withdrawl for a total of $1600. Running your math that would mean a 32% rate of return, which is wildly over-inflated.