Types of Return

GrantH · #1 (**permalink**) 09-02-2010, 11:56 AM

Hello,

I've searched the internet for an answer to this seemingly simple question but haven't had any luck.

Let's say I have $10k in my trading account and I make 5 trades during the day using all $10k on each trade. At the end of the day I have a profit of $500.

If I calculate my percentage return for the day as 500/(5*10000), what would that be called?

If I calculate my percentage return for the day as 500/10000, what would THAT be called?

Finally, any thoughts on which of the above is a more valid way of calculating one's return for the day? Or are they both equally valid and just a matter of preference?

Thanks in advance for any help you can give me on this.

Grant

DavidBibby · #2 (**permalink**) 09-02-2010, 04:43 PM

GrantH,

It seems that this is an enigma. As I couldn't find the answer either doing an online search.

The closest thing that I found was:

Realized Profit - The amount of profit you gained by a trade you exited.

So in your example.. you have a Realized Profit of $500. Unfortunately the percentages on a single day's trading didn't seem to be the focus on any of these sites.

Maybe Turftoe (one of our users) might be able to shed some light, and he appears to be an insider to the trading world.

Good luck.

rice8702 · #3 (**permalink**) 09-02-2010, 05:41 PM

This is a good question and I would like to know the answer as well. I am going to subscribe to this thread so that i will be sure to get the answer.

GrantH · #4 (**permalink**) 09-02-2010, 08:20 PM

Thanks for the replies, gentlemen. Realized profit is not what I am looking for, but I do appreciate you looking, David.

In researching this on the 'net, there appear to be about 83 different types of "return" (okay, I'm exaggerating a bit) and a couple of them "sound" like they could apply to #1 or #2...but appear to be in specific reference to the fundamental analysis of companies rather than simple measures of return. E.g., return on invested capital, etc. I happen to be an "insider to the trading world" myself, but I think this may be more a question for a finance wizard than a trader.

The reason this came up is because I'm working on creating an "enhanced day trader's log" for Excel and one of the columns displays the day's return. I began writing the formula like in my first example--500/(5*10000)--before it hit me that I may want to do it the other way instead. Then I wondered about definitions, which method was more appropriate (if either), etc. And here I am.

qanswer · #5 (**permalink**) 09-05-2010, 01:18 AM

What the return is called would depend on the investment class itself.

For instance, if you invested in stocks, then it would be called Holding Period Return.

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