We have aligned with industry standard and are now showing time-weighted ROI (TWR). TWR measurement is required by the Global Investment Performance Standards published by the CFA Institute. The time-weighted method supposes that cash inflows, cash outflows and amounts invested over different time periods have no impact on the resulted value.
To apply the time-weighted return method, combine the return over sub-periods, by compounding them together, resulting in the overall period return.
TWR (%) = ((1+R1)*(1+ R2)*…*(1+ Rn) - 1)*100% where R1 , R 2 ,… Rn is ROI for sub-period.
The history of the account is divided into sub-periods, so each time a new deposit or withdrawal occurs, a new sub-period is formed. The ending of the day also forms a new sub-period. ROI of each sub-period is calculated by the formula:
Rn = (Equity at the end of the sub-period – Equity at the beginning of the sub-period – Deposits + Withdrawals) / Equity at the beginning of the sub-period
- You had $1000 in your equity at the beginning of the period.
You open a position and your equity at the end of the day is increased to $1100.
ROI (sub-period) = (1100 - 1000) / 1000 = 0.1
TWR (%) = (1 + 0.1 – 1) = 0.1 * 100% = 10%
You then make a deposit of an additional $900 so that your resulting equity is increased to $2000.
ROI (sub-period) = (2000 – 1100 - 900) / 1100 = 0.
TWR (%) = (1 + 0.1 ) * (1 + 0) – 1 = 0.1 * 100% = 10%
Note that the last sub-period that was formed is due to deposit amount not affecting the resulting TWR (%).
At the end of the next day, your equity rises to $2100 through trading:
ROI (sub-period) = (2100 - 2000) / 2000 = 0.05 or 5%
We can see that $100 was earned on this step which gives you a change in ROI on less percentage amount than $100 that was earned on step 2 (5% vs. 10%). The reason is ROI depends on the starting amount that is used for trading. In these two cases different starting amount was used to make a profit.
The resulting TWR (%) will be calculated as:
TWR (%) = (1 + 0.1 ) * (1 + 0) * (1 + 0.05) – 1 = 0.155 * 100% = 15.5%
ROI update frequency
Previously ROI was updated on each closing deal. In the new concept, ROI is updated:
- every 15 minutes for strategy provider accounts;
- daily - for own accounts (not providers).