Good (Monday) morning everyone!!!
Thank you all for your posts and ideas. Your concern and input is appreciated.
Now that there are some ideas ‘on the table’ let me show you what I found last year on Deltastock’s website (the formula that I was so ‘sure’ was correct but now question) and give you a ‘real world example’ of my problem. See what you come up with after this.
This (I ‘think’) is the formula that I got from Deltastock’s website last year (the reason I say I ‘think’ is because if I work this formula assuming NO deposits and NO withdrawals during the month I do not get to the answer that I would expect so I’m not sure if THEY had made a mistake or if I made a ‘typo’ error when I originally posted it on the ‘Parabolic SAR - that’s all!!!’ thread. The formula is no longer on their website so I cannot check the original):
% Capital Gain For The Period:
( ( (ACB + WTP ) - AOB - DTM ) * 100 ) / ( ACB + DTM )
Where:
ACB = Account Closing Balance at the end of the period
WTP = Withdrawls during the period (money taken out)
AOB = Account Opening Balance at the beginning of the period
DTM = Deposits made during the period (account funded)
- = Multiplied by
/ = Divided by
Now if you work this formula out as I said with NO deposits and NO withdrawals during the month this is what you get:
Let’s assume that the month starting capital balance was $5 000 and the month ending capital balance was $10 000 with NO deposits and NO withdrawals during the month:
( ( ( 10 000 + 0 ) - 5 000 - 0 ) * 100 ) / ( 10 000 + 0 )
= 50%
Now I COULD be wrong but to me if you started the month with $5 000 and you ended the month with $10 000 then that is a 100% gain on capital NOT a 50% gain on capital or am I wrong???
OK now ASSUMING I’m correct in my statement above THEN I THINK the problem lies with the last part of the formula i.e. the divisor ( ACB + DTM ) i.e. I THINK that it SHOULD have been / be ( AOB + DTM ).
Making the above change the formula now would look like this:
( ( (ACB + WTP ) - AOB - DTM ) * 100 ) / ( AOB + DTM )
and using the same scenario as above the result would NOW be:
( ( ( 10 000 + 0 ) - 5 000 - 0 ) * 100 ) / ( 5 000 + 0 )
= 100%
Does THAT make sense??? (The idea here is to correct me if I’m wrong)!!!
Now let’s use the ‘corrected’ formula and assume a month starting balance of $5 000, a deposit during the month of $2 500, and a month ending balance of $10 000:
( ( ( 10 000 + 0 ) - 5 000 - 2 500 ) * 100 ) / ( 5 000 + 2 500 )
= 33.33%
PROBLEM!!!
Again (correct me if I’m wrong) but the month starting balance was $5 000, the month ending balance was $10 000, and there was a deposit of $2 500 during the month, then SURELY the PROFIT for the month is $10 000 (month ending balance) less $2 500 (deposit during the month) is equal to $2 500??? Not so??? In other words the profit figure I THINK should represent a 50% gain on capital for the month???
And if you go back to the ORIGINAL formula with the same figures then you get this:
( ( (10 000 + 0 ) - 5 000 - 2 500 ) * 100 ) / ( 10 000 + 2 500 )
= 20% !!!
SO: that is problem number one i.e. which ‘version’ (if ANY) of the above formula is correct???
NOW:
For the ‘real world example’:
(This is a live client account):
On 1 April 2008 the account balance on the account was $868 (and belonged to client ‘A’). At the close on Friday 25 April 2008 the account balance was $4 306 BUT during the month client ‘B’ deposited the amount of $1 874.
Now HERE are the problems:
FIRST:
To ME:
The % capital gain on this account is currently 180% arrived at by saying:
PROFIT = ACB - ( AOB + DTM )
= $4 306 - ( $868 + $1 874 )
= $1 564
AND
the profit of $1 564 expressed as a percentage of the account opening balance of $868 is 180%.
Anyone agree with me???
BUT of course the NEXT problem is THIS:
Let’s assume that the deposit made by client ‘B’ was halfway through this period (which it actually was).
WHICH client is entitled to WHAT PORTION of the profit made for the period???
Somewhere in the ‘maze’ above is an answer but tyring to FIND such answer is ‘messing up my ordinarily overtaxed brain’ as it is!!!
Edit:
BY THE WAY (I don’t know if this makes a difference):
Delta’s formula (the original anyway) was a formula that THEY used to calculated the % gain on capital for their monthly forex contest i.e. the client with the highest % gain based on THAT formula was deemed to be the winner. The reason I mention this is because MAYBE I’m not comparing ‘apples with apples’ here. The point is I don’t know hence this thread!!!
Second edit:
The only OTHER method I’ve come up with (and this MAY be what you’re saying John):
Let’s just say that the deposit by client ‘B’ was made on 15 April 2008.
SO:
Balance on 15 April 2008 (all positions were closed at this point by the way) was $868 and the balance immediately after the deposit of $1 874 was therefore $2 742. Now expressing each of the client balances at this point as a percentage of the total in the account before trading commenced again means that (in my mind anyway) client ‘A’ ‘owns’ 32% of the account balance and client ‘B’ owns 68% of the account balance. Correct?
Now if the profit at the end of the period is determined as the closing balance less the opening balance then the profit would be $1 564 and therefore client 'A’s portion of the profit at this point would be $500 (32% of $1 564) and client 'B’s portion of the profit at this point would be $1 064 (68% of $1 564).
How does THIS ‘look’???
And the percentage gain is therefore NOT taken from the beginning of the month BUT from the time that all positions were closed and the deposit made by client ‘B’ was done i.e. % gain on capital for the PERIOD is therefore 57%.
How about THAT scenario???
(OK all of the above is BEFORE commissions, exchange rate fluctuations, etc. etc. etc. ALL of which contribute to a more complex calculation but it’s the ‘basics’ that I’d like some consensus on if possible).
Hate getting rusty in math!