I am not saying that one or the other is right on their numbers, just thought I would throw these equations into the mix. ROI = Rate of Investment, and ROR = Rate of Return
Was not trying to say you were right, or that Starsailor was right, or that one or the other was wrong.
But, using your last post of
Today’s update : Account equity moved up to $2744.74
Profit over 7 month term is now $2744.74 - 300.00 = $2344.74
This makes it $334.96 per month (note: 2744.74 - 2344.74 = 400, not 300)
This is 111.65% a month for 7 months.
for numbers and
return on investment = Net profit / Investment
where:
Net profit = gross profit − expenses.
investment = stock + market outstanding + claims.
or
return on investment = (gain from investment – cost of investment) / cost of investment
gross profit = 2744.74
expenses = 300
means net profit is difference between 2744.74 - 300 = 2444.74
So net profit divided by investment means 2444.74 divided by 300 which gives you 8.14913333…
In simplest terms, unless you have the money in hand, (as in not tied up in a trade), then you can accurately calculate your return.
return on investment = (gain from investment – cost of investment) / cost of investment
ROI = (Gain(2744.74) - Cost (300 plus fees)) / Cost (300 plus fees)
Since we don’t have the fees listed specifically for this example,
ROI = (2744.74-300)/300
ROI = 8.14913333…
Which if my math percentage adjustment figuring is correct is you earned 814.91333% on your 300 investment, divided by 7 months, works out to an average of 1.164161904761905 or 116.4161904761905% return per month.
I got brain fried doing this, and I am NOT going to calc RoR on here. If you are that brave, please feel free to follow the link in my post above and throw the numbers around yourself.
And yet I get more interest from them than you do.
Enlighten me, oh wise one[/QUOTE]
loop, as much as I would like to say you are 100% correct, (other than leaving $100 on the table so to speak (2344.74 - 2444.74) you are right but you are also wrong. ROI is only calculating the money you got back in relation to your initial investment.
Edit: One thing I forgot to mention, ROI can stand for 2 different things. Rate of Interest, and Return on Investment. The way loop has been using it is as Return on Investment, not Rate of Interest. There is a HUGE difference between the 2, even though they use the same initials.
If I were using a bank that after 3 years that had done something like that, then I would not want to do business with them any longer. Once that interest is deposited, it then becomes a part of my account balance, and any future % calculations should be done on the entire account balance, not just the original deposit. Unless that is the agreement you signed up for, in which case, not sure about how you are following things.
I know these numbers aren’t matching yours, but this is to show proof of concept only. This is also ideal situation where months are always +, while it is possible to have a down month in real trading.
Initial deposit = 300
1st month = +345 (happens to be 115% of original deposit and the account balance)
new balance = 645 (which is where you calculate from)
2nd month = +45 (works out to just under 7% of 645 balance, which is how it should be calculated, not the 15% of 300 it is)
new balance = 690
3rd month = +450 (65.23719 (and more decimals)% return on the 690 balance, not the 150% of the original balance only)
new balance = 1140
If you figure this based on your original deposit only, it would be ROI = (1140-300)/300 = 280%, divide by three months ~= 93.3333…%, but each individual month’s %, calculated on account balance, as it needs to be, on your trades added together is is only about 187%, by three months ~= 62.333…%. As you can see, even in that short a time period, the %s are different by a significant amount. If you only calculate the original deposit in the calculations, but not the total amount received, and then take the deposit and any drawdowns and fees, you will also get a much more accurate representation, over just using best case numbers of net profit and deposit.
You should read the page at Explaining Simple Interest, Compound Interest, APR, and APY, because there are differences in how interest (in the case being discussed, ROI and ROR) is calculated. By simple interest calculations, the ROI is correct, but that is not necessarily the case. Since many brokers do not work like banks, and are not likely to deposit any “interest” on a trader’s account, the “interest” is from trades made for the trader by the broker, and you could consider trading losses to be the fees that the bank might charge to the account.
As pablo and Star said before, if this deposit is money contributed from a pool of people, then each $ made gets split among the contributors, and their % of the original $300 would be used to calculate the % of the profit $ they would get back. Being that those combined %s should add up to 100%, then the equivalent return on the individual deposits should equal approximately the 116% (or so) ROI. But that still doesn’t change the other calculations that need to be done.
It is not twisting and turning anything, trying to be accurate, and definitely in this case, context is everything. I am not debating the $ value of your returns loop, (well, actually, at one point I was ) just clarifying some of the terms.
Actually, loop, your 5% example was off as well, as the bank should be using compound interest, not flat rate, especially over the course of 3 years. Most banks compound monthly, based on the balance at the time they figure it. Each deposit of interest increases the balance the next interest rate calculation is done on.
Your ROI when meaning Return on Investment is accurate. However, the other calculation star was showing, more commonly called Interest Rate, is not calculated the same as you would the return. I think that you and star are saying different things, thinking they are the same, when in fact they are not. And in that respect, you are both right for what it is you are trying to say. loop is posting the return on initial investment, not interest rate, and star is stressing interest rate, not return on initial investment.
That is why being perfectly clear and accurate to what you mean is very important.
Your % example is the total of the return based on the original deposit, or what is called simple interest, not the compounded interest. And even that is not really accurate, because they would usually calculate that once a year. But as far as them losing money, they don’t do that at all.
You are right, you COULD tell me that, but you would be wrong. Believe me, banks make money off of your deposit, even by giving their savings account customers compounded interest. At least that is how it works in the United States. Pretty sure it works this way in most banks throughout the world.
They do this by, among other things, charging a higher % to people they loan money to than they pay you on your savings account.
Banks normally compound your interest earned on your savings account. The bank that doesn’t is the exception, not the rule. Most of the time it doesn’t seem like it because the interest rates they do pay are so low. Try reading the following links, contact your bank’s customer service, and just ask them how they calculate the interest you earn on your savings account with them.
I do not know a thing about deposit accounts. So if they are different, I do not know how they calculate the interest on those. Will go do further research.
Edit: I have done some looking, and the only thing I have found about deposit accounts is that they consider savings accounts lumped in with them, because you can deposit money to them. I guess I am not seeing the account type you are talking about loop. I am interested in finding out who has them, how they work, and so on. Not for use necessarily, unless their return is more than you might get on a regular savings account.
Also, despite how any one bank calculates interest or not is an aside to this thread. I do hope your trades continue to make you money either way.
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