How to Measure Your Futures Trading ROI (return on investment)

How to Measure Your Futures Trading ROI (return on investment)


The following article on Futures Trading ROI (return on investment) is the opinion of Optimus Futures.

futures trading roi

There is a plethora of metrics you can use to measure almost every aspect of your futures trading. Too many, perhaps. You can measure volatility in a given market. You can even apply similar metrics to your trading performance and equity returns. You can measure risk-to-reward, profit factor, and even mathematical expectancy. You can use the sharpe ratio, sortino ratio, sterling ratio, and MAR ratio and more if you so choose. You can even find some way to assess your trading psychology for whatever that’s worth. Does any of it make a difference? Sometimes yes, sometimes no.

At the end of the day, however, all that matters is how much more or less sits in your trading account.

Remember that trading is about making money, plain and simple. Let’s extend that definition a bit: trading is about consistently making money. If you’re making money on a consistent basis in your futures trading, you’re winning. Anything short of that is a losing scenario.

When it comes to all of the fancy ratios and sophisticated trading methodologies, how much you know often doesn’t matter. Countless traders know a lot (perhaps too much) and are still broke. Most so called “trading gurus” will argue that this statement is false. But remember: many trading gurus are inept at trading the markets but highly adept at marketing their trades.

It practically doesn’t matter what metrics you use if it has no positive effect on your trading. What matters is that you know just enough to make futures trading work for you. And the only criteria that matters is revealed to you by your daily statements.

However, it might help to know just how efficient your trading is. In other words, how much are you actually taking home in relation to how much you are spending? The answer to this question is what the Return On Investment, or ROI metric is designed to measure.

What Is Your Futures Trading ROI?

As we just mentioned, ROI aims to measure the efficiency of your investment (or in our case, trading results). To find your ROI, you need to determine two things: Net Profit, Net Cost and the amount you use for your basis.

There are only three basis you can measure your initial investment against:

  • Your Initial Margin
  • The Notional Value or
  • Your Initial Investment.
We will call any of these categories your Investment basis.

What can make this tricky in terms of measuring your futures trading ROI is the margin. Your margin money is set aside, technically speaking, when you place a trade, and also given back to you when you exit the trade. Therefore, we will not use Margin as a Cost Factor to calculate your ROI, but rather as an Investment basis. We will use the formula below to illustrate our examples.

ROI = Net Profit (Revenue-Cost)/Investment Basis

Let’s start with net cost. Suppose you trade the E-mini Dow Jones futures (YM). The value for each YM contract is $5 x the YM price.

So if the YM is trading at 26,800, then the total value is $134,000 (or 26,800 x 5).

Since you are buying a contract on day trading margin, let’s assume $500 per contract, then you are “paying” $500 while the broker “loans” you $133,500.

Let’s suppose you are also paying $5.50 in commission + fees on a round turn basis.

Now let’s determine your net profit.

  • You bought a YM contract at 26,800 and it went up to 26,810 after which you sold it.
  • The total contract value of $134,000 increased to $134,050.
  • $134,050 (your selling price) minus $134,000 (your buying price) = $50 profit.
  • Your net profit is $44.5 ($50 -$5.5).
  • Now let’s divide your net profit by your net cost: $44.5/$500=.089

Your ROI on the trade is 8.9%

You need to remember that day trading margins are determined by your futures broker, and so your ROI metrics need to be adjusted according to their criteria.

Calculating ROI with Subscription Fees

Let’s suppose you are subscribing to an automated system. Not only are your commissions higher (since the trades are being externally executed by a broker), but you may also be paying a bundle of subscription fees and technology-related fees.

Here’s your total hypothetical costs, and let’s suppose the system trades the YM:

  • Subscription Fee: $100 per month
  • Commissions and Fees: $15 RT per trade (per contract)
  • Margin: $500 per trade (per contract)
Supposing the system generated a profit of $215

Your net profit is $100: Profit of $215 (-) Net cost of $115 (subscription fee + commissions and fees)

If this were the only trade for the month, then your total ROI is 20% (100/500 = 0.2).

As you can see, calculating your ROI can be rather simple as long as you are able to plug in all of your costs.

Now that we have the basics calculation of net costs of a Futures trading transaction contract, we can apply the returns to other investment basis.

Let’s assume that you have a net return of $500.

If your initial investment was $10,000 your return was 5% ($500/$10,000)   

If the margin on the exchange was $8,000 then your return was 6.25% ($500/8000)

As you see, futures traders judge their returns in a different manner. There is no right or wrong way of calculating it. In our opinion, the most important thing is to stay consistent with your calculations.

Can You Establish Trading Performance Metrics Centered Around ROI?

Assessing your total performance using ROI is fairly simple as long as you’re willing to do your calculations.

Let’s assume four scenarios–each one making an annual net profit of $5,000. The only cost in each scenario will be commissions and fees and margins (which will vary per trader/scenario).

You trade only one contract at a time and we will base our calculation with $100,000 as the investment basis.

Scenario 1 – Day Trader

You are a day trader who placed exactly 500 trades on the ES in one calendar year. You also pay a commission of $5.75 round turn and day trading margins of $500 per contract.

Initial Investment: $100,000

Profit: $50,000

Net Cost: $2,875(5.75 * 500)

Net Profit: 50,000-2,875 = $47,125

ROI: $47,125/$100,000 = 47.125%

Scenario 2 – Day Trader

The same scenario as above but you pay a lower commission and fee base of $4.75 round turn. Your day trading margins remain at $500 per contract.

Initial Investment: $100,000

Profit: $50,000

Net Cost: $2,375(4.75 * 500)

Net Profit: 50,000-2,375 = $47,625

ROI: $47,625/$100,000 = 47.625%

ROI: Note that lower commissions hardly impacted your return on investment in this case.

Scenario 3 – Swing Trader

In this scenario, you are a swing trader who holds positions beyond the market close. Because you traded less frequently than a day trader–let’s suppose you place one trade per week–you placed exactly 52 trades on the ES in one calendar year. Your commissions plus fees are set to $5.75 round turn and your day trading margins are higher (since you’re holding your contract “overnight”) at $6,930 per contract.

Initial Investment: $100,000

Profit: $50,000

Net Cost: $299(5.75 * 52)

Net Profit: 50,000-$299 = $49,701

ROI: $49,701/$100,000 = 49.701%

ROI: Note that lower commissions hardly impacted return when we switched day trading to swing trading.

When you swing trade, your ROI will  be tied up to your account size, Swing trading requires that you keep positions overnight, and the number of contracts you trade will be affected as a result. Also, the fluctuations in the account could be sustained potentially under larger accounts.

Scenario 4 – Position Trader

In this scenario, you are a position trader, similar to a buy and hold (or sell and hold) “investor.” Let’s suppose you made only five trades for the entire year. Your commissions plus fees are set to $20 round turn and your day trading margins are higher (since you’re holding your contract “overnight”) at $6,930 (ES Contract) per contract.

Initial Investment: $100,000

Profit: $50,000

Net Cost: $100(20 * 5)

Net Profit: $50,000-$100 = $49,900

ROI: $49,900/$100,000 = 49.90%

ROI: ROI increased slightly as compared with the other three scenarios above despite higher commissions.

Note: The frequency, commissions and other factor such as platform cost can have a material impact on your transactions. Please look at our commissions schedule to see how we help traders. 

So does this mean that position trading is the way to go? No it doesn’t, as each scenario presents hidden risks that ROI can’t measure. Remember, ROI is about efficiency, and hardly anything else. And the implications of this efficiency will vary from one trader to the next.

  • The Day Trader: the chances of competing in a high-frequency trading environment is very tough, so the risks you face have everything to do with the market’s noise level, your trading platform speed, and potential errors in decision and/or execution errors. These are things that ROI cannot reflect.
  • The Swing Trader: this style of trading straddles the goals pursued by day traders and position traders. Though not as exposed to the market noise of intraday sessions, swing traders rely less on the long-term fundamentals that are the territory of the position trader. Plus, swing traders are not exposed to the kind of uneven profit/loss distributions that can prove discouraging for position traders (especially trend followers) who are subject to long drawdown periods. Between the three styles of trading, swing trading may be the most efficient way to trade while mitigating risk. The biggest risk, of course, is that of missing out on longer-term trends–opportunity cost–something that position traders can capture. But it also requires having lots of capital to put up margin money that can withstand drawdowns.
  • The Position Trader: the biggest risk that a position trader faces is that of sustaining a losing trade after a long holding period. However, if position traders have enough capital to keep their losses at a small amount–for example, a $20,000 loss is only 2% of a $1 million account–then such losses may be manageable. Plus, they may be positioned to generate the strongest ROI among the three.

The Bottom Line

ROI may be an effective metric for trading efficiency, but it may not be the best way to evaluate trading performance. If you want to learn more about trading performance metrics, check out our discussion forum. In the end, what matters is how much you can take home versus how much you lose. That may be the most important metric of them all.

Please be advised that trading futures and options involves substantial risk of loss and is not suitable for all investors.  Past performance is not necessarily indicative of future results.  This matter is intended as a solicitation to trade.

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