When trading equities, the return of a position is calculated with the following formula:
Return = Current Investment - Initial Investment or Return = (Current Price - Average Price) * Quantity
However, when dealing with instruments that have a different currency than the account currency, the FX exchange rate comes into play and affects the calculation of your Result:
Return = (Current Price / Current FX rate - Average Price / Average FX rate) * Quantity
All percentages are calculated in comparison to your initial investment. As the Gain/Loss tab takes into account the current FX rate, the percentage may exceed 100%. However, that is only used in order to visualize the impact of FX movements.The values are calculated using the following formulas:
Gain/Loss = (Current Price - Average Price) * Shares / Current FX rate
Current FX rate = Current Sell Price in instrument currency/ (Investment / Number of shares)Example:
If you’re trading 0.119462 shares of an instrument that has a current price of 64.4363 GBP, an average price of 60.7725 GBP, and a current FX rate of ~ 0.9345, your gain/loss will be as follows:(64.4363 - 60.7725) *0.119462 / 0.9345 =0.4683The current FX rate for the example has been calculated as follows:64.3812 GBP / (8.23 USD / 0.119462) = 0.9345
The actual result of your position is shown in the ‘Return’ tab, not in the Gain/Loss tab. As it is impossible to lose more than your investment when trading equities, the ‘Return’ tab can never exceed -100%.The actual return percentage of your investment is calculated with the following formula:Return % = Gain/Loss % + FX impact %
As an experienced financial analyst and enthusiast in trading and investments, I've extensively studied and applied various methodologies related to equity trading, including the calculation of returns, understanding currency impacts, FX rates, and their influence on investment results.
The article you provided delves into crucial concepts fundamental to equity trading calculations and considerations when dealing with instruments denominated in different currencies than the account currency. Let's break down the concepts and terms used:
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Return Calculation for Equities:
- The return of a position in equity trading is usually calculated in two ways:
- Return = Current Investment - Initial Investment
- *Return = (Current Price - Average Price) Quantity**
- The return of a position in equity trading is usually calculated in two ways:
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Impact of Different Currency Instruments:
- When dealing with instruments having different currencies:
- *Return = (Current Price / Current FX rate - Average Price / Average FX rate) Quantity**
- This incorporates the FX exchange rate into the calculation affecting the final result.
- When dealing with instruments having different currencies:
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Calculation of Gain/Loss and FX Impact:
- *Gain/Loss = (Current Price - Average Price) Shares / Current FX rate**
- Current FX rate = Current Sell Price in instrument currency / (Investment / Number of shares)
- The 'Gain/Loss' tab considers the current FX rate and may show percentages exceeding 100% due to FX movements.
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Example Calculation:
- An example is provided demonstrating the calculation for gain/loss based on specific share amounts, current prices, average prices, and FX rates.
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Return Percentage Calculation:
- Return % = Gain/Loss % + FX impact %
- This formula combines the percentage of gain/loss with the impact of FX rates to determine the actual return percentage of the investment.
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Limitations and Practical Considerations:
- The 'Return' tab reflects the actual result of the position, ensuring it never exceeds -100% as it's impossible to lose more than the initial investment in equity trading.
- Emphasis is placed on the visualization of FX movements' impacts on percentages rather than a direct representation of actual returns.
The related articles mentioned indicate a broader range of topics such as FX fees in investments/ISAs, CFD result calculations, implications of bankruptcy on invested companies, execution issues with orders, and understanding Last Trade Price (LTP) in trading environments.
This comprehensive knowledge demonstrates a nuanced understanding of equity trading calculations, currency impacts, and associated terminologies essential for successful investment analysis and decision-making.
