Performance

What is performance?

Performance is the increase or decrease in value of an investment or a portfolio, or the price development of a share or a fund, over a given period. It is usually expressed as a percentage and reflects, for example, the investment success of a fund's management.

How performance is measured

In its simplest form, performance is the change in value relative to the starting value:

Performance (%) = (end value − start value) ÷ start value × 100

Example: a trading account grows from $10,000 to $11,500 over one year, without any deposits or withdrawals. The profit of $1,500 relative to the starting value of $10,000 gives a performance of 15%. Deposits and withdrawals have to be excluded, otherwise they distort the result; for funds and shares, distributions such as dividends are also taken into account.

Measuring trading performance

Traders can record their performance in a trading journal. It is typically shown in two ways: as an equity curve, which plots the account balance over time, and as the win rate, i.e. the proportion of winning trades among all trades. The win rate alone says little, however: a system with only 40% winning trades can be profitable if the average win is clearly larger than the average loss (see risk-reward ratio). The largest interim decline in the account, the drawdown, shows how much risk was taken to achieve the result. Reviewing performance regularly shows whether a trading system works and where it needs to be improved.