Time-weighted ROI #
According to the Global Investment Performance Standards (GIPS), Bluedot Copy applies the time-weighted ROI calculation method (TWR).
The TWR method supposes that cash inflows, cash outflows, and amounts invested over different periods have no impact on the resulted value.
The history of the account is divided into sub-periods, so each time a new deposit or withdrawal occurs, a new sub-period is formed. The ending of the day also forms a new sub-period. ROI of each sub-period is calculated by the formula:
Rn = (Equity at the end of the sub-period – Equity at the beginning of the sub-period – Deposits + Withdrawals) / Equity at the beginning of the sub-period
To apply the TWR method, combine the ROI for sub-periods, by compounding them together, resulting in the overall period ROI.
TWR (%) = ((1+R1)*(1+ R2)*…*(1+ Rn) – 1)*100% where R1 , R2 ,… Rn is ROI for sub-period.
You had $1000 in your equity at the beginning of the period.
You open a position and your equity at the end of the day is increased to $1100.
ROI (sub-period) = (1100 – 1000) / 1000 = 0.1 TWR (%) = (1 + 0.1 – 1) = 0.1 * 100% = 10%
You then deposit additional $900 so that your resulting equity is increased to $2000.
ROI (sub-period) = (2000 – 1100 – 900) / 1100 = 0. TWR (%) = (1 + 0.1 ) * (1 + 0) – 1 = 0.1 * 100% = 10%
The last sub-period that was formed is due to deposit amount not affecting the resulting TWR (%).
At the end of the next day, your equity rises to $2100 through trading:
ROI (sub-period) = (2100 – 2000) / 2000 = 0.05 or 5%
We can see that $100 was earned on this step which gives you a change in ROI on less percentage amount than $100 that was earned on step 1 (5% vs. 10%).
The reason is ROI depends on the starting amount that is used for trading. In these two cases, different starting amount was used to make a profit.
The resulting TWR (%) will be calculated as:
TWR (%) = (1 + 0.1 ) * (1 + 0) * (1 + 0.05) – 1 = 0.155 * 100% = 15.5%
ROI Update Frequency #
The ROI is updated:
- Every 15 minutes for Strategy Provider accounts;
- Daily for Copy Trading Accounts and the accounts that do not provide Strategies.