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Question:How to calculate "Profitability" on LiteForex's Social Trading platform.

Answer:

Profitability is computed using the following formula:

P=((E_end_1/E_begin_1)*(E_end_2/E_begin_2)*…*(E_end_N/E_begin_N)-1)*100%

where:

  • P means “profitability in %”
  • E_begin_X means “funds available at the beginning of the period X”.
  • E_end_X means “funds available at the end of the period X”.
  • N means “the latest settlement period”.

Rollover marks the end of a trading period and the beginning of another trading period.

The formula defines profitability in % from the the moment of registering an account.

A trader’s profitability depends only on the results of his/her trading operations.

Deposits and withdrawals have no influence on account profitability rates.

This has to be taken into consideration when an account balance changes due to balance operations.

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Example of Profitability calculation

Here’s an example.

Let’s assume a deposit of $500 is made into a trader’s account.

Some time later, the deposit becomes reduced to $100 following unsuccessful transactions, which is 80% less.

This is displayed in the ranking.

To return the profitability rate to a break-even level, the trader needs to increase the capital fivefold (from $100 to $500) by showing positive performance.

The trader decides to top up the account to exit the drawdown in a more comfortable way and pays $50.

The aggregate deposit becomes equal to $150.

However, the account profitability remains unchanged at -80%.

Let’s assume then that the account deposit becomes equal to the initial one, $500, as a result of profitable transactions carried out in the account.

Profitability = ((100/500*500/150)-1)*100 = 33.33%

Note that this fivefold deposit increase didn’t make the account exit the drawdown: since the trader has made the additional deposit of $50, the aggregate amount of $150 was to have been increased fivefold.

It means that in order to exit the drawdown, the trader needs to increase the account deposit to $750,

.e. a trading profit of $250 is still required for exiting the drawdown.

Profitability = ((100/500*750/150)-1)*100 = 0%

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