Profitability calculations#

In this chapter, we discuss differerent ways to calcualte profitability of the trading strategy and what are the trade offs.

Challenges come from the effects of deposits and redemptions: a live trading strategy does not have a fixed capital over its life time like a backtest.

For open strategies, there can deposits and redemptions any time. This will affect the equity, cash and thus performance per dollar. To make matters more complex, on vault based strategies the underlying positions can be reduced by a redemption event.

To understand if a strategy is performing well we can look

  • Profit of trades

  • Profit of trades, considering position sizing

  • Profit of assets under management

  • Profit per share

  • Profit for individual investors

Profitability as realised positions profit#

This is the default measurement for profitability.

For most of use cases, we want to measure the trading performance of the strategy, not the return on capital. The realised positions profit is simply % profitability of closed positions during the time period.

The realised position profit can be

  • Absolute performance % of the trades

  • Relative % to the size of the total portfolio equity, as position sizing is used as the risk control method.


Currently vault based strategies can do in-kind redemption which directly affects the underlying open trading positions. Currently this is not yet accounted on these positions.

Compounding realised positions profit#

All trading strategies assume that they are compounding: you will reinvest the profits to new trading positions. Over the time, profits will compound.

The compounding realised positions profit tells the trading strategy profitability assuming there are not depositons and redemptions during the trading period, and all strategy profits will be reinvested to trading.

This gives us a good metric to benchmark the performance of differents strategies independent of funding flow.

Trading Stratey calculates compounding realised profitability with position sizing considered. The formula for Trading Strategy default profitability calculation over time is:

strategy_profitability =
    (1 + position_1_realised_profit_percent * position_1_relative_size) *
    (1 + position_2_realised_profit_percent * position_2_relative_size) *
    (1 + position_3_realised_profit_percent * position_3_relative_size)
    - 1

Profit per share#

Vault based strategies have underlying share token. We can calculate profit per share that is comparable to a profit per share calculations in any corporation or a fund.


Some vault implementations do profit sharing in the form minting new shares to the asset manager and diluting the depositors. This will affect profit per share calculations and comparisons.

Total equity#

The equity curve shows the both trading profits and new deposits and redemptions. It cannot be used to determine the trading strategy profitability if deposits and redemptions can happen any time.

Funding flow#

Funding flow shows US dollar valued deposits and redemptions over time. It’s main use case is to calculate funding flow corrected returns.

Funding flow corrected returns#

The funding flow corrected returns is the daily/monthly returns minus any deposits and redemptions.

Any large funding flow event will skew this calculation. Although funding flow corrected returns may be used as a profitability metric, it is still subject to skew by funding events.

Profit for individual investors#

For any individual investors, we can calculate how much profit this investor has done for his/her position over time.


Currently this information is not available through the trade execution user interface.

Technical information#

See tradeexecutor.visual.equity_curve for different profit calculation and equity curve formulas and examples.