What Is Cumulative profit?
In quantitative finance, cumulative profit tells the overall profit of trading strategy over a time.
Cumulative profit is the excess of net income and gains over net losses, determined on a cumulative basis from the inception of an investment fund through to its termination date. It includes realized trading P&L, positions open P&L, and other total profits or losses generated since the trading strategy’s inception.
As trading strategies reinvest earlier profits, the cumulative profit compounds.
Cumulative profit is expressed as % of yearly gains, as:
Compound Annual Growth Rate (CAGR) (volatile trading)
Annual Percentage Yield (APY) (loans, delta neutral strategies)
To calculate cumulative profit, one must add together all net profit numbers over a specific time frame.
If a trading strategy automatically reinvests its profits to itself, it is called auto-compounding.
See also