ROI Verses POT

stevem12

Active member
Hi all,

I have read several threads on this and other sites about the % profit people make, or expect to make. Theres even one on this sight where some chap go so angry his posts were heavily deleted due to personal threats!

I came into trading from a background of betting on horses, using several computer programs. In that arena people calculate profit as Profit On Turnover, using level stakes. So 10x£10 bets, net profit £20= 20% P.O.T.

On TMF ( don`t spit!) where most of them are long term investors, they seem to use how much their fund grows in % over a given period, which most of them call return on investment. R.O.I

To me P.O.T. seems the appropriate method for short term or day trades, be them shares, futures or spreads.
As you must turn your money over regularly to produce a profit.

I calculate my profit by dividing points profit by points margin that had to be risked. EG 30 points profit from 3 daily dow bets = 30/750 ( 3xdaily margin)= 4% profit. This shows the true MARGINAL profit that can be made out of the markets.

BUT over many trades gives a massive % increase in funds. So high in fact that many people refuse to believe it can be obtained. I feel this is where most of the arguments stem from.

the vies of others would be greatly appreciated.

Steve

PS Bookies ONLY make an average of 10% profit on turnover, but still manage to drive big cars and live a big houses!

Moderator
What software were you using ?

stevem12

Active member
A combination of 3, Racelect to select races, Then Compuntor & BetBetter to select the horses. I looked for Horses that the programmes rated @ better odds than the bookies.

Very good winning odds, but a strike rate of 34% regularly gives losing runs of 15-20. How many Traders would or could stay in the game after 20 losing trades?

Steve

mmillar

Guest
An interesting post Steve.

Personally when comparing systems the thing I look at most is the points made per month by trading with one contract. So an ES system that makes 30 points per month is generally better than one that make 20 points per month. (Of course you also take into account how often the system trades, %profitable trades, win/lose ratio and drawdown (which, on intra-day trading is usually small)).

Maybe a bit simplistic but when people say they make 15% that is meaningless to me.

Cheers

ChartMan

Legendary member
I agree, for a short term trader it's the margined profit that counts. However, I think you'll find that most will be counting points, and not prizes as they trade. The £££ look after themselves. As you up the stakes, you run the risk of being frightened by the size of the ££ at risk. Play for points all the way up.

Scripophilist

Active member
Way back in my dark days, my introduction to investment was through gambling as I was into statistics. I eventually matured and figure the best place for me was the stock market.

IMHO, I have version of ROI that I use. My definition of ROI/ROE is margin*turnover*leverage.

Using this equation you can reconcille all forms of trading or investment. For example a day trader uses large amounts of turnover on piddling margin usual with one aspect of leverage or another. Therefore on a capital invested basis his return is very small but the remaining parts of the equation increase his total return. A long term investor has margin and not much else so you can balance and adjust the return based upon the style used.

I also use a unit accounting basis, which I see next to no one else use. This adjusts my return for cash in or out flows. Thus negating any effect a change in captial base has on my return.

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