Return

Defining the term Return within the sphere of trading could seem complex, but it's quite straightforward when broken down. A return, in the world of trading, is the gain or loss made on an investment. This could be through revenue from dividends or the sale of the investment at a higher price than the purchase price.

How to Calculate Return

To calculate a return, one subtracts the initial value of the investment from the final value, and the difference is divided by the initial value. This amount is then multiplied by 100 to give a percentage. This formula is essential in measuring the performance of various investments.

The Importance of Return in Trading

Return plays a vital role in trading. It allows investors to assess the performance of their investments. An investment that consistently provides a positive return is viewed as a good investment. Conversely, an investment with a negative return may indicate a poor performance.

The Two Types of Return

There are two main types of return in trading: simple return and compound return. The simple return only considers the initial and final value of the investment, while the compound return also takes into account the returns earned on the initial investment over its entire lifespan.

Risks and Returns

Risk and Return are two sides of the same coin in trading. Usually, the higher the potential return, the higher the risk. Therefore, traders often have to strike a balance between the level of risk they are willing to take and the potential return on their investment.

In conclusion, understanding the concept of return in trading is an integral part of investment decisions. It helps traders choose the right strategies and optimize their trading performance.