Return on Investment (ROI)
Indicator measuring the profitability of an investment relative to the initial invested amount.
Beginner-friendly explanation
Return on Investment (ROI) shows how much you've earned compared to your initial invested capital. Example: You invest €100 in a crypto and later sell at €150. Your ROI is 50%.
Intermediate-level insight
ROI is calculated by dividing net profit (gain minus initial investment) by the initial investment, then multiplying by 100 to get a percentage. This indicator helps easily compare the profitability of different investments. Example: You buy a crypto at €500 and sell at €750. Your profit is €250. Your ROI is (250/500) x 100 = 50%.
Advanced perspective
ROI is a fundamental indicator to evaluate the effectiveness of a strategy or portfolio over a given period. It ideally should be combined with advanced metrics such as Sharpe ratio, max drawdown, and Risk-Adjusted ROI to obtain a complete view of actual performance and associated risks. Example: A trading strategy yields a gross annual ROI of 60% but involves high risk (large drawdowns). Incorporating the Sharpe ratio provides a more meaningful risk-adjusted ROI for decision-making.
Trading Basics
ROI, return on investment, profitability, profit, invested capital, performance indicator, Sharpe ratio, risk-adjusted return