Long Stocks

The ROI on a long stock transaction is relatively simple to calculate. All you need to know are:

1. The entry and exit prices paid for the stock, ETF or Mutual Fund*

2. The date the trade was entered (which allows you calculate your returns on a monthly basis by knowing which trades to include for any particular month).

Once you have this information, the first step in working out your ROI is to establish how many shares you could have bought. We're going to be relatively conservative in this example and work with a bank of $20,000 risking 10% (or $2,000) per trade but using all our margin allocation. This will giving a buying power of $4,000 per trade.

With this trading profile, you can see from the calculation box on the right how many shares of each stock you would have been able to purchase.

Our next step is to work out how much we either made or lost on each trade. This is done by subtracting our exit price from our entry price.

Knowing this, we can now calculate the total profit or loss per trade by multiplying the P/L per trade from Step 2 with the number of shares per trade from Step 1. This will also give us our total profit or loss for the entire six trades, which is our gross profit/loss.

And to simplify matters, we’ll assume that the subscription fee for the advisory service is $65/month (which is about the average for all the services we track.)

There would be no interest due on this series of transactions. Margin is like an overdraft facility which you draw down on when necessary and only pay for if used. At no point during these transactions does the total amount placed into the market exceed your bank of $20,000. As you're never drawing down on your margin facility, so you're not incurring an interest bill. Had margin been used, the interest would have been calculated by multiplying the daily rate of interest by the number of days it was used.