| Trading Terminology | ROI - Return On Investment

A word that is inherently connected to trading and investing is ROI (Return on investment)

But what does a return on investment actually mean?

The ROI shows the outcome of any particular investment and is shown as a percentage. This measurement can be used for personal financial decisions or to compare a company’s profitability. The return on investment can be calculated with an easy formula.

If you invested $100.000 and sold this investment for $120.000 the formula would be: 120.000 gain – 100.000 cost = 20.000 profit : 100.000 cost = 0.2 x 100 = 20% ROI

When using the ROI measurement, note that the time value is not taken in consideration. For instance it’s more preferable to get a 15% return in 6 months than a 15% return in two years.