7 days Pro+ free · no cardStart my free trial

Trading journal: costs, decisions and honest performance · 4 / 4

Trading account returns: remove deposits and withdrawals from performance

A larger account does not necessarily mean profitable trading: money may have been deposited. Split the period at external cash flows and link the investment returns so contributions are not mistaken for strategy performance.

Athenum7 minUpdated:

Identify external and internal cash movements

A deposit from outside the measured portfolio is an external flow; buying an asset within it is not. A transfer between two accounts inside the same portfolio boundary is internal, while the same transfer is external when measuring only one account. Define the boundary before classifying transactions.

Fees and funding charges attributable to trading are investment costs, not external withdrawals to remove from the return. Reclassifying them as contributions or withdrawals overstates performance. Preserve timestamps and values in a common reporting currency, including a documented conversion for non-cash transfers.

Link subperiod wealth factors

When accurate valuations are available immediately before and after every external flow, calculate each subperiod return from investment-value change excluding that boundary flow. Multiply the subperiod factors and subtract one. This is the time-weighted construction used here; it differs from an investor’s money-weighted return, which depends on contribution timing and size.

If precise boundary valuations are unavailable, an estimate requires a declared method and timing assumptions. Do not present an endpoint shortcut as an exact cash-flow-adjusted return. A daily equity series with a midday deposit may need a valuation at that deposit to isolate the two investment subperiods.

Worked example: the account grows while the strategy loses

A hypothetical account starts at 10,000 USDT and earns 10%, reaching 11,000 immediately before a 5,000 deposit. It then starts the next subperiod at 16,000 and loses 10%, ending at 14,400. The raw balance grew 44% from the initial 10,000, but this includes the contribution.

Linked investment return is 1.10 × 0.90 − 1 = −1%. Net currency P&L is 14,400 − 10,000 − 5,000 = −600. Dividing −600 by the initial 10,000 gives −6%, which is neither the linked time-weighted return nor a timing-aware money-weighted return. The differing figures answer different questions.

Worked example: the account grows while the strategy loses
StageEquity before eventExternal flowEquity after eventInvestment return
First investment period10,000011,000+10%
Deposit boundary11,000+5,00016,000Not an investment return
Second investment period16,000014,400−10%
Original two-period account example. External contributions explain the positive balance change; the linked investment return is negative.Open full-size diagram
  1. First period return: 10 %
  2. Second period return: -10 %
  3. Linked investment return: -1 %
Original two-period account example. External contributions explain the positive balance change; the linked investment return is negative.
A 5,000-USDT deposit raises equity from 11,000 to 16,000 between returns of plus 10% and minus 10%.
The four boxes show account equity in USDT. The blue +5,000 arrow is an external deposit; only the gold +10% and −10% arrows represent investment returns. Linking their factors gives −1%, even though the ending balance is 44% above the initial balance. The lower equation reconciles the −600-USDT investment P&L. Arrow spacing is schematic and does not represent elapsed time or the size of a return.

Do not remove costs as if they were withdrawals

If the second period includes a 100-USDT trading fee, that fee remains part of the net investment result. Calling it an external withdrawal would improve the reported return without improving the strategy. Reconcile the ledger with actual balance changes and separately display fees for explanation.

Before acting

  • Define the portfolio boundary.
  • Classify deposits and withdrawals separately from trading costs.
  • Value the portfolio at external-flow boundaries.
  • Report linked returns, currency P&L and raw balance change with clear labels.

Check your understanding

An account rises from 8,000 to 8,800, withdraws 2,000, then grows from 6,800 to 7,140. What is the linked investment return and total currency P&L?

Show the explained answer

The subperiod returns are 10% and 5%, so linked return is 1.10 × 1.05 − 1 = 15.5%. Currency P&L is ending 7,140 plus withdrawal 2,000 minus starting 8,000 = 1,140. The lower ending account balance does not imply a trading loss.

Sources and further reading

Continue with Athenum