Return (on investment)

A return, often called return on investment or ROI, is a way of measuring how much money you made or lost on a trade, expressed as a percentage of what you put in rather than as a raw dollar figure. Saying "I made $500" tells you very little on its own; saying "I made 10% on my money" tells you how efficiently that money worked, and lets you compare it to a completely different trade, a savings account, or an index fund.

The basic mechanic is simple: take the profit or loss from the trade, divide it by the amount of capital you committed, and multiply by 100. Buy $2,000 of a stock, sell it for $2,200, and your dollar profit is $200, but your return is 10%. That percentage is what allows a $200 gain on a small position and a $200 gain on a large position to be compared fairly, since the second one used far more capital to get the same dollar result.

The nuance that trips people up is what counts as "the amount invested." If you traded on margin — borrowing part of the purchase price from your broker — your actual cash outlay was smaller than the full position size, so your percentage return on your own money can look much larger (or much smaller, on a loss) than the return on the position itself. Returns also usually ignore commissions, fees, and slippage unless you specifically subtract them, so a quoted return can overstate what you actually pocketed. And a return by itself says nothing about how much risk was taken or how long the money was tied up to get there.

That last point is why traders often pair return with time: a 5% return in one day is a very different achievement than a 5% return over a year, even though the percentage is identical. Comparing returns without accounting for the holding period or the risk taken is one of the most common ways this simple-looking number gets misread.