ROE in futures

ROE (return on equity) in futures is a position's profit or loss as a percentage of the margin put up for it. At 10x leverage a 1% price move gives about 10% ROE.

How it works

Exchanges calculate ROE as PnL divided by the position's initial margin. Margin is only part of the position's value, so ROE scales the percentage by the leverage. At 20x, a 2% move shows as 40%.

That is why ROE looks great in screenshots but says little about the real result. If $100 of a $5,000 account backs the trade, even +50% ROE is only +1% on the account. And −100% ROE means the position's margin is gone.

To judge your trading, look at PnL in money and as a percentage of your whole account. ROE is only useful for comparing trades with the same leverage and margin.

Example with numbers

A $1,000 position at 10x leverage uses $100 margin. Price rises 3%: PnL = $30, ROE = $30 / $100 = 30%. On a $5,000 account the result is just 0.6%.

Common mistake

The mistake is chasing a high ROE by raising leverage. ROE grows with leverage, but so does the chance of liquidation, and your account does not grow any faster if the dollar size of the position stays the same. Judge a trade by its risk as a percentage of your account, not by ROE.

Questions and answers

What is ROE in simple terms?

It is the return on a position relative to the money you put up for it. The higher the leverage, the more that percentage swings.

Why is my ROE 100% when my account barely changed?

Because the position's margin was a small part of your account. ROE is measured against margin, not your whole balance.

What is the difference between ROE and PnL?

PnL is the result in money, ROE is the same result as a percentage of the position's margin.

ROE in futures

How it works

Questions and answers

Related terms

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