Annual Return Definition – What is Annual Return? | CFI JO
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annual return

 Annual return in terms of trading terminology, is the return on trading funds that a trader or trading portfolio generates over a specific trading period, expressed as an annual percentage. The rate of annual return is expressed as a percentage of the total value of the fund or portfolio (the initial investment) and shows a geometric mean rather than an arithmetic mean.


A geometric mean is calculated from percentages derived from values whereas an arithmetic mean uses the actual values themselves to calculate the final result. The geometric mean must be used for calculating annual return as it takes into account the effect of compounding where the initial investment will increase (or possibly decrease) year on year.


Annual return is the standard or preferred method of calculating a return on investment for investments with liquidity and given that it is calculated using the geometric method, it will always take into account any increases in the portfolio value to produce a more accurate figure than just a simple return.


The formula for calculating annual return can be expressed as below:


Annual return=((final value/initial value​)1/years​)−1


Where years=number of holding years for the investment in the trading fund


Key takeaways:


  • Annual return is a measurement of how an investment has performed (positively or negatively) on average each year and over a specific period.
  • Annual return is calculated as a geometric average rather than an arithmetic average to take into account compounding.
  • Annual return is one of the simplest methods of return assessment and is used worldwide by investors and fund managers.
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Credit Financial Invest for
Financial Brokerage Ltd
Al Rabieh Towers, Al Rabieh

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We would like to remind that while we endeavour to provide best possible services, CFI provides execution only services and any information, reports, opinions, commentary or other material he received directly from CFI or from its employees or through any provided analytical tools or third party research provided to the client from the Company shall not be deemed as investment advice and it cannot be relied upon to make investment decisions. The Client commits to make his own research and from external sources as well to make any investment. The Client agrees that CFI will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information. The contents of any report provided should not be construed as an express or implied promise, as a guarantee or implication that clients will profit from the strategies herein, or as a guarantee that losses in connection therewith can, or will be limited.

Forex and CFDs are leveraged products that incur a high level of risk and a small adverse market movement may expose the client to lose the entire invested capital. The vast majority of retail client accounts lose money when trading in CFDs. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. The possibility exists that you could sustain a loss in excess of your deposited funds even if a stop loss is used and therefore, you should not speculate with capital that you cannot afford to lose and be aware of trading risks. Credit Financial Invest for Financial Brokerage Ltd provides general information that does not take into account your objectives, financial situation or needs. The content of this website must not be interpreted as personal advice. Please ensure that you understand the risks involved and seek independent advice if necessary.

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