Margin (finance) - Return On Margin

Return on margin (ROM) is often used to judge performance because it represents the net gain or net loss compared to the exchange's perceived risk as reflected in required margin. ROM may be calculated (realized return) / (initial margin). The annualized ROM is equal to

(ROM + 1)(1/trade duration in years) - 1

For example if a trader earns 10% on margin in two months, that would be about 77% annualized

Annualized ROM = (ROM +1)1/(2/12) - 1

that is, Annualized ROM = 1.16 - 1 = 77%

Sometimes, return on margin will also take into account peripheral charges such as brokerage fees and interest paid on the sum borrowed. The margin interest rate is usually based on the Broker's call.

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