How to manually compute the P&L of your stocks, options and futures trades
At Trademetria, we process millions of trades a month without a glitch, and believe it or not, when users compare our results to their broker statements, they find some scary broker miscalculations ranging from rounding errors to missing fills leading to a wrong pnl. After seeing data from 150+ brokers, we can safely say we've seen it all.
In this post, I'll show you how to calculate your own stocks, options and futures P&L, so that whenever you are in doubt about your results, you can confidently ask your broker for an explanation.
You can choose from many methodologies when calculating P&L, such as FIFO (first in first out), LIFO (last in first out), average weighted prices, and so on. At Trademetria, we use the average weighted prices methodology because it provides a distinct speed advantage over the other methods. It's important to note that each methodology might derive different values when calculating open P&L, but all of them arrive at the same result when you flat your positions.
How to compute the P&L of your stock trades
Investing in stocks can be risky and the outcome of a stock trade can be either a win or a loss. Sure, you can have a break-even trade, but after commissions and fees, it always becomes a loss.
Consider the following scenario:
- Buy 100 shares of AAPL at 130.00
- Buy 200 shares of AAPL at 150.00
- Sell 100 shares of AAPL at 130.00
- Sell 300 shares of AAPL at 150.00
What's the outcome or P&L of this trade using average weighted prices?
First, we calculate the financial volume of each trade. If it's a long trade, meaning you bought stock, we multiply the financial volume by (-1).
- 100 x 130 x (-1) = $-13,000.00
- 200 x 150 x (-1) = $-30,000.00
- 100 x 130 = $13,000.00
- 300 x 150 = $45,000.00
We then, sum the numbers to arrive at a P&L with a gain of $15,000.00
Let's look at a short trade now:
Consider the following scenario:
- Sell 10 shares of TSLA at 800.00
- Sell 20 shares of AAPL at 1000.00
- Buy 10 shares of AAPL at 1200.00
- Buy 30 shares of AAPL at 1100.00
Again, let's start by calculating the financial volume of each trade. Regardless of the side of the trade, we still multiply the financial volume of the buy trades by (-1).
- 10 x 800 = $8,000.00
- 20 x 1000 = $20,000.00
- 10 x 1200 x (-1) = $-12,000.00
- 30 x 1100 x (-1) = $-33,000.00
We then, sum the numbers to arrive at a P&L with a loss of $17,000.00
How to compute the P&L of your options trades
Options trades can be much riskier for the amateur investor so it's important to really learn how to trade them before risking any real money. Options are leveraged products. For every dollar invested, you are actually investing $100.
Having said that, let's go over the following scenario.
- Bot 1 TSLA call contract at 50
- Sold 1 TSLA call contract at 60
Let's start by calculating the financial volume of the trades.
- 1 contract x 50 x 100 = $5,000.00
- 1 contract x 60 x 100 = $6,000.00
Therefore, the P&L of your trade is a gain of $1,000.00, even though you only invested $500,00. An exceptional return of 200%.
How to compute the P&L of your futures trades
Futures trades are leveraged and just like in options, you could lose your initial investment plus a whole lot more. It's a lot riskier than stocks, but typically requires less margin or capital upfront to trade. Every futures contract has an individual multiplier that is often shown in ticks, decimals or points.
For example, the point multiplier of a crude oil contract is $1000. The ES (e-mini s&p) is $50. That means for each point the ES moves, you are making or losing $50, unlike stocks where you'd just make $1 per every dollar move.
Let's look at the following sample trades:
- Buy 1 contract of ESU21 at 3,000.00
- Sell 1 contract of ESU21 at 3001.00
Let's start by calculating the financial volume of the trades.
- 3000 x 50 x (-1) = $-150,000.00
- 3001 x 50 = $50 = $150,050.00
Your P&L in this case is a gain of $50.
If you don't know the point value of the contracts you trade, you can look them up here. Just make sure you multiply the tick size by the price it shows. For example, for ES, it shows $12.5 per 0.25 points, hence a full point is $50 ($12.5x0.25).
Now you can get your hands dirty anytime you have an issue with your broker statements, or better yet, save your brain cycles for trading and let Trademetria calculate your gains for you!