Investment Return Breakdown

Yes, the absolute values seem OK, however the % values look strange. We’ll check it out, thanks.

Calculation of FX IMPACT

The android app 5.5.7 has a new feature. It provides information about GAIN/LOSS in the currency in which the instrument is priced, and FX IMPACT to show how the RETURN has been increased or decreased due to currency fluctuation. This is a great idea. I thought I would like to understand how these numbers are calculated. I now understand the meaning of GAIN/LOSS, which to me at least was not immediately obvious. Here is an example:

In this example, a client with base currency GBP has a position in Adobe stock, priced in USD, consisting of shares bought at different times, at different prices and different exchange rates. The key figures are

AD = average USD price ($440.72)
AG = average GBP price (£349.32)
CD = current USD sell price ($474.49)
FX = current GBP per USD (0.7641)

AG, AD, CD are already calculated and displayed in the app. FX is implicit. It is the displayed current investment value £274.07 divided by (shares owned * CD) ie 274.07/(0.8015517*447.49) = 0.7641.

Per share, the changes expressed as factors are therefore

RETURN_f = CD * FX/AG (in GBP terms) = (GBP proceeds if sold) /(GBP cost)

GAIN/LOSS_f = CD/AD (in USD terms) = RETURN experienced by a USD investor who is oblivious of other currencies

FX IMPACT_f = AD * FX/AG. This is what RETURN would be if CD=AD, (ie if there had been no change in USD share price, and as if client had only bought and sold USD).

Note that these factors are multiplicatively correct as they should be

RETURN_f = GAIN/LOSS_f * FX IMPACT_f

To express these as % we should subtract 1 from each and multiply by 100%. So

RETURN% = (CD * FX/AG - 1) * 100%
GAIN/LOSS% = (CD/AD - 1) * 100%
FX IMPACT% = (AD * FX/AG - 1) * 100%

To express as changes to client’s GBP wealth we multiply each of the above by AG and then by number of shares owned. Using figures in the example we get

TABLE 1

RETURN -5.93 -2.12%
GAIN/LOSS 4.30 1.54%
FX IMPACT -10.07 -3.60%

Notice that RETURN and FX IMPACT agree with the numbers given in the app, but GAIN/LOSS does not. The app gives 1.48% for GAIN/LOSS, but the true gain for a USD investor who is unaffected by fx is CD/AD = 1.01536, i.e. a 1.54% gain as shown in Table 1.

But there is another way to do it. Suppose we keep the first and third formula as above, but force things to add up by defining

GAIN/LOSS% := RETURN% - FX IMPACT%

= (CD * FX/AG - 1) * 100% - (AD * FX/AG - 1) * 100%

=(FX * AD/AG) * (CD/AD-1) * 100%

= FX * (CD - AD) /AG * 100%

As we have seen, this is not the true GAIN/LOSS% that would be experienced by a USD investor. The value that a US investor would look at is simply (CD/AD-1)*100%. What we have above is USD gain/loss per share, converted at today’s exchange rate to GBP, and then expressed as a percentage of our average GBP cost per share.

Similarly,

GAIN/LOSS = GAIN/LOSS% * AG * #shares

expresses the gain/loss in US dollars, converted to GBP at today’s exchange rate, eg

0.7641 * (474.49 - 440.72) * 0.8015517 = 4.15 (agreeing with the figure in the app),

Incidentally, this is the same as the way that RESULT is computed on the CFD side.

So the numbers make sense, so long as we understand the correct meanings of GAIN/LOSS and GAIN/LOSS%. I had started out mistakenly thinking that these should tell us what a US investor would experience in pure USD terms, making the same stock trades and not at all dependent on what’s happening with other currencies. But now we see that these figures do in fact depend on exchange rates. If we wish to obtain a true picture of separate FX effect and USD price change effect then we need to use the multiplicative factors described earlier.

The true result for the UK investor is that the USD stock price grew 1.54% compared to the average USD purchase price, but then the USD depreciated 3.60% compared to the average price at which USD was bought when building this position. Overall now each £1 has become (1+0.0154)*(1-0.0360) = £0.9788, ie down 2.12%.

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Hi just wanted to ask did you get the update. I still can’t update the app no update available

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image

I think GAIN/LOSS should be

£1.08 (10.76%) in green

if I have understood correctly in my other post.

This is Home Depot. HD. Sell price is $280.51 and FX = 0.7641. So

0.7641 * (280.51 - 252.31) / 200.25 = 0.1076 = 0.0700 + 0.0376 :white_check_mark:

(but not the same as 280.51/252.31 =1.1118, ie 11.18% gain that a US investor would claim.)

I see this is now fixed in the latest app update 5.5.7.1. :grinning:

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Yes, it was fixed earlier today. Thanks again for reporting the issue :slight_smile:

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ummm… ok it’s sorted even before i could think it lol. thanks guys. when the is the web platform getting some love? pleech!!

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I have this feature now also.

nice!

One suggestion to make this feature even more awesome @George

Can you make this FX Impact available for the whole portfolio? It would be fairly easy to do since you have it already available individually. You would just have to make it weighted due to the different size of each holding.

What do you think?

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Yeah just a sum of fx impact next to profit on the portfolio graph and in each pie


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Thanks for this it’s very useful. Would it be possible to do it for the total.of your portfolio and for each pie.

@George, any updates on the release date for iOS?

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that and the FX Impact for pies and overall portfólio :slight_smile:

It’s submitted to the AppStore. We’re waiting for :apple: to review the app.

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+1 for that. so i can sit and cry how the FX is eroding my earnings everyday :roll_eyes:

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Jim Cramer did a bit on his show yesterday about the fact that the USD is at a seasonal low, and that along with other signs points to a possible rebound in the autumn. Could be.

He made the point that weak USD increases corporate profits for international companies like PG, PEP, CL, MSFT, AAPL so there is some upside for investors in those companies to the currency loss.

Rebound would be interesting if I had more money to throw in now while its low :thinking::money_with_wings::money_with_wings:

that would go against the logic of buy high, sell low! :thinking::frowning:

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On my mobile app I have 5.5.7.1 version but not the feature.