rendement trading

What performance in trading?

If you want to take advantage of trading, and make money with it, you will need to understand certain concepts. A trader must in fact master what is called the Risk-Free Rate. But what is it exactly? In reality, the risk-free rate is nothing other than the profit you get from your investment. In other words, it is the return that traders obtain with capital, which is not subject to any risk. For individuals, the equivalent of the risk-free rate is none other than the Livret A rate.

But be aware that when it comes to investing in the stock market, there is no guarantee regarding your return. Moreover, without taking any risk on your part, we can say that nothing guarantees a return that exceeds the risk-free rate. In other words, the profits from your trading account will largely depend on the risks you take. As such, you must adopt specific risk management methods. These trading strategies, called Money Management, constitute a lever allowing you to better control your risk-taking. And the objective here is to optimize your performance in terms of forex trading. So how do you implement a risk management strategy when it comes to trading?

The Maximum Drawdown

First, remember that there are factors to consider when you are just starting out in trading, as a retail trader. Each trader must indeed consider the level of risk of the strategy he or she is going to adopt. To do this, start by measuring said risk via Maximum Drawdown. This is the maximum loss to be provided and which will be suffered by a forex trading account. And this over a well-defined period. At this stage, check that the history of your Trading strategy, i.e. the Maximum Drawdown, is well below the level of risk that you could accept. To illustrate this theory, here is the formula you should use:

Maximum Drawdown= (Vmax – Vmin) / Vmax

Here, the term Vmin corresponds to the minimum value of your trading account after the largest drop observed, but also before the formation of a new high.

On the other hand, Vmax is the maximum value of your trading account before the largest drop observed.

The Profit Factor

Second, remember that to benefit from the quality of your strategy, you must not only base yourself on the level of risk. A second key factor should not be overlooked: performance per unit of risk. Here, traders or those who have trading accounts, in other words stock brokers, use what is called the Profit Factor. The objective here is to be able to measure the gains to be made for each euro invested and risked in a risk strategy. Again, there is a formula you could use. It’s very easy to understand, obtaining the return is done by dividing the sum of your gains by that of the losses made by your strategy, and this since it was launched. Let’s take an example: if your Profit Factor indicates a result of 1.05 for 1 euro risked, you will obtain, with your risk strategy, a gain of 5 cents, or a rate of 5%.

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Here is the formula in question: Profit Factor = Sum of gains / sum of losses

Quick tip: In terms of trading, there will be several strategies that can have a Maximum Drawdown that will be lower than your maximum risk level. So the best thing to do is to opt for the one that offers you the highest Profit Factor.

However, we would like to remind you that the results obtained with these calculations are only an estimate of the risk level of your trading strategy. It is also a rough assessment of performance per unit of risk. Therefore, past performances will not necessarily indicate those of the future. So, as a forex trader, do not blindly rely on the results you get. Otherwise, your investment will suffer capital losses and your risk-taking will be in vain.

CFDs or Contract For Difference

Third, variations may occur depending on the financial product you use. If you are a retail trader, here are some CFDs or Contract for Difference that you could use.

When we talk about the taxation of capital gains made on CFDs, you should know that this is a rate or ratio that applies to transferable securities, particularly stocks. Except that the difference between CFDs and stocks lies in the exemption of CFDs from custody fees and taxes. In other words, CFDs are derivative products that allow you not to directly keep the underlying assets, including currencies, stocks, indices, etc.

To this end, the procedure to follow is to carry forward the capital gains that you had realized during the financial year. This is done on your tax form, that is to say form 2074 (lines 462 and 464), as well as form 2042 (line 3VG or 3VH).

Regarding capital losses, those of an identical nature and which have been made over the last 10 years can be subtracted so that you can reduce the amount that will be subject to tax. Otherwise, the taxation of capital gains will be carried out according to the flat-rate IR (Income Tax) scale. A parameter to which is added a percentage of 15.5% on social security contributions. If in doubt about the amount of money or the tax rate, you can always request a reference from your tax center.