Return on Capital Employed

Return on capital employed is a financial ratio that measures a company's or a trader's profitability in relation to the total capital invested. In the context of derivatives, it assesses how much profit is generated for every dollar of collateral deployed.

This metric is essential for comparing the effectiveness of different trading strategies or asset allocations. A high return on capital indicates efficient use of resources, while a low return may suggest that the strategy is not adequately compensating for the risks taken.

For traders, this is a key performance indicator that helps in refining their approach and deciding where to allocate their capital. It requires a clear understanding of both the realized profits and the total capital tied up in margin.

By tracking this ratio, traders can identify their most profitable setups and optimize their portfolio for better long-term performance. It is a core concept in quantitative performance evaluation.