Return on Equity

Return on equity, in a trading context, measures the profit generated relative to the amount of capital used in a position or account. It is a key metric for evaluating the efficiency of capital deployment.

For leveraged traders, return on equity can be significantly higher than the raw percentage change in the asset price, but it also carries the risk of total loss. This metric allows traders to compare the effectiveness of different strategies, regardless of the size of the capital involved.

High return on equity is often the goal of professional traders, but it must be balanced against the risk of ruin. It is the fundamental measure of how effectively a trader is growing their net worth.

By tracking this, traders can determine the optimal level of leverage to use for their specific risk appetite. It is the bottom-line measure of financial success.