If you buy something and sell it later on the same day, how do you calculate 'investment'?
Your initial investment in this case is $9 on the first morning. Every other morning you are using part of your profits to buy the new piece of jewelry, so you are actually not investing any new funds. So each day you are effectively keeping $1 of your profits and re_re-investing $9. But your initial investment of your own funds is only the first $9. In other words if you only had $9 in the bank at the start of the year you could make $365 profits during the year and finish up with $374 in the the bank at the end of the year. Not sure if your question is on topic, but the investment is only $9 because that is maximum amount of money the merchant ever needed to start up the business. He put in $9, started turning a profit, and never looked back. "Nothing wrong with the other answers, but here's a ""trick"" to hopefully make it totally transparent.   Imagine that you're not the one implementing this business plan, but someone else is.  Let's call this other person your asset manager.  So on the first day, you give your asset manager $9.  He takes this and generates $1 profit from it, recovering the $9 which he then reinvests to generate $1 profit every day.  From your perspective, you just gave him $9.  At the end of the year, he gives you $365 in addition to your original investment of $9 (in real life he'd take the fees of course, or perhaps he's been lending out the money he's been accumulating and taking the interest from that as pay for his services).  So your return on investment is 365 / 9 * 100 % > 4000 %, as claimed by your source." You're confused because the source you cite leaves out one number that isn't relevant to the argument they're making: total costs. The number you're expecting, $9 x 365 or $3285 is the total cost of buying the jewelry which, when subtracted from the $3650 sales volume gives us the net profit of $365.  The investment is the amount of money original put into a system our company. In this case the merchant bought his first piece of jewelry for $9, sold it for $10, took one dollar in profit and used the other 9 to reinvest by buying a new piece of jewelry. We can extend the analogy further. After 9 days of selling, the merchant will posses $18, allowing him to now buy 2 pieces of jewelry each morning and sell them for $20. Every day his costs will be $18 and he'll turn a $2 profit, all with the original investment of $9. Another way to look at this is if we separate the owner's account from the business's account.  At the start of the year, the owner puts $9 into the business account to get the business started. At the end of the first day, the business account has $10, and at the end of the second day, the business account has $11.  The owner doesn't need to add any more of his own money into the business account. At the end of the 365th day, the business will have $374, which is $365 profit + $9 investment.  Assuming the business has no other expenses, the business will calculate profit for the year like this: The author is making a strange point. The two numbers he is talking about are two different quantities. The business owner's return on investment is $365 / $9 = 4056%.  But the business's profit margin is $365 / $3650 = 10%.  Both are useful numbers when running the business. I disagree with the author's insinuation that a business is doing something tricky when calculating profit margin. Remember that, in addition to the business owner's monetary investment, he worked every day for a year to earn that $365.
Suppose the price didn't drop on the ex-dividend date. Then people wanting to make a quick return on their money would buy shares the day before, collect the dividend, and then sell them on the ex-dividend date. But all those people trying to buy on the day before would push the price up, and they would push the price down trying to sell on the date. It depends on the broker. The one I use (Fidelity) will allow me to buy then sell or sell then buy within 3 days even though the cash isn't settled from the first transaction. But they won't let me buy then sell then buy again with unsettled cash. Of course not waiting for cash to settle makes you vulnerable to a good faith violation. &gt; From what I hear and know you sell when you're up and buy when it's down.  That *is* how profit is attained.  However, if you're looking to *invest,* both buy and sell decisions should be made after extensive research and, generally, there should be some time between the two offsetting transactions.   If you personally decide to *trade*, which is more often and less likely to succeed (per se), that's up to you. It's better to use the accounting equation concept: Asset + Expenses = Capital + Liabilities + Income If you purchase an asset: Suppose you purchased a laptop of $ 500, then its journal will be: If you sell the same Laptop for $ 500, then its entry will be: "One of two things is true: You own less than 5% of the total shares outstanding. Your transaction will have little to no effect on the market. For most purposes you can use the current market price to value the position. You own more than 5% of the total shares outstanding. You are probably restricted on when, where, and why you can sell the shares because you are considered part owner of the company. Regardless, how to estimate (not really ""calculate,"" since some of the inputs to the formula are assumptions a.k.a. guesses) the value depends on exactly what you plan to with the result." "The definition you cite is correct, but obscure. I prefer a forward looking definition. Consider the real investment. You make an original investment at some point in time. You make a series of further deposits and withdrawals at specified times.  At some point after the last deposit/withdrawal, (the ""end"") the cash value of the investment is determined. Now, find a bank account that pays interest compounded daily. Possibly it should allow overdrafts where it charges the same interest rate. Make deposits and withdrawals to/from this account that match the investment payments in amount and date.  At the ""end"" the value in this bank account is the same as the investment. The bank interest rate that makes this happen is the IRR for the investment..." My instinct says that there should be no difference. Your instincts are right. Your understanding of math is not so much. You sold $100K at the current price of 7500000RUB, but ended up buying at 3500000, you earned 3500000RUB. That's 100% in USD (50% in RUB). You bought 7500000RUB for the current price of $100K, but sold later for $200K. You earned $100K (100% in USD), which at that time was equal 3500000RUB. You earned 3500000RUB. That's 50% in RUB. So, as your instincts were saying - no difference. The reason percentages are different is because you're coming from different angles. For the first case your currency is RUB, for the second case your currency is USD, and in both cases you earned 100%. If you use the same currency for your calculations, percentages change, but the bottom line - is the same. "You have to be the owner of record before the ex-dividend date, which is not the same day as the date the dividend is paid. This also implies that if you sell on or after the ex-dividend date, you'll still get the dividend, even if you no longer own the stock.  Keep in mind, also, that the quoted price of the stock (and on any open orders that are not specifically marked as ""do not reduce"") on its ex-dividend date is dropped by the amount of the dividend, first thing in the morning before trading starts. If you happen to be the first order of the day, before market forces cause the price to move, you'll end up with zero gain, since the dividend is built into the price, and you got the same value out of it -- the dividend in cash, and the remaining value in stock. As pointed out in the comments (Thanks @Brick), you'll still get a market price for your trade, but the price reduction will have had some impact on the first trade of the day. Source: NYSE Rule 118.30 Also, remember that the dividend yield is expressed in annualized terms. So a 3% yield can only be fully realized by receiving all of the dividend payments made by the company for the year. You can, of course, forget about individual companies and just look for dividends to create your own effective yield over time. But, see the final point... Finally, if you keep buying and selling just to play games with the dividends, you're going to pay far more in transaction fees than you will earn in dividends. And, depending on your individual circumstances, you may end up paying more in capital gains taxes." The day trader in the article was engaging in short selling.  Short selling is a technique used to profit when a stock goes down.  The investor borrows shares of a stock from someone else and sells them.  After the stock price goes down, the investor buys the shares back and returns them, pocketing the difference. As the day trader in the article found out, it is a dangerous practice, because there is no limit to the amount of money you can lose. The stock was trading at $2, and the day trader thought the stock was going to go down to $1.  He borrowed and sold 8,400 shares at $2.  He hoped to buy them back at $1 and earn $8,400 profit.  Instead, the stock went up a lot, and he was forced to buy back the shares at $18.50 per share, or about $155,400.  He had had $37,000 with E-Trade, which they took, and he is now over $100,000 in debt. "When there is a trade the shares were both bought and sold. In any trade on the secondary market there has to be both a buyer and a seller for the trade to take place. So in ""lasttradesize"" a buyer has bought the shares from a seller." "This question and your other one indicate you're a bit unclear on how capital gains taxes work, so here's the deal: you buy an asset (like shares of stock or a mutual fund).  You later sell it for more than you bought it for.  You pay taxes on your profit: the difference between what you sold it for and what you bought it for.  What matters is not the amount of money you ""withdraw"", but the prices at which assets are bought and sold. In fact, often you will be able to choose which individual shares you sell, which means you have some control over the tax you pay.  For a simple example, suppose you buy 10 shares of stock for $100 each in January (an investment of $1000); we'll call these the ""early"" shares.  The stock goes up to $200 in July, and you buy 10 more shares (investing an additional $2000); we'll call these the ""late"" shares.  Then the stock drops to $150.  Suppose you want $1500 in cash, so you are going to sell 10 shares. The 10 early shares you bought have increased in value, because you bought then for $100 but can now sell them for $150.  The 10 late shares have decreased in value, because you bought them for $200 but can now only sell them for $150.  If you choose to sell the early shares, you will have a capital gain of $500 ($1500 sale price minus $1000 purchase price), on which you may owe taxes.  If you sell the late shares, you will have a capital loss of $500 ($1500 sale price minus $2000 purchase price is -$500), which you can potentially use to reduce your taxes.  Or you could sell 5 of each and have no gain or loss (selling five early shares for $150 gives you a gain of $250, but selling five late shares for $150 gives you a loss of $250, and they cancel out). The point of all this is to say that the tax is not determined by the amount of cash you get, but by the difference between the sale price and the price you purchased for (known as the ""cost basis""), and this in turn depends on which specific assets you sell.  It is not enough to know the total amount you invested and the total gain.  You need to know the specific cost basis (i.e., original purchase price) of the specific shares you're selling.  (This is also the answer to your question about long-term versus short-term gains.  It doesn't matter how much money you make on the sale.  What matters is how long you hold the asset before selling it.) That said, many brokers will automatically sell your shares in a certain order unless you tell them otherwise (and some won't let you tell them otherwise).  Often they will use the ""first in, first out"" rule, which means they will always sell the earliest-purchased shares first. To finally get to your specific question about Betterment, they have a page here that says they use a different method.  Essentially, they try to sell your shares in a way that minimizes taxes.  They do this by first selling shares that have a loss, and only then selling shares that have a gain.  This basically means that if you want to cash out $X, and it is possible to do it in a way that incurs no tax liability, they will do that. What gets me very confused is if I continue to invest random amounts of money each month using Betterment, then I need to withdraw some cash, what are the tax implications.  As my long answer above should indicate, there is no simple answer to this.  The answer is ""it depends"".  It depends on exactly when you bought the shares, exactly how much you paid for them, exactly when and how much the price rose or fell, and exactly how much you sell them for.  Betterment is more or less saying ""Don't worry about any of this, trust us, we will handle everything so that your tax is minimized."" A final note: if you really do want to track the details of your cost basis, Betterment may not be for you, because it is an automated platform that may do a lot of individual trades that a human wouldn't do, and that can make tracking the cost basis yourself very difficult.  Almost the whole point of something like Betterment is that you are supposed to give them your money and forget about these details." "What you did is called a ""strangle."" It's rather unlikely that both will be exercised on the same day. But yes, it can happen.  That is if the market is very volatile on a given day, so that the stock hits 13 in the morning, the put gets exercised, and then hits 15 later in the day, so the call gets exercised. Or vice versa. More to the point, the prices are close enough that one might be hit on one day, and the other on a DIFFERENT day. In either case, if one side gets hit, you need to reevaluate your position in the other. But basically, any open position you have can be hit at any time. The only way to avoid this risk is not to have positions." If you're into math, do this thought experiment: Consider the outcome X of a random walk process (a stock doesn't behave this way, but for understanding the question you asked, this is useful): On the first day, X=some integer X1. On each subsequent day, X goes up or down by 1 with probability 1/2. Let's think of buying a call option on X. A European option with a strike price of S that expires on day N, if held until that day and then exercised if profitable, would yield a value Y = min(X[N]-S, 0). This has an expected value E[Y] that you could actually calculate. (should be related to the binomial distribution, but my probability & statistics hat isn't working too well today) The market value V[k] of that option on day #k, where 1 < k < N, should be V[k] = E[Y]|X[k], which you can also actually calculate. On day #N, V[N] = Y. (the value is known) An American option, if held until day #k and then exercised if profitable, would yield a value Y[k] = min(X[k]-S, 0).  For the moment, forget about selling the option on the market. (so, the choices are either exercise it on some day #k, or letting it expire) Let's say it's day k=N-1.  If X[N-1] >= S+1 (in the money), then you have two choices: exercise today, or exercise tomorrow if profitable. The expected value is the same. (Both are equal to X[N-1]-S). So you might as well exercise it and make use of your money elsewhere. If X[N-1] <= S-1 (out of the money), the expected value is 0, whether you exercise today, when you know it's worthless, or if you wait until tomorrow, when the best case is if X[N-1]=S-1 and X[N] goes up to S, so the option is still worthless. But if X[N-1] = S (at the money), here's where it gets interesting. If you exercise today, it's worth 0. If wait until tomorrow, there's a 1/2 chance it's worth 0 (X[N]=S-1), and a 1/2 chance it's worth 1 (X[N]=S+1). Aha! So the expected value is 1/2. Therefore you should wait until tomorrow. Now let's say it's day k=N-2.  Similar situation, but more choices: If X[N-2] >= S+2, you can either sell it today, in which case you know the value = X[N-2]-S, or you can wait until tomorrow, when the expected value is also X[N-2]-S. Again, you might as well exercise it now. If X[N-2] <= S-2, you know the option is worthless. If X[N-2] = S-1, it's worth 0 today, whereas if you wait until tomorrow, it's either worth an expected value of 1/2 if it goes up (X[N-1]=S), or 0 if it goes down, for a net expected value of 1/4, so you should wait. If X[N-2] = S, it's worth 0 today, whereas tomorrow it's either worth an expected value of 1 if it goes up, or 0 if it goes down -> net expected value of 1/2, so you should wait. If X[N-2] = S+1, it's worth 1 today, whereas tomorrow it's either worth an expected value of 2 if it goes up, or 1/2 if it goes down (X[N-1]=S) -> net expected value of 1.25, so you should wait. If it's day k=N-3, and X[N-3] >= S+3 then E[Y] = X[N-3]-S and you should exercise it now; or if X[N-3] <= S-3 then E[Y]=0.  But if X[N-3] = S+2 then there's an expected value E[Y] of (3+1.25)/2 = 2.125 if you wait until tomorrow, vs. exercising it now with a value of 2; if X[N-3] = S+1 then E[Y] = (2+0.5)/2 = 1.25, vs. exercise value of 1; if X[N-3] = S then E[Y] = (1+0.5)/2 = 0.75 vs. exercise value of 0; if X[N-3] = S-1 then E[Y] = (0.5 + 0)/2 = 0.25, vs. exercise value of 0; if X[N-3] = S-2 then E[Y] = (0.25 + 0)/2 = 0.125, vs. exercise value of 0. (In all 5 cases, wait until tomorrow.) You can keep this up; the recursion formula is E[Y]|X[k]=S+d = {(E[Y]|X[k+1]=S+d+1)/2 + (E[Y]|X[k+1]=S+d-1) for N-k > d > -(N-k), when you should wait and see} or {0 for d <= -(N-k), when it doesn't matter and the option is worthless} or {d for d >= N-k, when you should exercise the option now}. The market value of the option on day #k should be the same as the expected value to someone who can either exercise it or wait. It should be possible to show that the expected value of an American option on X is greater than the expected value of a European option on X. The intuitive reason is that if the option is in the money by a large enough amount that it is not possible to be out of the money, the option should be exercised early  (or sold), something a European option doesn't allow, whereas if it is nearly at the money, the option should be held, whereas if it is out of the money by a large enough amount that it is not possible to be in the money, the option is definitely worthless. As far as real securities go, they're not random walks (or at least, the probabilities are time-varying and more complex), but there should be analogous situations. And if there's ever a high probability a stock will go down, it's time to exercise/sell an in-the-money American option, whereas you can't do that with a European option. edit: ...what do you know: the computation I gave above for the random walk isn't too different conceptually from the Binomial options pricing model. "You can calculate the ""return on investment"" using libreoffice, for example. Look at the xirr function. You would have 2 columns, one a list of dates (ie the dates of the deposits or dividends or whatever that you want to track, the last entry would be today's date and the value of the investment today. The xirr function calculates the internal rate of return for you. If you add money to the account, and the current value includes the original investment and the added funds, it will be difficult to calculate the ROI. If you add money by purchasing additional shares (or redepositing dividends by buying additional shares), and you only want to track the ROI of the initial investment (ignoring future investments), you would have to calculate the current value of all of the added shares (that you don't want to include in the ROI) and subtract that value from the current total value of the account. But, if you include the dates and values of these additional share purchases in the spreadsheet, xirr will calculate the overall IRR for you." "Without going into minor details, an FX transaction works essentially like this. Let's assume you have SEK 100 on your account. If you buy 100 USD/RUB at 1.00, then that transaction creates a positive cash balance on your account of USD 100 and a negative cash balance (an overdraft) of RUB 100. So right after the transaction (assuming there is not transaction cost), the ""net equity"" of your account is: 100 SEK + 100 USD - 100 RUB = 100 + 100 - 100 = 100 SEK. Let's say that, the day after, the RUB has gone down by 10% and the RUB 100 is now worth SEK 90 only. Your new equity is: 100 SEK + 100 USD - 100 RUB = 100 + 100 - 90 = 110 SEK and you've made 10%(*): congrats! Had you instead bought 100 SEK/RUB, the result would have been the same (assuming the USD/SEK rate constant). In practice the USD/SEK rate would probably not be constant and you would need to also account for: (*) in your example, the USD/RUB has gone up 10% but the RUB has gone down 9.09%, hence the result you find. In my example, the RUB has gone down 10% (i.e. the USD has gone up 11%)."