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I've been investing and trading a little bit and in my portfolios performance overview I saw TWR (time weighted returns) and MWR (money weighted returns). My MWR is 26.82%, whereas my TWR is -515.00% YTD. My question is, how is this possible? I will give you a bit more backstory: When I tested my new broker I only made a $500 deposit and because I accidentally placed a market order instead of a limit order, my account got blown up by one trade and I was at $-1500 for a couple weeks. This was my first and by far biggest loss. I have since deposited tens of thousands in the months that followed and consistently make trades where I double or triple my money but for some reason my TWR is at a negative 515%. Can anyone explain this to me? After probably more than a hundred trades with probably no more than 10 losing trades and far more money made than lost, I am really confused how this is possible.

Most of my money is in funds, and about 20% goes towards short term trades, and in those apart from the very first one, I have never had a (relative to then account size) big loss and my winning trades have individually as well as collectively far outweighed my losing trades.

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how is this possible?

It's possible if you have periods of large relative losses but didn't have as much money in your portfolio during those times. TWR is a way to measure how well what you are invested in performs. It removes any bias introduced by having more invested at certain periods than others. So if you had, say a stock that dropped 50%, then invested more money in a different stock that doubled, your TWR would be zero (0.5 * 2) but your MWR would be large because you had more money invested in the doubling period than you did in the period where you lost half.

So the positive return on your "tens of thousands" is negating the large loss on your $500 when looking at MWR. But your TWR shows that you made some bad investments looking at relative returns, although luckily you didn't lose as much in terms of actual return.

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  • So, if I'm understanding correctly, the TWR is reflecting that there was a single large (relative) loss (400% of the amount invested), and even if some of the subsequent profitable ones did "double or triple [OP's] money", most of them were probably more modest gains and are not (yet) sufficient to bring TWR to a more favourable number?
    – TripeHound
    Sep 29 '20 at 15:14
  • Correct - time-weighted return is agnostic of the amount invested, so in terms of actual profit, the periods where you had more invested but smaller relative gains overshadow those bad periods.
    – D Stanley
    Sep 29 '20 at 15:57

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