One day and no replies. Is my question too stupid?

Hi Emanuele,

The reason is the simulated broker calculates returns based on the total value of all your holdings - cash plus stock. Your algo used all your starting cash to buy stock, so your cash is 0. But the value of the stock you bought has increased, so your returns are positive. These are "unrealized gains" - gains from the stock price changing. If your algo manged to sell at the same price, your returns would be unchanged but they would be "realized gains" in the form of cash.

Another confusing bit: The simulator also allows you to borrow cash and buy more stock. This approximates a margin account, where your broker allows you to borrow cash to buy stock. If you start with $1M and buy $2M in stock, your cash balance would be negative: ($1M). Your equity value would be $2M in stock minus ($1M) in cash loans, or $1M. Your returns at this point would be 0%: (current equity - starting equity) / starting equity

Our simulator allows borrowing, but a real broker caps the amount you can borrow. The way to track your borrowing is to track your leverage via context.account.leverage. We track gross leverage there. A 2-3x leverage is a reasonable limit in simulation.

Thanks,
fawce

Edited 2015-09-02

Want to chime in here. Above it was said (current equity - starting equity) / starting equity

It can be pretty helpful to realize that Quantopian is unfortunately ignoring unused cash and margin in chart and Returns values calculations.

A different route would be (portfolio - maxspent) / maxspent [profit in relation to cash put into play].

The original algo above doesn't involve negative cash so this might not be the best place to highlight this point, it is a fairly common problem tho. Of 15 of the most recent algos posted that I checked, 12 of them (80%) had negative cash and as a result the charts and Returns values were more positive than would happen in the real world.
Then there's also the flipside, not using all of starting capital. If you start with $1M and spend only $1000 and wind up with $2M all in cash, Q would consider it to be only 100% Returns currently, however that is $1000 turned into $2M for nearly 200,000%.

If addressed, then I wonder if we will also find that Alpha, Beta, Sharpe et al will also better indicate the merits of the algo.
Currently those change with different input capital specified in the UI even if actual amount spent is the same. Thanks.

I think that there is no reason to complain about how Q calculates returns. Notice how it says "$100 initial CAPITAL", and the performance is percentage "return on capital". If you were given a million in capital and only deployed $100 of it, your return on capital would be pretty poor. Their nomenclature is correct.

Also edited 2015-09-02 because my thoughts have evolved on this.

I think a lot of folks are thinking if they have a million in the account at Interactive Brokers, it is invested and tied up.
However, today, you can transfer money from there to your home bank quickly, maybe 1 minute, and back again.
In the example, whether it sits unused at your bank, or at IB, either way it is not invested and not really part of a portfolio in my opinion, at least not an active part, or not yet.

I can see others' point of view, just that what's most useful to a developer is to know output vs input that led to that output, then he or she can know the real effect of iterations.

A matter of theoretical value (current) or real/used value (proposed). I'm suggesting basing on cash put at risk, put into use, traded, activated.

Outflow
Inflow

I want to move over to https://www.quantopian.com/posts/returns for more about this.

All the answers and comments are very interesting. Thanx

Well I am wondering if wouldn't be better (as metric of performance) calculating the integral of the returns or true returns as stressed by Gary.