Overview

This tool calculates return of an investment denominated in any currency, split between Realized and Unrealized and further dissected into Trading and Foreign Exchange Gains or Losses.

 

Gains or losses are said to be "realized" when an asset owned (stock or other investment) is actually sold. An unrealized loss occurs when an asset's market value decreases after an investor buys it, but has yet to sell it. If the value rises above the original purchase price, the investor would have an unrealized gain for the time they hold onto the stock.

 

When buying an asset denominated in foreign currency, there are 2 components to be kept under control:

  • Trading gains/losses (difference between purchase price and sale price)
  • Foreign Exchange gains/losses (delta between exchange rates at purchase and at sale)

 

If, for example, you invest  €10.000 to buy stocks denominated in USD at a price of say $100 per share and the exchange rate USD/EUR is say 0,80 (Euros for 1 Dollar), converting your €10.000  into $12.500 (10.000/0,80) you will be able to buy 125 shares.

 

Suppose you subsequently sell your 125 shares at a price of $120 per share, generating $15.000. Suppose in the meantime the Euro appreciated vis-à-vis the Dollar, the exchange rate now being 0,70. Your sales proceeds converted to Euro will therefore generate €10.500 (15.000*0,70). Since you originally invested €10.000, you realize a net capital gain of €500.

 

Now let’s analyze where this comes from:

  • you realized a Trading Gain of $2.500 [(125 * ($120-$100)] which converted at 0,70 will generate €1.750.
  • you realized a Forex Loss of €1.250 [($12.500*(0,80-0,70)] due to the USD devaluing
  • in net terms you realize a capital gain of €500 (1.750-1.250)

 

Your return on investment (ROI) will be 5% in Euros [(500/10.000)*100] and 20% in USD (2500/12.500*100).

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