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Analyzing Market
Glossary

Return on Investment (ROI)

Return on investment (ROI) is a simple measure of how much an investment has gained or lost, expressed as a percentage of the amount originally put in.

How it works

ROI is calculated by taking the current value minus the original cost, divided by the original cost. A positive ROI means a profit and a negative one means a loss. It is straightforward but does not account for how long the investment was held or the risk taken, so two investments with the same ROI can be very different.

Why it matters

ROI is a quick, common way to compare outcomes across different assets or strategies. In volatile markets like crypto it should be read alongside the time period and risk involved, since a high ROI achieved with extreme risk is not the same as a steady one.

Example

Buying an asset for 100 and selling it for 150 is a 50% ROI.

Return on Investment (ROI): Frequently Asked Questions

How is ROI calculated?
ROI is calculated by taking the current value minus the original cost, then dividing by the original cost, and expressing the result as a percentage. A positive ROI means a profit and a negative one means a loss. For example, buying an asset for 100 and selling it for 150 is a 50% ROI.
What are the limitations of using ROI?
ROI is simple but does not account for how long an investment was held or the risk taken to achieve it. Two investments with the same ROI can be very different: one earned steadily over years, another quickly with extreme risk. In volatile markets like crypto, ROI should always be read alongside the time period and risk involved.
Why is ROI popular despite its shortcomings?
ROI is a quick, common way to compare outcomes across different assets or strategies using a single percentage. Its simplicity makes it easy to communicate and apply broadly. The trade-off is that it omits time and risk, so a high ROI achieved with extreme risk is not the same as a steady one, and context matters.
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