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DONUTFLIPPER

Walking the order book

ROI OR PROFIT?

2 minute read

Two numbers answer two different questions, and picking the wrong one is the most common way to waste an afternoon.

ExampleWhich of these is the better trade?invented numbers
Trade A     ROI  500%     profit     $50,000
Trade B     ROI   40%     profit  $20,000,000

Trade A uses your money five times more efficiently. Trade B makes four hundred times more money.

What each one is for

ROI is efficiency: profit as a share of what you had to put in. It tells you how hard your money works, and nothing about how much money is on the table.

Executable profit is size: what the whole run would clear at the prices actually on the board. It tells you whether the opportunity is worth the trip.

The trap

A tiny trade can post an enormous ROI. Buy one item for $10, sell it for $60, and that is 500% — on five dollars. Sorting by ROI alone puts those at the top of the board.

Sort by executable profit and you get the opposite problem: the biggest numbers may need more capital than you have. Which is the lesson after next.

A rule that survives contact

Use executable profit to decide whether a trade is worth doing, and ROI to choose between trades you could actually afford.