ROI is an acronym for Return On Investment.
It’s a term used across all financial markets, to describe what every investor hopes for when making an investment in a risky asset.
We invest or buy low and sell high or swap currencies in hopes of taking our initial investment and growing it larger.
This gain (or loss) over (or under) our initial investment can be calculated into a single number or a percentage gain/loss.
The percentage metric is then used as a reference point or future comparison for good or bad performances, unique to the person.
That value can be used to gauge the profitability of a trade or investment.
ROI is often stated as a percentage (like 25% ROI), but you’ll see it also stated as a ratio (like 0.25 ROI).
To calculate ROI, use the following formula:
ROI = (CURRENT VLAUE – TOTAL COST) / TOTAL COST
For example, if I bought 1 bitcoin (BTC) at $20,000, but now it’s worth $65,000, my ROI would be:
ROI = ($65,000 – $20,000) / $20,000
ROI = ($45,000) / $20,000
ROI = 2.25
ROI as a % = 2.25 x 100 = 225%
ROI on the bitcoin (BTC) would be 225%.
ROI can also be negative.