Key Concepts

The quantity of an algorithm's returns that aren't explained by its underlying benchmark.

A staticial measure that describes the dispersion of annual returns relative to the mean annual return. It's the square root of the annual variance.

A staticial measure that describes the dispersion of annual returns relative to the mean annual return.

The average rate of return for unprofitable trades.

The average rate of return for profitable trades.

The scale and direction of an algorithm's returns relative to movements in the underlying benchmark.

The maximum amount of money an algorithm can trade before its performance degrades from market impact.

The annual percentage return that would be required to grow a portfolio from its starting value to its ending value.

Buying and selling the same asset within one trading day.

The largest peak to trough decline in an algorithm's equity curve.

The total portfolio value if all of the holdings were sold at current market rates.

The expected return per trade.

The absolute sum of the items in the portfolio.

The amount of excess return from the risk-free rate per unit of systematic risk.

(Call Option) The price of an asset minus the strike price if the price is above the strike price, otherwise zero.

(Put Option) The strike price minus the price of an asset if the price is below the strike price, otherwise zero.

The practice of making decisions using information that would not be available until some time in the future.

The proportion of trades that were not profitable.

The asset an algorithm traded that has the lowest capacity.

(Percent) The rate of return across the entire trading period.

(Dollar-value) The dollar-value return across the entire trading period.

(Call Option) The strike price minus the price of an asset if the price is below the strike price, otherwise zero.

(Put Option) The price of an asset minus the strike price if the price is above the strike price, otherwise zero.

The profit or loss that an Option buyer or seller makes from a trade.

A trader who executes four or more day trades in the US Equity market within five business days.

The probability that the estimated Sharpe ratio of an algorithm is greater than a benchmark (1).

The ratio of the average win rate to the average loss rate.

The rate of return across the entire trading period.

The interest rate an investor can expect to earn on an investment that carries zero risk such as the interest paid on a 10-year highly rated government treasury note

A measure of the risk-adjusted return, developed by William Sharpe.

A measure of the risk-adjusted return, developed by Frank Sortino. It only penalizes returns falling below a user-specified target or required rate of return.

The total quantity of fees paid for all the transactions.

The rate of return across the entire trading period.

The number of orders that were filled or partially filled.

A measure of how closely a portfolio follows the index to which it is benchmarked. A tracking error of 0 is a perfect match.

A measurement of the returns earned in an algorithm in excess of the risk-free rate per unit of benchmark risk, developed by Jack Treynor.

The amount of profit a portfolio would capture if it liquidated all open positions and paid the fees for transacting and crossing the spread.

The total value of assets traded for all of an algorithm's transactions.

The proportion of trades that were profitable after transaction fees.