Time-Weighted Return explained, and why your IBKR percentage looks wrong

The instinctive way to measure performance is to divide your profit by your account value. That is return on NAV, and it answers a real question — how large is my P&L relative to the size of my account. But it conflates two very different things: how well your positions performed, and how much money you happened to have in the account while they did.

Deposit a large sum in December and your December gains are measured against a much bigger base, so the percentage falls even though every trade you made was profitable. Withdraw money and the reverse happens. The number moves for reasons that have nothing to do with your decisions.

Time-weighted return removes the distorting effect of deposits and withdrawals. It breaks the period into sub-periods at every cash flow, measures the return within each one, and chains them together. Because each sub-period is measured on the capital actually at work during it, the result reflects the performance of the investments rather than the timing of your funding.

That is why it is the standard for comparing managers and strategies: it is the fairest way to judge how well the trading decisions performed, independent of how much money was added or taken out.

• Use time-weighted return to judge your trading. It answers: how good were my decisions?
• Use return on NAV to judge your account. It answers: how much did my money grow, given what I put in and when?
• They should diverge whenever you deposit or withdraw. If they diverge sharply and you made no cash movements, that is worth investigating.

Neither is more correct than the other. They are answers to different questions, and a journal that shows only one of them is hiding half the picture.

Time-weighted return is only as good as the cash-flow data behind it. If your exported statement omits the Cash Transactions or Change in NAV sections, deposits and withdrawals are invisible, and a deposit gets treated as if the account had grown on its own. The percentage that comes out is then wrong in the exact way TWR exists to prevent.

This is the concrete reason the required report sections are worth being fussy about when you export from IBKR — it is not bureaucratic completeness, it is what separates a real return figure from a flattering one.

• Win rate — the share of closed trades that were profitable. Easy to read, easy to game: a high win rate with large losers is not an edge.
• Profit factor — gross profits divided by gross losses. Above 1.0 means net profitable, and it captures the size of wins and losses that win rate ignores.
• Expectancy — the average profit or loss per trade. The one that tells you what another trade is worth in expectation.
• Realised versus unrealised P&L — locked in versus on paper. Realised P&L from your statements is exact; unrealised depends on the latest market price.