What is ROI but it has become a measure for investors to use to compare and evaluate their Crypto investments? What is the ROI formula? Please refer to the article below by Crypto Trading!
What is ROI’s Basic information?
Do you know What is ROI yet? If not, here is some basic information about this index.
What is ROI?
ROI is Return On Investment in English. It means the return on investment, profit rate, return on investment, or return on investment. This index is widely used in the field of financial investment, including Crypto. It is used to measure the performance or profit that the investment brings. In the Crypto market, investors use this index to compare the feasibility of cryptocurrencies with each other. From there, decide which cryptocurrency to invest in.
What is ROI’s meaning?
The ROI index is important in the process of crypto technical analysis. Thanks to this index, investors can evaluate:
– The ability to earn profit from an investment:
The higher the index, the greater the profitability of the investment. Investors can calculate the index between cryptocurrencies and compare. The coin with the higher index should consider investing more in that coin.
Besides, investors should not choose to trade currencies with negative index values. Because currencies with negative index values cannot often grow, if there is growth, it is very low and easy to lose.
– Evaluate the profit and risk of the currency:
Normally, the higher the index of a coin, the greater the profit it will earn. However, as you know, everything has a trade-off. The higher the profit, the greater the risk. Therefore, if you are an investor who is reluctant to take risks, you should consider choosing cryptocurrencies with a moderate index. Thus, the risk you may encounter will also be lower.
You should calculate the RR rate (Risk/Reward Ratio) to make the most specific assessment.
See more: Line EMA: the secret to every successful transaction
Advantages and Limitations of ROI in Crypto Technical Analysis
Similar to other Crypto indicators, besides learning What is ROI, we also need to consider its certain advantages and limitations.
Some outstanding advantages of this index are:
– The ROI index is relatively simple, easy to understand, easy to use
– ROI evaluates the profitability of an investment quite effectively.
However, this index also has some limitations such as:
– ROI does not take into account the time of investment: It can be said that investment time is one of the important factors that determine the success of the investment. The shorter the payback period, the more successful the investment.
An investment with an ROI of 1 over 2 years will always be more optimal and effective than an investment with an ROI of 1 over 5 years.
That is why this index is often applied to short-term investments. Swing traders should consider using it.
– The ROI index does not take into account market risk factors:
You know, the financial market, especially the Crypto trading market, is constantly fluctuating. It is affected by many factors such as interest rates, inflation rates, etc. Meanwhile, the ROI index does not take these factors into account.
For example, A cryptocurrency has a high ROI, however, it has a risk of being difficult to disburse, and this is not necessarily good.
ROI calculation formula
You have grasped What is ROI‘s concept. Next, let’s learn about the calculation formula of this index.
ROI calculation formula
The formula for calculating ROI is briefly expressed as follows:
ROI = (Net profit of investment / Investment cost) x 100%
With: Net return of investment = Present value of investment – Total cost of investment.
In the Crypto market, the present value of an investment is the total amount of money the investor receives after selling the cryptocurrency minus the investment cost.
To make it easier to understand, here is an illustrative example.
For example, An investor spends 20 million VND to buy ETH cryptocurrency. After a while, the investor sells this currency and earns 35 million VND. Thus, after deducting 20 million VND in initial investment costs, the investor earns a net profit of 15 million VND.
This index will now be calculated as follows:
ROI = (15/20) x 100% = 75%.
How much ROI is good in crypto trading
As for the question of how much ROI is good, it will be difficult to give an exact answer. Because, in Crypto technical analysis, evaluating how much ROI is good will depend on many different factors. Including the time needed for the initial investment to generate profit, the investor’s risk tolerance…
Under the same conditions of market, investment capital, and cost… if any investor accepts a higher level of risk, they will agree to a high index. The higher the index, the greater the profit. However, if you are a safe, low-risk investor, currencies with low indices are the right choice.
Likewise, the longer the payback period for an investment, the higher the index required. Projects with shorter payback periods have a lower index.
What is ROI’s effective way to use in trading
After understanding What is ROI, we have the following effective ways to use it:
– Use indexes to evaluate the profitability of investments
Based on the index and their expectations, investors can evaluate whether the investment is effective or not. From there, they can decide whether to invest.
– Use index to analyze, compare, and evaluate investments in different cryptocurrencies.
With this method, investors calculate the ROI of cryptocurrencies. Under the same conditions, the higher the index on a coin, the more they invest in that coin. If this index is negative, then they do not invest.
– Use this index to measure the effectiveness of investment departments
This index usage is used in case you authorize someone else to help you make the transaction. If it is high, and the profit rate is high, the investor continues to use the investment department. If it is low, the investor should consider switching to another investment department.
See more: MEXC: Open a MEXC account, invest effectively
Some notes when using ROI in Crypto Trading
ROI formula and usage are relatively simple to apply. However, you should also note the following to invest and trade more safely and effectively:
First, you should remember that the index is relatively important in the Crypto investment process. However, it is not possible to accurately evaluate coin investments using only this index. Therefore, you should combine many other tools and technical indicators for analysis. Including: moving average index MA, MACD, RSI… At the same time, you follow the news and observe the market chart.
In addition, you should also have an effective capital management plan. The strategy of “don’t put all your eggs in one basket” is always true in investing. You should not put all your capital into the same cryptocurrency. Instead, you should divide it and buy many different coins. That way, if one coin has a sharp decline, you still won’t lose all your capital.
Finally, don’t forget to regularly learn, and improve your knowledge, and experience… to improve your trading ability. In case you don’t like to take risks and don’t have capital, you can invest by mining coins.
Conclude
Above is the necessary information about What is ROI, how to calculate it, and how to use it. This index is relatively simple and easy to understand, so investors can consider applying it. If you want to know more information about cryptocurrency investment, you can visit Crypto Trading for updates!
FAQs
What ROI cryptocurrencies do investors usually choose?
Typically, investors will choose cryptocurrencies with an index of 7% or more.
Is the ROI index displayed directly on the chart?
The ROI index is not displayed on the chart. This index depends on the capital and profit earned by each person, so only the investor can calculate it himself.
Can ROI be negative?
ROI can be negative if the investment is a loss. Investors should not invest in currencies with negative indexes.
