Why account balance growth is not the same as trading performance, how to separate deposits, withdrawals, fees, dividends and interest, and how to read a cash flow statement for your account.
Your account balance went from $20,000 to $30,000 this year. Did you trade well? Not necessarily. If you deposited $12,000, your trading actually lost $2,000. Separating money you put in and take out from what your trading produced is the first step to measuring performance honestly.
Borrowing the idea of a company's cash flow statement, a trading account's movements fall into groups:
For each month, track:
| Line | Example |
|---|---|
| Realized trading P&L | +$1,450 |
| Dividends and interest | +$35 |
| Commissions and fees | −$210 |
| Margin interest and financing | −$40 |
| Cash from operations | +$1,235 |
| Deposits | +$2,000 |
| Withdrawals | −$500 |
| Cash from financing | +$1,500 |
| Change in cash | +$2,735 |
Over a year, this shows whether your account is growing from trading or from saving.
If you trade for income, regular withdrawals are part of the plan. Tracking them separately shows how much the account produced and how much you took, and helps you avoid withdrawing more than the account earns.
Once you have a few months of history, you can project future cash flow from your average results, deposits and withdrawals. Treat forecasts as rough. Trading results vary much more than salaries. See compound growth.
The transactions page lists deposits, withdrawals, dividends, interest and fees, and the cash flow page reads your account like a company cash flow statement by month, quarter or year, with cash from operations, financing, free cash flow and a forecast you can switch on or off in the chart. Related: monthly performance review.
How the US wash sale rule disallows losses when you rebuy within 30 days, how the disallowed loss carries into the new position, examples, and how active traders keep track.
How the IRS distinguishes investors, traders and dealers, what trader tax status means, how the section 475(f) mark-to-market election works and its deadlines.
What section 1256 contracts are, how the 60/40 rule and year-end mark-to-market work, which instruments qualify, and how they are reported on Form 6781.
