PNL methodology

Introduction

The Profit and Loss (PNL) calculation helps to measure and evaluate performance of Portfolio (s) or particular position in a Portfolio. This document introduces the key components and principles of the PNL methodology of the Reluna Platform.

Key Terminology

Portfolio	Quantity (Qty)	Market Price	Purchase Price
A collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents, including closed-end funds and exchange traded funds (ETFs).	The current total quantity of the asset / cash on the position	Current price of the instrument in the market (in the asset currency)	The average cost price (in the asset currency)
Weighted average price (WAP)	Exchange rate (FX)	Currency (Ccy)	Assets Under Management (AUM )
Average cost of a security based on the various prices at which securities were purchased and the quantity of securities bought at each price	FX rate of the instrument Ccy to Portfolio Ccy	Currency of the Instrument or Portfolio( PF) in which system calculates all data	The total market value of the investments that a person or entity manages on behalf of clients.
Performance	Daily PnL	Unrealized PnL	Realized PnL
Sum of all Value of PF positions	Daily profit which the holder can get or loss in case of position closure on the current moment	The profit which the holder can get or loss in case of position closure on the current moment	The gain or loss which was actually happened by the open part of the position
Closed Realized PnL	Total PnL	Total PnL, %	Time-Weighted Return (TWR)
The gain or loss which was actually happened by the closed part of the position	The total profit of the position sum of Unrealized PnL and Realized PnL	The total profit percent of the position regarding starting position	Performance calculation method that presumes multiplying the returns for each sub-period (holding-period and sums up them to showing how the returns are compounded over time. The method helps to eliminate the effects of inflows and outflows of cash.

1. Client Portfolio Valuation

A Portfolio Profile page displays performance data and AUM

AUM - PF value by positions

PNL - percentage income indicator.

PNL can be positive (indicating a profit, marked as “green”) or negative (indicating a loss, marked as “red”), depending on whether the sale price is higher or lower than the purchase price.

2. General PNL methodology

Reluna Platform is based on Time-Weighted Return method for calculation of Profit and losses.

The formula for Time-Weighted Return (TWR) is as follows:

TWR = [(1 + HPR1) * (1 + HPR2) * ... * (1 + HPRn)] - 1

Where:

HPR1, HPR2, ..., HPRn are the holding period returns for each sub-period.

Process of calculating Time-Weighted Return (TWR):

The platform calculates the holding period return (HPR) for each sub-period between investments/withdrawals. During each period there are no investments/withdrawals of cash or asset transfers.
The HPR for each sub-period is calculated as:
HPR = (Ending Value / Starting Value) - 1
Multiply the individual HPRs for each sub-period together:
TWR = (1 + HPR1) * (1 + HPR2) * ... * (1 + HPRn) - 1
The result is the Time-Weighted Return, which represents the compounded return over the evaluation period, factoring out the impact of cash inflows and outflows.

3. Portfolio position information

The platform displays all information for PNL calculations and results of calculations.

Open Portfolio ->Positions → Open position view=Full

Every instrument has automatically calculated Quantity, Prices, Value, PNL etc.

Portfolio Cash, AUM and PNL (daily, realized, unrealized, total etc) are available in USD, EUR, RUB, GBP, CHF on selected date.

By default Portfolio Cash, AUM and PNL are displayed in PF Ccy for today. See more How to see Portfolio Cash,AUM, PNL in different currencies?

To set up necessary filters and columns see more https://help.lunawealth.com/kb/How-can-I-manage-views-and-set-groups,-filters-and-columns-in-the-system-%3F.3305242641.html

3. 1. Position Quantity

Position Quantity is based on the retrieved transactions that are summed up by the “Quantity” field for securities and summed up by the “Net Amount PF Ccy” (cash in transaction execution ccy) field for cash.

3.2. Price

3.2.1 Weighted average price

For performance calculations the platform uses the Weighted average price (WAP)

Process of calculating the weighted average price (WAP) for securities:

The Platform multiplies the number of securities acquired at each price by that price. This calculates the total value of securities acquired at each price.
The Platform adds the values obtained in step 1 for all different prices. This gives the total value of all the securities acquired.
The Platform divides the total value from step 2 by the total number of securities acquired. This calculates the weighted average price per security.

Transaction’s fields used for calculations: “Purchase Price” , “Quantity”.

The calculation process is the same for cash transaction, but calculations are based of “FX rate” and and field “Net Amount PF Ccy”

WAP is calculated as WAP= Σ (Qty*Price)/Σ(Qty)

N.B. In case of Transfer, Purchase Price will be calculated as Final Market Price of the Asset on the day of Transfer.

Example, WAP for BUY security transactions

100 shares is bought at $50 each and then 200 shares at $55 each

WAP calculation is the following:

WAP = ((100 * $50) + (200 * $55)) / (100 + 200)

WAP = ($5000 + $11000) / 300 WAP = $16000 / 300

WAP = $53.33 (rounded to two decimal places)

Example, WAP for FX transactions

3 (three) separate FX operations are made to exchange US dollars (USD) for Euros (EUR):

Exchanged 500 USD for 400 EUR at an exchange rate of 1.25 USD/EUR.
Exchanged 300 USD for 210 EUR at an exchange rate of 1.43 USD/EUR.
Exchanged 200 USD for 150 EUR at an exchange rate of 1.33 USD/EUR.

To calculate the WAP for these cash transactions, the platform uses e the following formula:

WAP = (Σ(Exchange Rate * Qty of EUR)) / Total Qty of EUR

WAP: Weighted Average Price (the average cost of 1 EUR in terms of USD)
Σ: Summation symbol (sum of the following values)
Exchange Rate: The exchange rate at which each transaction occurred (USD/EUR)
Qty of EUR: The quantity of Euros exchanged in each transaction
Total Quantity of EUR: The total quantity of Euros exchanged

WAP = ((1.25 * 400 EUR) + (1.43 * 210 EUR) + (1.33 * 150 EUR)) / (400 EUR + 210 EUR + 150 EUR)

WAP = (500 USD + 300 USD + 199.5 USD) / 760 EUR

WAP = 999.5 USD / 760 EUR

WAP ≈ 1.31 USD/EUR (rounded to two decimal places)

3.2.2 Market price

Market prices are loaded from different pricing sources.

All instruments are grouped by asset type and pricing sources are linked to a group. Market price is loaded when there is an open position for this instrument on any Portfolio.

After end-of-day the platform automatically loads close prices for previous day.

When a new market price is loaded or final market price is loaded the platform automatically recalculates the positions of Portfolios and accordingly PNL.

3.3. Position Value and Portfolio Value (AUM)

A general formula for calculating the Position Value in a portfolio:

Position Value = Σ (Qty × Price)

Qty: qty of assets of specific security held in the portfolio.
Price: market price per asset of the Security
Σ: sum up of values

This formula for calculation of the Position Value for that specific security within the portfolio.

Example of Position Value calculations

A security is bought within the following transactions:

Bought 100 units at $50 per unit.
Bought 200 units at $55 per unit.
Bought 150 units at $60 per unit.

Position Value = (100 units * $50 per unit) + (200 units * $55 per unit) + (150 units * $60 per unit)

Position Value = $5,000 + $11,000 + $9,000

Position Value = $25,000

A general formula for calculating the Value of a portfolio (AUM):

Total PF Value = Σ (Qty * Market Price)

Qty: qty of assets of each security that is held in portfolio.
Market Price: current market price of one unit or share of each security.
Σ: sum up of values for each security

Example of Total PF Value calculations

There are 3 (three) different securities with the following quantities and Market prices per asset in a Portfolio:

Security A: Quantity = 100 units, Market Price = $50 per asset

Security B: Quantity = 200 units, Market Price = $75 per asset

Security C: Quantity = 50 units, Market Price = $30 per asset

Total PF Value = (100 units * $50 per asset) + (200 units * $75 per asset) + (50 units * $30 per asset) Total PF Value = $5,000 + $15,000 + $1,500

Total PF Value= $21,500

3.4. Calculations of PNL

PnL of positions is calculated in accordance with the instrument type. All instruments are classified as Cash, Equity / ETF, Structured Products / Fixed Incomes, Options / Futures.

Position’s PNL is calculated on the basis of transactions. If transaction is multileg, please follow additional notes below.

Calculation of multileg transactions

Multileg transactions have parent and related child transactions. Multileg parent transactions are marked with attribute “Multileg”= true

If transaction type is FX / INFO / PAYMENT / FEE, the platform calculates position on the basis of child transactions.

If transaction type is BUY / SELL, the platform calculates position on the basis of parent transaction.

3.4.1. Cash PNL

Calculated transactions: FX, Fee
Fee transactions affect only Closed Realized PnL of cash position.
FX PNL appears when Porfolio Ccy differs from cash position Ccy.

Formulas for calculation:

Realized Pnl = (Sell Price - Purchase Price) * Qty - Commissions
Closed Realized PnL=(Sell Price - Purchase Price) * Qty - Commissions

N.B. Closed Realized PnL is calculated only on closed positions

Unrealized Pnl = (Market price - Purchase price) * Qty
Total Pnl = Unrealized Pnl + Realized Pnl
Total Pnl (%) = Total Pnl / (Qty * Purchase price)

3.4.2. Equity/ETF PNL

Formulas for calculation:

Realized Pnl =(Sell Price - Purchase Price) * Qty - Commissions+ Received Incomes
Closed Realized PnL=(Sell Price - Purchase Price) * Qty - Commissions+ Received Incomes

N.B. Closed Realized PnL is calculated only on closed positions

Unrealized Pnl = (Market price - Purchase price) * Qty
Total Pnl = Unrealized Pnl + Realized Pnl
Total Pnl (%) = Total Pnl / (Qty * Purchase price)

3.4.3. Structured Products / Fixed Incomes PNL

Formulas for calculation:

Realized PnL = ((Sell Price - Purchase price)) * Qty -Commissions - Accrued from transaction + Received Incomes
Closed Realized PNL=(Sell Price - Purchase Price) * Qty -Commissions - Accrued from transaction + Received Incomes

N.B. Closed Realized PnL is calculated only on closed positions

Unrealized Pnl = (Market price - Purchase price) * Qty/ 100+ Accrued from instrument
Total Pnl = Unrealized Pnl + Realized Pnl
Total Pnl (%) = Total Pnl / (Qty * Purchase price)

3.4.4. Options / Futures PNL

Formulas for calculation:

Realized Pnl = Commissions + ((Sell Price - Purchase price) * (N of contracts) * (contract size))
Closed Realized PNL= (Sell Price- Purchase Price) * Qty -Commissions - Accrued from transaction + Received Incomes

N.B. Closed Realized PnL is calculated only on closed positions

Unrealized Pnl = (Market price - Purchase price) * (N of contracts) * (contract size)
Total Pnl = Unrealized Pnl + Realized Pnl
Total Pnl (%) = Total Pnl / ((Qty * Purchase price) *Contract Size)