What is Time-Weighted Return?

Time-weighted return measures how well a strategy traded, with the timing and size of your deposits and withdrawals taken out of the picture. It matters because the money you add or remove is not the strategy's doing, yet it drags a simple "balance went from £10,000 to £12,000" figure around. Time-weighted return asks a cleaner question: if I had put in £1 and never touched it again, what would that £1 be worth now?

What it is

Every time you move money in or out of an account, you break its history into a new chapter. Time-weighted return measures the growth inside each chapter on its own, then links the chapters together. A deposit made the day before a good run does not get unfair credit, and a withdrawal before a bad one does not dodge the blame. The result is a single figure that reflects the trading, not the cash flow.

How it works

Time-weighted return = (1 + r₁) × (1 + r₂) × … × (1 + rₙ) − 1

Split the period at every deposit or withdrawal. Work out the percentage return for each slice using the balance just before the money moved. Then chain the slices together by multiplying their growth factors. Two 10% slices do not add to 20% — they compound to 21% (1.10 × 1.10 = 1.21). The linking is what makes it "time-weighted": each period counts for the stretch of time it covered, regardless of how much money happened to be in the account at the time.

A worked example

Start with £10,000. In the first month the strategy makes 10%, so the balance reaches £11,000. You then deposit £5,000, taking it to £16,000. In the second month the strategy loses 5%, ending at £15,200.

A naive look says you put in £15,000 and hold £15,200 — a limp 1.3% gain. That punishes the strategy for a deposit you made, not a trade it placed. Time-weighted return splits the history at the deposit: +10% in month one, −5% in month two. Chain them: 1.10 × 0.95 = 1.045, a time-weighted return of 4.5%. That 4.5% is what the strategy actually did. The £5,000 simply arrived in time to feel the second month's loss.

The alternative, money-weighted return, does the opposite: it weights each period by how much money was in the account, so it answers "how did my pounds do" — which leans heavily on when you funded. Both are valid. They answer different questions.

Why it matters

To compare two strategies, or to judge an EA against last year, time-weighted return is the honest yardstick. It is the standard the fund industry reports for the same reason: it cannot be flattered by lucky deposit timing. When you see a track record that added capital and still shows a clean percentage, time-weighted linking is usually why the number holds up. Money-weighted figures, by contrast, can make a mediocre strategy look brilliant purely because a large deposit landed just before a good month.

Common misconceptions

• It is not your actual pounds-and-pence gain. Time-weighted return can read +4.5% while your balance barely moves, because it deliberately ignores when your money was present. For "what did I personally earn", money-weighted return is the right tool.
• Bigger is not always more relevant to you. A strong time-weighted figure describes the strategy; whether you captured it depends on when you were funded.
• It does not fix a short record. Chaining two months together still only describes two months. Time-weighting smooths the cash flow, not the sample size.

The point to hold on to: time-weighted return isolates the strategy from your banking. Use it to compare and to judge skill; use money-weighted return when you want to know what your own account actually made.

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Written and reviewed by the Karnek Research team. Last updated August 2026.

Educational content only - not financial advice. Past performance does not predict future results. Trading carries significant risk.