What is annualized return
Annualized return is the return of an investment or trading account over any period, converted to the rate it would equal if it had run for a full year at the same pace.
It lets you compare results from periods of different lengths, such as a month on one account and several years on a fund, on the same yearly scale.
Ready to try it on a real or demo account?
Partner link · trading carries a high risk of loss
Annualized return formula
The standard (compound, or geometric) version assumes gains are reinvested:
Annualized return = (Start × (End ÷ Start)^(Y ÷ H) − Start) ÷ Start
- Start: value at the beginning of the period
- End: value at the end of the period
- Y: length of a year, in days
- H: length of the holding period, in the same days
The term (End ÷ Start)^(Y ÷ H) is the yearly growth factor. Subtracting the starting value and dividing by it turns that factor into a percentage.
A simpler (arithmetic) version scales the total return in proportion to time, with no compounding. It gives a lower figure for gains over periods shorter than a year. Always check which method a report uses.
Worked example
Take a hypothetical account that gains a small percentage in a single month.
- Simple method: multiply the monthly return by the number of months in a year.
- Compound method: apply the monthly growth factor to itself for every month of the year. The result is higher than the simple figure, because each month's gain earns a further gain.
Either way, a short good month becomes a large yearly number. The account did not earn that rate. The figure only shows what the month would equal if it repeated all year. It is not a forecast.
The opposite case also applies. A total return earned over several years, once annualized, looks much smaller than the total. That yearly figure is the CAGR. To try your own figures, use the tools on the calculators page.
Where you see the term
- Fund factsheets and bank products: profit rates and returns are quoted "per annum", meaning annualized. See saving, investing and loans.
- Central bank rates: policy rates are yearly rates. Example: SBP policy rate raised by 50 bps to 12% with effect from 27.10.2026 (MPC). Changes are often stated in basis points.
- Trading reports and statements: performance summaries of an account statement or a strategy test may show period return alongside an annualized figure.
- News: fund rankings and "yearly return" headlines usually use annualized numbers.
Edge cases experienced traders should know
- Short periods exaggerate. Annualizing a few days or weeks magnifies both gains and losses. Many fund standards do not annualize periods under a year for this reason.
- Deposits and withdrawals distort. Plain end-versus-start figures mix trading results with cash flows. A time-weighted return removes the effect of cash flows. A money-weighted return (internal rate of return) includes it.
- Day count. Using calendar days or trading days for Y changes the result.
- Losses compound too. A large drawdown needs a larger percentage gain to recover. Annualized figures hide the path, so read them with the equity curve and annualized volatility.
- Leverage. With leveraged CFD and forex trading, returns of either sign can be extreme, and losses can come fast. A high annualized figure says nothing about the risk taken. See risk management.
Related terms
Frequent questions
What does annualized return mean in simple words?
It is a return from any period, restated as a yearly rate so that results from different periods can be compared.
Is annualized return the same as CAGR?
CAGR is the compound annualized return over several years. Over periods longer than a year, the two terms usually mean the same thing.
Why is my monthly result so large when annualized?
Annualizing assumes the same pace for a whole year. It does not mean the result will repeat.
Does annualized return include risk?
No. It shows only the rate. Look at volatility and drawdowns separately.
Which formula should I use?
The compound formula is the standard one when gains stay invested. Whichever method you use, state it, and do not compare a compound figure with a simple one.