The performance fee is the amount an Investor pays to a Portfolio Manager (PM) for profitable investments. Portfolio Managers pre-define a fee rate at which Investors are to share their profits from investments
The performance fee is credited to a Standard trading account automatically created in the Portfolio Manager’s Personal Area for this purpose. These funds once credited can be used for trading, withdrawals, or for transferring to other trading accounts.
The Portfolio Manager can adjust performance fee after fund creation. However, the new performance fee rate will only be applied to newly opened investments; existing investments will remain unaffected.
How is the performance fee calculated?
It is calculated as a percentage of incremental profit, which is the difference between investment profit (since inception till the end of the billing period) and profit threshold (highest peak of profit since inception that is established at the beginning of the billing period).
The performance fee is charged only if an investment has an incremental profit, i.e. when profit at the end of the billing period is higher than the profit threshold.
Performance fee calculation formula
Fee for current period = (Profit since inception - Profit threshold) * Fee rate
Profit since inception is the sum of results for both closed and open orders from the start of the investment until the end of the current billing period, or until the investment is closed.
Profit threshold is the highest peak in profit at the end of the billing period that investment has reached since inception. It is established at the beginning of the billing period.
Fee rate is the percentage of investment profit that should be paid to the Portfolio Manager.
- PM sets a fee rate of 10%.
- An Investor makes an investment of USD 3 000.
- During the first billing period, the Investor gets a profit of USD 400. At the end of the billing period PM receives a fee of USD 40 and investment has equity of USD 3360. Profit threshold is USD 400 now. Since this is the first billing period, there is no profit threshold set, thus the incremental profit is calculated as USD 400 (profit since inception) - USD 0 (profit threshold), which is USD 400. The performance fee will then be calculated as USD 400 x 10% (fee rate) which is USD 40. This fee will be transferred to the PM’s account and the remaining investment equity will be USD 3360.
- By the end of the next period, the investment suffers a small loss of USD 50. This makes the current investment profit (since inception) USD 350, while the profit threshold is now USD 400 (previous profit).
- Since the profit threshold is higher than the investment profit, there is no incremental profit for this period and no performance fee will need to be paid to the Portfolio Manager for this period.