How is profit share/performance fee calculated? What if there is a loss?San Keul
At the end of the first month after your account begins trading, if there is a profit, the broker will deduct the performance fee/profit share, technically called the “incentive fee”, that has been authorized on the Power of Attorney you signed when you opened your account. The incentive fee is a percentage of the net profits per month from the “watermark” of previous highs. If there are no profits in a given month, no incentive fees will be deducted from your profits. The high equity point established after incentive fees are calculated creates the “watermark” which must be surpassed before any future profits may again be calculated.
Example: you start with $10,000 in an account with an performance fee of 20%, and during the month there is $4000 in gross profit. The incentive fee deducted would be 20% of $4000, which is $800, so your net profit would be $3200, and your account would now have a “watermark” new balance of $13,200. If in the next month there was a loss of $1000, there would be no incentive fee deducted, since there is no profit, and your new balance would be $12,200 but your “watermark” is still $13,200. In the third month, if there was $3000 in gross profit, then the incentive fee would be calculated on only $2000 of that, since the first $1000 in profit gets your account back up to its “watermark” of $13,200. So the incentive fee would be 20% of $2000, or $400, and your net profit for that month would be $2600 and your new account balance would be the new “watermark” of $15,800.