How does LUSID calculate realised gain/loss?

A transaction that decreases (that is, reduces or closes) a position may realise a gain or loss.

LUSID automatically calculates a running total of holding cost from all transactions that contribute to that holding. A transaction that decreases a position reduces the total cost proportionally to the cost of the holding; note the precise impact depends upon the tax lot accounting method.

The difference between the cost reduction and the transaction’s total consideration is the realised gain/loss.

Note: The ‘total consideration’ of a transaction is a subjective concept in LUSID. You can choose whether to capitalise fees or not, include or exclude bond accrued interest, and so on.

Example: Reducing an equity position

Consider the following example, of three consecutive transactions in a single Equity instrument:

• The first transaction is a purchase of 200 units @ 10 that establishes a holding with a unit cost of 2000 / 200 = 10.

• The second transaction is a purchase of 500 units @ 11 that changes the unit cost to 7500 / 700 = 10.71.

• The third transaction is a sale of 300 @ 12 that reduces holding cost proportionally (by 300 × 10.71 = 3214.29) and realises the difference to the total consideration as gain:

This example makes the following assumptions:

• The containing portfolio uses the default AverageCost accounting method.

• The transaction, settlement and portfolio currencies are all the same.

• Both transaction types have a StockMovement that uses the built-in Side1 to convert total consideration to transaction currency (where different) and exclude bond interest (where applicable).

LUSID calculates realised gain/loss for the Sell transaction as follows:

total consideration  - (transaction units * (holding cost / holding units))

In other words:

3600 - (300 * (7500 / 700)) = 385.71

Auditing the realised gain/loss calculation for a transaction

You can examine the output transaction automatically generated by LUSID to audit a realised gain/loss calculation. Where applicable, LUSID breaks the total realised gain/loss down into market, FX and amortisation components.

To do this, call the BuildTransactions API, or navigate to Dashboard > Transactions in Output mode in the LUSID web app, select the transaction and click the ± button at the end of the row (highlighted below):

Auditing cumulative realised gain/loss for a holding

You can value a portfolio and specify the following realised P&L metrics to audit cumulative realised gain/loss over a particular period, for example year to date or from portfolio inception:

• ProfitAndLoss/Realised/Market: Cumulative realised gain/loss from market price fluctuations.

• ProfitAndLoss/Realised/Fx/PortfolioCcy: Cumulative realised gain/loss from exchange rate fluctuations.

• ProfitAndLoss/Realised/Amortisation: Cumulative realised gain/loss from amortisation or accretion of bond instruments.

Note: There is no built-in metric to calculate total realised gain but you can create a custom derived valuation metric to aggregate these above.

To do this, call the GetValuation API, or navigate to Dashboard > Valuations in the LUSID web app and click the Configuration cog (highlighted below) to add realised P&L metrics to the view, for example: