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Turnover

How much of the portfolio is replaced over a period, usually annualised. It multiplies every per-trade cost and is the fastest way to convert an edge into fees.

Annual turnover of 100% means the whole book is traded once a year, 1,200% means monthly, and a daily strategy can exceed 25,000%. Multiply turnover by round-trip cost to get the annual drag: 1,200% turnover at 0.10% round-trip is 1.2% a year, which is survivable; 25,000% at the same cost is not.

Reducing turnover is often the highest-return improvement available. Entry bands with hysteresis, minimum holding periods, and trading only when the target position differs from the current one by more than a threshold can cut turnover by half while barely changing gross returns.

When comparing two strategies, compare net of their own turnover cost, not gross. The higher-Sharpe gross strategy is regularly the worse net one, and that comparison is exactly what an objective-function should encode.

Related: transaction-cost-modelling, capacity, objective-function, volatility-targeting

Educational only, not advice. Spotted an error? Post in Site Feedback.