A monthly return is one period
If an account rises from $10,000 to $10,500 during one month, the return for that month is 5%. That does not mean the account will earn 5% in every future month.
Why 5% per month is not simply 60% per year
Multiplying 5% by 12 gives a simple, non-compounded figure of 60%. If every month's 5% gain were instead reinvested, the mathematical result would be about 79.6% over 12 months. The second number is a compounding scenario and assumes the same positive result repeats every month.
Negative months change the path
Trading returns rarely arrive in a straight line. A 10% gain followed by a 10% loss does not return an account to its starting value: $10,000 becomes $11,000 and then $9,900. Percentage gains and losses operate on a changing capital base.
Cumulative return describes the whole period
If a verified account is up 40% from the beginning of its track record to today, that is a cumulative return for that period. It should not be described as a monthly or annual return unless the data has been converted appropriately.
Average monthly return needs context
An average can hide variation. Two strategies can have the same average monthly result while one moves within a narrow range and the other alternates between large gains and large losses. Look at the individual months, drawdown and the length of the record as well as the average.
Gross and net returns are different
A strategy may report the return generated before performance fees and other costs. The investor's net return can be lower. When comparing products, make sure the percentages are measured on the same basis.
How to read a return claim
Ask four questions: what period does the percentage cover, is it gross or net, is it realised history or a projection, and what drawdown occurred while producing it? Those questions eliminate much of the ambiguity in headline performance numbers.