Negative Balance Protection

[darktone]

what color is this?

 

[hhiusa]

=darktone;2514141Trader A is out the full 10k and off searching the jobs ads in the local rag to go again, at some point in the future.

Trader A is also not likely to be reading the classifieds even if he loses the $10,000 because he should not have invested with money he cannot afford to lose.

They are not the same methodologies. They never will be. Trader A does not use leverage and Trader B does.

 

[darktone]

Traders A and B both have contingency funds far in excess of their risk capital that are strictly not for trading purposes. They both have the same job at the same pay, the same life situation with the same cash burn. The loss of 10k does not affect their lifestyle in any way outside of trading.

Traders A and B both uses the exact same linear regression method to define and execute their trades. They took the same trades at the same time at the same size.

 

[darktone]

so what is this this colour?

 

[Forexmospherian]

Green lol

 

[hhiusa]

hhiusa

I take your point and agree with some of your comments as well

Remember this site is a retail traders site and not a commercial trading group discussion forum - so the subject covered will be maybe unusual for you as I think you are trading using rules commercial institutions would use.

I have been waiting 10 months for someone to clarify this. I am probably the smallest of the big fish as far as institutional trading. Institutional trading does not necessarily imply that you have billions of dollars. Trading as a firm does give you more investment avenues, even if they only have the same cash as you.

I use 100:1 leverage on a approx $70K on one of my accounts

Now if I only uses a leverage as you and Banks recommend - I would need to deposit 20 times more capital - ie $1,400,000 - to trade at my maximum lot size.

2 years ago I was using leverage of 200:1 - but I did not use all of it and I have in the past had small account with 500:1 leverage - and have not blown any account up since my first year well over a decade plus ago.

If I only used say 10:1 leverage - my ROC would be drastically reduced

OK if I was not making consistent money but was say a "break even or only 10% a year" trader - then lower leverage might be an aid.

I look forward to you explaining how you work out your stake size - ie is it still just 1 or 2% of your capital base on just 5:1 leverage - ( mines 0.3 to 1% ) nowadays on leverage of 100:1 - because of tight stops - but with you not using stops then for example on your GU buy trade - I can only see you making small returns even if you exited when it was up over 140+ pips ?

Also because I am only FX - never traded any other instruments - I am totally naive on all other forms of non FX trading - so I am sorry I can only relate to my field

No rush

Regards

F

When you stake size, do you mean the percentage or amount of money I allocate to one trade relative to another trade? When diversifying, I use a risk metric from statistic. It is calculated on a per diem, per equity basis.

I use some mathematics and generate a probability of success. For example, if I am going to buy 4 equities today, the cash will not be divided up evenly, i.e. not (25% x 4). As for the expect return, it varies from 1-3% per trade. I use 1-3% take profit most times. I do not use a stop loss. If the equity drops 1-3%, then I buy more and decrease my average price.

 

[Forexmospherian]

Hi hhiusa

Not long back at my desk and so will go through your last comment and then try and answer every point etc

Hopefully within next 3 hrs after I have finished off day trading today

Regards

F

 

[Forexmospherian]

I have been waiting 10 months for someone to clarify this. I am probably the smallest of the big fish as far as institutional trading. Institutional trading does not necessarily imply that you have billions of dollars. Trading as a firm does give you more investment avenues, even if they only have the same cash as you.

I can understand you looking at trading as a firm to take advantage of of the US tax rules and regulations etc - so that's OK - but I suppose in Europe most traders are not looked as being commercial until they have a capital account over a few million dollars - and then they work at it maybe full time or certainly not as a part time hobby.

If we look at the results that we hear are made on an annual basis from commercial organisations like small investment groups and hedge funds etc - you expect results from over say 20% per annum up to even 50%. Now if your capital account contains say $2.million then even 20% per annum ROC is a nice return and easy enough to employ a trader full time. On $5 - 10 million plus then I would be delighted with 20+% per annum ROC and then you would not use any leverage of more than say 10:1 - far too risky - ie 20% off a $50k account is only $10k - just a 10% loss on a $5 million account is $500k ( frightening ;-) )

Now in Europe - most retail traders start off with anything from say a few hundred dollars to say $5k. Not many retail traders are full time and so its more of a part time hobby and those guys who are full time retail ( remember maybe only 5% to 20% of all the retailers) maybe work on capital accounts from say $50k to maybe a maximum of $500k. As you know - European traders are not limited to low leverage of under 50:1 or even as low as 20:1. They instead want 200 :1 + but they are not really bothered about it if they only have $500 or say £2k to lose.

However the recent Black Swan events since 2008/9 - and 2011 and 2015 etc have made many retail traders suddenly read the small print and realise that if they do have a small capital account of only a few thousand pound and they have leverage over say 200:1 or more then in worst case scenario if they are in a trade with no stop and the markets goes against them - their accounts are not always closed with a margin call and instead its too late and their bad trade instead of only costing them the full $2k of their capital account - they might owe the brokers say double or even five fold more - and this then totally changes the ball game.

So negative balance clauses guaranteeing what ever happens they cannot lose more than their Capital account value become important - (ie a great safety net for the unexpected black swan event)

You would not get that with a commercial organisation or I don't think you would get it with retail capital accounts over $100k + - that I am not sure of

Also although European brokers segregate their traders funds - if it did get "used" in a fraudulent way the FSA ( Financial Regulators for the UK) cover up to either £50k or £80K ( need to check as amount in a bank is different to in a brokerage) as long as the broker is a member of their organisation and abides by their rules

Back again to the European retail traders - because they are only using small capital accounts they take advantage of leverage and of course ideally want returns of anything from 50% to 300% per annum. This is not possible to maintain using compounding but on retail accounts it can be that high simply due to small capital and the leverage effect. If the traders are newbies or not experienced as we know maybe 80 % plus will end up losing their first or even two or three small capital accounts

The forum boards are full of traders taking $1k to $15k or even $50k in a few months or year and then losing the whole lot due to bad money management - over trading and wrong stake sizes etc - not forgetting martingaling etc and even averaging down - they all can work for a short term - whether just 2 months or 10 months - but normally long term it leads to lost capital.



When you stake size, do you mean the percentage or amount of money I allocate to one trade relative to another trade? When diversifying, I use a risk metric from statistic. It is calculated on a per diem, per equity basis.

I use some mathematics and generate a probability of success. For example, if I am going to buy 4 equities today, the cash will not be divided up evenly, i.e. not (25% x 4). As for the expect return, it varies from 1-3% per trade. I use 1-3% take profit most times. I do not use a stop loss. If the equity drops 1-3%, then I buy more and decrease my average price.

Can I come back to this part to cover in more detail and let me give you an example based on one of my own FX trading accounts

With you not using stops - but using maths to give you the probabilities of winning and worse case scenarios - it does mean your annual results will be low - ie normally under 25% per annum with no leverage - thats if its a successful strategy

There are so many variables in your trading equation - ie what is the maximum amount of trades you might have open in any one week or month? It will all depend on how successful you are with your winning trades and how quickly you take all or part profits and the % returns you quote for example 2% is that the return on YOUR capital - or just the change in the trades's price or return on the stake size you have used on trade??

First part of trying to answer some points raised

Will cover more later

Regards

f

 

[hhiusa]

[/COLOR][/I]

First part of trying to answer some points raised

Will cover more later

With you not using stops - but using maths to give you the probabilities of winning and worse case scenarios - it does mean your annual results will be low - ie normally under 25% per annum with no leverage - thats if its a successful strategy

There are so many variables in your trading equation - ie what is the maximum amount of trades you might have open in any one week or month? It will all depend on how successful you are with your winning trades and how quickly you take all or part profits and the % returns you quote for example 2% is that the return on YOUR capital - or just the change in the trades's price or return on the stake size you have used on trade??

Regards

f

Concerning the questions you have about my trading style, why don't you have a look at my journal? It shows the number of open positions I have at one time. I post the entry price, entry time and share size. I explain what I will be buying if certain conditions are met beforehand.

 

[hhiusa]

I can understand you looking at trading as a firm to take advantage of of the US tax rules and regulations etc - so that's OK - but I suppose in Europe most traders are not looked as being commercial until they have a capital account over a few million dollars - and then they work at it maybe full time or certainly not as a part time hobby.

I do this full time or at least I do not have to do anything to pay the bills. I never told you how much I have or how much I am managing. You certainly make a lot of assumptions.

 

[hhiusa]

If we look at the results that we hear are made on an annual basis from commercial organisations like small investment groups and hedge funds etc - you expect results from over say 20% per annum up to even 50%. Now if your capital account contains say $2.million then even 20% per annum ROC is a nice return and easy enough to employ a trader full time. On $5 - 10 million plus then I would be delighted with 20+% per annum ROC and then you would not use any leverage of more than say 10:1 - far too risky - ie 20% off a $50k account is only $10k - just a 10% loss on a $5 million account is $500k ( frightening ;-) )

To me, a 10% loss is the same, no matter how much money you manage. I believe I have explained percentages before.

Do you have proof specifically for how much money US and European hedge funds make?

 

[itspossible]

I do not use a stop loss. If the equity drops 1-3%, then I buy more and decrease my average price.

https://www.youtube.com/watch?v=ZsxCMPQzqvk

 

[hhiusa]

https://www.youtube.com/watch?v=ZsxCMPQzqvk

Why don't you write what you want to say instead of using a video?

 

[Forexmospherian]

Concerning the questions you have about my trading style, why don't you have a look at my journal? It shows the number of open positions I have at one time. I post the entry price, entry time and share size. I explain what I will be buying if certain conditions are met beforehand.

Will Do

I don't know whether you are still in your GU buy from Sunday - but am I correct to assume your stake was $17000 which is $1 7 per pip. So as an example a 100 pip gain is $170 addition on to your account

Would you consider taking part profits ? or moving stops into profit ? and adding more stake to a profitable position?

Hope to get on to examples next using my own money management method on my capital account along with posts from Investopedia

 

[hhiusa]

Will Do

I don't know whether you are still in your GU buy from Sunday - but am I correct to assume your stake was $17000 which is $1 7 per pip. So as an example a 100 pip gain is $170 addition on to your account

Would you consider taking part profits ? or moving stops into profit ? and adding more stake to a profitable position?

Hope to get on to examples next using my own money management method on my capital account along with posts from Investopedia

I never take partial profits. I always close the position in its entirety. I also never increase my position when it is rising. I do not move stops into profit. I have said many times before and many other people on here have posted something to the similar effect that psychology is a huge part of trading. You have to have patience. That's why if the market is moving down and I still have a belief that the market well end higher in the future, I double down.

You have not addressed my other statements.

p.s. I am using my phone's speech to text so there may be errors.

 

[Forexmospherian]

To me, a 10% loss is the same, no matter how much money you manage. I believe I have explained percentages before.

Do you have proof specifically for how much money US and European hedge funds make?

2015 was a bad year overall for most Hedge Funds - and I believe there is over 10,000 + Funds in operation

Here's some best performing ones

http://www.insidermonkey.com/hedge-fund/best-performing-hedge-funds

I am sure you are aware of how the play around with the figures to suit their "spin" - depending what they are wanting ;-)

For example Warren Buffett proved that one Hedge Fund managing a $20 billion of Funds had managed to obtain $400 million in total fees - and thats not based on performance - ie the 2 and 20% charges

I know I have quite a few other points to answer - I have had a look through your journal and still have quite a few other questions to ask etc

If I cannot get through them in next hour will continue tomorrow some time

 

[hhiusa]

2015 was a bad year overall for most Hedge Funds - and I believe there is over 10,000 + Funds in operation

For example Warren Buffett proved that one Hedge Fund managing a $20 billion of Funds had managed to obtain $400 million in total fees - and thats not based on performance - ie the 2 and 20% charges

This is not an explanation or proof of how much money hedge funds make. You said that hedge funds make at least 25% per annum.

 

[Forexmospherian]

[/COLOR][/I]

First part of trying to answer some points raised

Will cover more later

Regards

f

I will try and answer more raised points in order

First back to your

When you stake size, do you mean the percentage or amount of money I allocate to one trade relative to another trade? When diversifying, I use a risk metric from statistic. It is calculated on a per diem, per equity basis.

I use some mathematics and generate a probability of success. For example, if I am going to buy 4 equities today, the cash will not be divided up evenly, i.e. not (25% x 4). As for the expect return, it varies from 1-3% per trade. I use 1-3% take profit most times. I do not use a stop loss. If the equity drops 1-3%, then I buy more and decrease my average price.


Ok stake size - lets look at the GU buy trade you took from Sunday as an example

I did not start trading it until Monday but since then have intraday traded it in both directions via scalp buys and sells and leaving partial stakes on with the stops moved into profit ( to relieve the stress and worry of seeing a profitable winning trade turn into a loss

I use on one FX account an approximate $70k Capital base with leverage of 100:1

I don't use the full leverage but will show you my way. Because my stops are tight for scalping 10 pips is approx 1% of the capital and so an average 5 pip stop is approx 0 5% of my capital in terms of risk per scalp trade. ie 0.5% of 70k is $350 - so that allows me up to $70 a pip with a 5 pip stop.

I will never have more than 3 simultaneous scalps open - so maximum exposure is 1.5% of capital and although I can have up to 6 trades open simultaneous over a session - I will have them with stops in profit - so not to expose myself to 3% of my account if every trade lost. 3% of $70 approx would be $2100

Normally a scalp will last 10 to 30 mins if successful - if not I am prepared to lose up to $350 a scalp although normally I exit before a soft stop and on Monday most of my scalps were taken at approx $30 a pip.

I take between 10 and 20 intraday trades most days .My win ratios are between a low 61% and high 87% on batches of 100 scalps. I have averaged approx 5 trades a day on GU this week so far

So far from Monday - the GU as moved up approx 200 pips and I have made over 380 pip from it over 3 days with approx 310 pips on average partial stakes of between $10 and $15 dollars and the other 70 pips on stakes from $30 to $40 a pip.

The GU as provided me with an approx 8% return on my total capital in just 3 days

My capital risk per trade was a maximum 0 5% of capital and approx $350 exposure per trade.

I am sure you will say - Ok prove it - but that's another discussion.

Now I know you have said I don't do part profits or add to winning trades - I think you did on a trade closed on was it Feb 12th - when one nice trade on HUBG made you over $2500 ?

In comparison on your GU trade - I reckon approx 380 pips would have made you equivalent to $646 - and that would be a very small % of your Capital account - due to the fact that you dont use a stop and no real leverage. Also you would not have 380 pips as you don't intraday or trade in both directions and pyramid etc.

Even with no leverage I would be concerned with no stops and averaging down - I just dont thinks its efficient trading - but thats only my opinion

Will answer other points etc tomorrow

Here's that Investopedia article on leverage in FX

http://www.investopedia.com/articles/forex/07/forex_leverage.asp


Regards


F

 

[hhiusa]

I will try and answer more raised points in order

Ok stake size - lets look at the GU buy trade you took from Sunday as an example

I did not start trading it until Monday but since then have intraday traded it in both directions via scalp buys and sells and leaving partial stakes on with the stops moved into profit ( to relieve the stress and worry of seeing a profitable winning trade turn into a loss

I use on one FX account an approximate $70k Capital base with leverage of 100:1

I don't use the full leverage but will show you my way. Because my stops are tight for scalping 10 pips is approx 1% of the capital and so an average 5 pip stop is approx 0 5% of my capital in terms of risk per scalp trade. ie 0.5% of 70k is $350 - so that allows me up to $70 a pip with a 5 pip stop.

I will never have more than 3 simultaneous scalps open - so maximum exposure is 1.5% of capital and although I can have up to 6 trades open simultaneous over a session - I will have them with stops in profit - so not to expose myself to 3% of my account if every trade lost. 3% of $70 approx would be $2100

I do not understand your math here. You say that you are exposing 1% of your capital at 100:1 leverage. I think that you are incorrectly calculating your exposure. If you place a trade using 1% of your capital using 100:1 leverage with an account size of $70,000, that means you used $700. $700 * 100 (100:1 leverage) gives you $70,000 of buying power for that trade. The GBP/USD is at 1.4076. you could buy £49,730 or a 49.73K lot size. That is £4.97 per pip or $7.00 per pip. If you have a 10 pip stop, then you risk losing $70.

Your real exposure for this trade is $70,000. If you have three simultaneous trades just like this one, that is an exposure of $210,000. That is an exposure rate of 300%.

If you are placing 1.5% of your capital at a time in the market with 100:1 leverage you have absolutely no advantage over somebody who is using $105,000 without any leverage or somebody with $70,000 using 1.5:1 leverage exposing 100% of their capital. The main difference between them and you is that they will not be required to use such tight stops. Why use leverage if you are not truly increasing your buying power. You are using 100:1 leverage but you are only increasing your buying power by 50%.

($70,000 * 0.0015 = $1,050 * 100 (100:1 leverage) = $105,000 buying power. $105,000/$70,000 = 1.5 = 50% increase.

I am sure you will say - Ok prove it - but that's another discussion.

Indeed, but I will wait until you have finished explaining everything else.

Now I know you have said I don't do part profits or add to winning trades - I think you did on a trade closed on was it Feb 12th - when one nice trade on HUBG made you over $2500 ?

In comparison on your GU trade - I reckon approx 380 pips would have made you equivalent to $646 - and that would be a very small % of your Capital account - due to the fact that you dont use a stop and no real leverage. Also you would not have 380 pips as you don't intraday or trade in both directions and pyramid etc.

Even with no leverage I would be concerned with no stops and averaging down - I just dont thinks its efficient trading - but thats only my opinion

I take between 10 and 20 intraday trades most days .My win ratios are between a low 61% and high 87% on batches of 100 scalps. I have averaged approx 5 trades a day on GU this week so far

10 pip margins = 1.4076+0.0010. 1.4086/1.4076 = 1.00071. 61-87% of your trades are profitable. 1.00071ˆ87 = 1.0637 and 1.00071ˆ13 = 1.00926. 1.0637/1.00926 = 1.0539. 5 trading days per week. Your best case scenario is 5.39% in two weeks.

10 pip margins = 1.4076+0.0010. 1.4086/1.4076 = 1.00071. 61-87% of your trades are profitable. 1.00071ˆ61 = 1.0442 and 1.00071ˆ39 = 1.028. 1.0442/1.028 = 1.0539. 5 trading days per week. You make about 1.5% in two weeks.

 

[darktone]

Green lol

Yes. Green