10% heralded as good trader??

Discussion in 'Trading' started by shortorlong, Feb 15, 2008.

  1. Why is it that in a lot of literature, and on TV, 10-15% returns are heralded as such a great accomplishment?

    CNBC and other networks herald fund managers returning 10-15% as best of breed.

    But lots of daytraders and others are returning 200, 300, sometimes 400% annualy..

    Is it because fund managers have millions of dollars and daytrading doesn't scale?

    What's the deal here. How are daytraders able to double their profits while professional fund managers with tons of resources and huge teams of analysts are unable to match?
     

  2. Average length of a day trader/ scalper account is 6 months.

    So you can annualized the returns while the fund managers stay year after year.
     
  3. Yes, it doesn't scale, mutual funds and the like have relatively huge positions and therefore cannot move in and out quickly to take advantage of short term moves as a day trader would. Also, the bigger the fund, the wider you need to spread your investments, and therefore your returns will move more and more in line with the overall market. MFs don't really "trade," they invest for the long term.

    Mutual funds in general are pretty regulated, and I wouldn't be surprised if there are SEC-imposed limits on frequency of trades, etc. Also, AFAIK mutual funds have no access to leverage, are not allowed to short, and aren't allowed to hold positions in anything but stocks and bonds. Leverage is a big one, a really good hedge fund (those aren't subject to the same restrictions) might return like 30% a year, but to do that they might need to borrow 10-20 times their capital. I think LTCM was leveraged at 30:1 around the time of its bailout. To earn extremely high returns in day trading you likewise would need lots of leverage.
     
  4. I see, so even full-time day traders are only making 20 or 30% returns?

    So I guess in order to make $50k, they are trading with $250k of capital and earning 20% returns.

    So I guess if they are getting 10:1 leverage, they are trading 25K principal.

    Is that math correct? So they are mostly making 20% returns on $250k, so 200% returns on 25k?


    Or are they making only 20% on the principal, using that 10:1 leverage? If that's the case, then they need $250k principal to make $50k per year :O
     
  5. JBTrade

    JBTrade

    Its really just a matter of marketing and advertising to people who don’t know any better, plain and simple.
     
  6. Why dont/cant you get it?

    Obviously quoted percentage returns are relevant to account size!!!

    Duh!!!!!!
     
  7. AK100

    AK100

    'Only 20% to 30% returns'.

    You've got a lot to learn son.

    a) You try and make those kinds of returns while RESPECTING YOUR RISK

    b) Then if you can, try doing it for 10+ years

    c) If you can do that you'll be in the top 0.5% of the planet’s traders/investors

    d) Then you'll laugh at the naive posts on boards like this when they say 'only 20%'

    Not having a go at you personally, just being cruel to be kind.
     
  8. Correct! An unleveraged 250k would be equivalent to 25k leveraged at 10:1

    If the unleveraged 250k made 50k annually, that's 20%
    If the leveraged 25k made 50k, that's 200%

    But then there's risk to consider. If the leveraged 25k employed the same risk parameters as the unleveraged 250k it would only make 20% as well. Or conversely if the unleveraged 250k employed the same risk parameters as the leveraged 25k it too would make 200%.

    But.....

    Then there's the pros and cons of daytrading vs investing, limited short term risk vs long term exposure........

    A competent daytrader with a relatively small account can return far more than a fund because he doesn't have problems such as liquidity, some funds take months to unwind a position whereas a daytrader can be out in a matter of milliseconds.
     
  9. G'day Shortorlong.
    (1) You simply gotta stop watching so much TV.
    (2) It's a damn side easier to make 100% on $10k then $10000k+.
     
  10. And many (but not all) of those daytraders on small accounts can be dismissed. Some make the claim but are only doing it on papertrading. Some have only been doing it a short time, and the house odds may not have caught up to them yet. Some will blow up due to one bad trade or mistake. Etc. etc.

    And there are constantly new crops of freash daytraders to take their place.
     
    #10     Feb 16, 2008