so can a prop trader or prop firm take lots of small size medium or long term positions without the capital being pulled (overnight margin requirements??) ex- 10 stocks, 500- 1000 shs, $50 each?? for days and weeks? anyone know something like this? any prop firms do this type of trading?
Let's define risk Your risk on any trade is this our entry price minus your stop times the # of shares you buy Risk = (E-S) * # of shares So let's say you are buying a 100 dollar stock. If you are using a larger time frame that means a stop further away. So (100 - 75)* 1000 = 25,000 now take your example with the larger scale you suggested ( 100-75)* 100000 = 2,500,000 now that loss can be small or big but it depends on your account size. A fund that is managing 50 billion than a 2.5 million dollar hit is just the cost of a trade or 2. On a 3 million dollar account it would be devasting. I can play with that formula all you want. A lot of traders at professional firm take large share positions but....they have extremely tight stops such as (100-99.50)*4000= 2000 so there risk is limited by having the tight stop. Rtharp
You wrote up there: "So (100 - 75)* 1000 = 25,000" WHAT?! That's like a 25pts stop. Did I ever said anything about a 25pt which in this case is a 25% stop! Even for a longer time frame horizon of weeks/months, 25% stops are just CRAZY! What I was trying to say was that even in a relatively medium term horizon of few weeks/months, one can put on relatively decent size and with good risk mgmt be out OK. So, let's say a reasonable stop of 8%-10% is probably more than enough to tell you if you are right. So, that's like risking a 8pts on a $100 stock. But from a technical standpoint, if the price violate some chart area you would probably get out a lot sooner than that. So, what you are talking about is rather EXTREME even for long-term institutional holders. But your point is made. My pt is that even with a 8-10% stops why would a prop firm let someone put on 1000-5000shares positions over several weeks? trader99
I meant to say "why WOULDN'T a prop firm let someone put on 1000-5000shares positions over several weeks? " it's reasonable risk.
two posts with one stone.... Ok I went extreme for an example. Actually my start in trading was as a position trader. 25 point stop could be considered normal for an IRA account where you don't want to be churning much. It would have protected you rather well for the crash. On 2nd part. A professional firm/proprietary firm will let you hold that type of position as long as the money in your account that can quantify that type of risk. Robert
Trading firms are just that "trading" firms, and it doesn't really make sense for most long term investors to bother with getting involved at this level. To "buy and hold" something for weeks or months is not how to make money trading...that is (hopefully) just "passive" income, Return on Investment .... The risk comes into play when a stock opens up or down 10 or 20 points in the morning...and that can be devastating...and one reason why we advise our "longer term" traders to cross the "zero" point every few days or so....if you're wrong, get out, get back in when the stock shows signs of life.
No no, don't call that investing, what trader99 is on about is real trading all right where you aren't churning your account to death generating gazillions in commisions, it's trading where you're going after the big swings that earn you some real dough.
An 8-10% stop on a $50 stock is 4-5 points. Taking a 1000-5000 share position with that stop is a risk of between $4000 (1000 x $4) to $25000 (5000 x$5). So your casual statement about "reasonable risk" is nowhere near specific enough. If you have a $100k account, that is a risk of between 4% - 25% of your account. That's such a huge difference in extremes that there's no point discussing what would or would not be reasonable risk. Call me conservative if you want, but I think even a 4% risk on any one trade is too much, but 25%??? Even Larry Williams would balk at that. BTW, if you only have $25k in your account, by taking 5000 shares with a $5 risk (10% of a $50 stock - and you were talking about a $100 stock, in which case it's $10 risk) means you are risking EVERYTHING, your WHOLE ACCOUNT, on one trade! Why wouldn't a prop firm let someone do this? Cos it shear lunacy. Daniel
Sure, but all that depends on the size of his account which we all don't know. But, then it's up to you, you wanna risk 2%, 4%, 7%, it's when you start going beyond that that you start gunslinging. And, maybe I misread his post, but at least the way I understood him was that he was on more about whether you should churn and burn or go for big swings. Good Luck