I often wonder about this question. When someone might ask me how i did the prior year, I will say guite well. I do not discuss the money amounts or percentages. If i did many would say i was a BS'er. So to save them from the agony of defeat i shut up...... Here is what i do every new year. I start a new year with a set amount of trading capital. I figure the challenge is to improve the "TAKE" from the mkt with a set amount of dough. That way i (we all do things different) can see EXACTLY where my trading is getting better as i progress. This way is against the normal grain of just making more and more as the account builds up. Well that is for people that do OPM, i do not NEED to build an account up that way. The account builds up "ONLY" when i trade better and make fewer and fewer mistakes. I also set a goal to daily beat the $$$ goal of the day. Challenges come from performance, not from the equity curve, but indeed that is the nice part about doing the other stuff correct. Trading is extremely boring when doing the same thing day in and day out. But to improve every day is not boring at all. Like the brain, if not challenged it will willow on the vine....... Start new year, same amount. Last years winnings are safely tucked away......
Generally I agree, but how about same strategy, but more capital? I think they call it compounding....
with all due respect, you are in the wrong line of work. you're missing the basic premise of this whole business
The optimal approach is to allocate your capital so that you achieve the greatest rate of return on that capital. I fund my equity trading account with enough capital to give me the BP I need for intraday trading, and to hold some positions overnight. The excess capital I sweep into a futures account and allocate to those strategies, sweep into a non prop equity account, or invest them in real assets.
well how bout this question for those who believe in the continuous compounding... when or at what point do you decide that you should stop compounding (your active trading capital that is)? If you reach $300,000....is it necessary to have more than that in your day trading account? $500K? $1mil? where's the breakpoint where you have excess buying power that you do not use? obviously it correlates with the amount of money you can successfully manage, but anyone who's not operating a hedge fund should have some point where they say "anything over this amount goes into LT investments". RT
No reason why "excess" profits cannot be tucked into t-bills or other safe investments but it makes sense to let your capital grow and to scale your trading higher. If you can make $20,000 a year on $100K it makes no sense to keep making $20k on $100K and just keep pushing that 20K aside into a corner. Why not make 20% on $120K the next year and then 20% on $144K after that if you are able to? Unless you NEED to withdraw funds, let it grow and compound. If I do not need it all for trading, dump it in something safe.
I am not against putting away gains. It should be up to each individual's needs. But what if the profits are more than the cost of living? Then what do you do with the excess capital? Do you put it away or just spend it? I think it just makes sense to ride a well working horse as long and as far as it is possible....
Honestly you do what makes you happy. If you want to spend some of your gains, withdraw them. If this money is for down the road, keep it all in. Pretty straightforward, do what makes you happy
I think it makes sense to reinvest some of the profits in the startup capital for the following year. Look at any company out there. How did they grow? Reinvesting $$$ in the company and the people. I take out what I need for living expenses and estimated taxes and let most of the remaining excess in my trading account.
Most, if not all, prop traders let their account grow to the size they need for the strategies they trade, then sweep excess profits regularly, like every month end. That's one of the big advantages of prop, you can put excess capital to work elsewhere and still trade without the limitations of 2 or 4:1 margin. I put most of the profits I sweep out of my prop accounts into a retail account where I can trade other instruments. Some of it also goes into real assets and alternative investments. You can compound your total capital base quicker this way.