Im confused.. how much should I expect

Discussion in 'Trading' started by falcon, Jun 12, 2011.

  1. falcon



    I know a guy who has been trading his own money for a few years now, he day trades commodities/futures with claims of 4% a month ROI equating to 48% a year !! With margin he can make twice that.

    Im confused because Ive read and heard that some of the best traders make 20% per year day trading, so is he most likely exaggerating?
  2. LeeD


    It all depends on the size. In order to buy or sell a financial security you need someone to take the other side. So, a small difference in timing means you are not buying or selling at the same time as everyone else.

    The consequence is the return achievable by someone trading in a small size is unthincable for people who trade in larger size.

    Edit: Unlike a salaried job building expectations in trading is unwise.
  3. If you go by statistics you should expect to LOSE, as is the case for 90% (or more) of those who try daytrading. So what any particular individual in the 5-10% of winners makes is pretty much irrelevant, and should probably be of no concern to you.

    If you're already winning, then you should probably expect to make in the future whatever is in line with your current record. If that's not enough, then you'll need to change some things to up your expectation. Pretty simple.
  4. Futures trading is trading on margin. 50%/yr is average performance for consistent winners.
  5. falcon


    Thanks for the replies, however looks like I might need to clarify.

    His trading capital is approx 200K of which the value comes to 400K when margin is added, do traders calculate using capital at risk or total margin at risk?
  6. wrbtrader


    I wouldn't be concerned about how much he makes.

  7. m22au


    Calculating a return on equity doesn't make much sense to me.

    If trader A makes a $100,000 profit on a $100,000 account, then he is just as skilful as trader B who makes $100,000 profit on a $100,000 account of which $90,000 is a loan due to someone else and only $10,000 is the trader's own funds.
  8. you can make an avg. of $500/day trading ES using just one contract. You only need about 6k to meet minimum requirements.

    get the minimum amount of 6k, trade it, try not to blow up; when you have a balance of about 20K, start trading 3 contracts at a time. When you are at 40K, trade 6 on and so forth. Easy :)
  9. The best (leveraged) daytraders make way more than 20% a year.

  10. Lucias


    This is a good question and one that I've personally did a lot of research on. I've had some of the top ranked futures systems at c2. I was able to return 120% on my actual capital at trading futures-like instrument over a few weeks or a 50% on the model account funds ($3,000). My returns have came off since then but are (so far) net positive.

    My research is probably going to disappoint you though. When I looked at all sorts of futures funds, hedge funds, then the one thing that I came away with was that a return of 30% year over year at a 1:1 risk reward was "the best". A 1:1 risk reward means you are just as likely to be down 30% as up 30% but not more.

    I've also looked at trading competitions. Most of the traders who enter trading competitions are swinging for the fences. The reward of winning the competition is worth more then losing the accounts. This makes this measure an excellent "best of best" measure. You can look at the historical returns from world cup trading and average them out. I believe it is not uncommon for these traders to enter multiple accounts:

    They are probably willing to withstand a 60% minimum to 100% loss. If you figure in the aggressive 100% loss then you can divide by 100 and figure out the CALMAR or expected risk adjusted returns. Although this doesn't account for the losers.

    I also want to stress that I feel like I'm one of the best in the world. Do you think any of the vendors and big promoters are doing 30% per year over year at a good risk adjusted return? The truth is that most traders are LOSING. They can't even break even. I remember reading about 1 vendor who lost money like 12 out of 15 years! Big time promoter.

    Most traders won't share their real returns. I've spoke with real day traders who are serious about this (not the scammers) and they told me the 30% was optimistic.

    I also want to mention that the return on account may not be the best measure of the efficacy of a trader because we don't know how much of that account represents net assets. In other words, return on net worth is probably a better measure or return on total cash flow.

    This is an important question to me. In my research, I have found references too HFT traders pulling down thousands per day. But, it is unclear what type of true return they are achieving.

    I'll summarize it as follows:

    * Most traders lose money. Most people can't make money trading. It is very difficult to break even.
    * No matter what type of trader you are or account size if you can return 30% at a 1:1 risk reward ratio then you are among the top performers.
    * It is possible to make more then 30% if one is highly skilled and uses leverage. If one assumes the 100% blowout factor then some of the world cup traders are doing 2:1 R:R return. This means if you are willing to risk 50% of the account then you could see 100% returns per year. I have futures strategies can around the 2:1 ratio after expenses.
    * These are rough estimates. A better question to ask is how much you are willing to risk?
    * Variability of returns and consistency of returns are also paramount. Some trend following systems lose money all the time and then hit a few big home runs. I'd hardly want to make my living that way.
    * For small accounts, the most direct way to make a meaningful return is to use leverage (futures or options). Most capitalized traders will eschew leverage because of the risks.
    * It is better to think about a range of return then a single return. i.e -50% to +150% or -30% to +60%.
    * The above stats refer to retail traders, CTA, and equally apply to hedge funds. It may not apply to HFT traders, floor traders, or market makers. I do not have enough information to say.

    Most people can't take a 50% drawdown. If you set a drawdown at 30% and 2:1 return then you could see a 60% return. This is why net return is not as relevant as the risk-adjusted return or CALMAR. If a guy told you he did 100% return you'd say wow and then what if he said he had a 90% drawdown -- not so wow.

    #10     Jun 12, 2011