I am glad we finally got there. In my app, by default, I use the lot-matching method which, in practice, would maximize taxes. (But it can be changed at will, as it can rearrange the order matches in whatever way one desires: the net PNL remains always unchanged, obviously)
A byte of (personal) "trading philosophy" You see now how the concepts of "Realized" and "Unrealized" are quite arbitrary, and essentially just useful for accounting purposes (paying taxes). I understand that some people, who perhaps have not really thought about it and for some reason (possibly just because of "terminology"), have this naive idea that "realized" is something that "you already have in your pocket", while the "unrealized" is something somehow "fluctuating" in some stochastic world, and that may well be lost or regained. But it is not so. (What you "have" is just your current PNL.) So, in essence, when is something "realized"? Orders can be matched arbitrarily. An order can be rematched to another one, as trading proceeds forever. A closed position can be reopened, and vice versa. What is, then, something "realized", from a conceptual point of view? The practical "accounting" answer is obviously that it is what you get by somehow matching the "lots" (that is, portions of orders) until you remain with lots that cannot be matched (which will obviously form the current signed position and the "unrealized"). The "deeper" ("strategic") answer, for me, is another one, instead. To me, "Realized" is all that is "forgotten" or not used for future trading activity. "Strategic realization" essentially happens when there is a "loss" (or a non-use) of past trading information. This is the main conceptual problem of most "gambling" approaches. Working "trade" after "trade", that one thinks is "closed" at a "profit" or "loss" (which is just a mental construct). (When using no trading information, the underlying stochastic process will not allow for any profit of systematic nature.) Formally, if I had to, I would express this concept in this way, using a conditional probability: if Code: Pr ( NewOrder | OldOrder ) = Pr ( NewOrder) we can consider, strategically speaking, the OldOrder as part of the "Realized" term. (This is a purely conceptual, and strategic level, obviously, having nothing to do with "accounting"). "Realized" is, then, essentially something, that belongs to the past, about which we disregard the trading information, as it in no way it changes the probability of future orders. (A new order is independent of any "order" I place in the "realized" term.) Realizing losses (= losing their "trading information") leads to long-term losing strategies. A "realized loss" is, essentially, associated with a "loss of information". (The same applies to a "realized profit".) This is also the reason why, in my application, all the information about "profitable trades" is discarded. In contrast, all the information about the "running losses" is accurately stored and actively used, in probabilistic terms, in future trading decisions, using the so-called "player" concept (as opposed to a "manual order"), which is essential, an order "equipped" with trading information and automation capabilities associated. Following this line of thought, in a strategic sense, the PNL could be decomposed into components: Code: PNL = RealizedPositive + RealizedNegative + Unrealized - comms where: RealizedPositive = sum of values of all the "players" which closed in profit RealizedNegative = 0 Unrealized = sum of the values of all the "players" who are waiting for their chance to close in profit Note that in this definition the "Unrealized" is obviously different from any possible "accounting" definition, because, in our case, the absolute position causing the unrealized, will always be bigger. As an example of that, consider the case of just 2 orders on a layer: One BUY at a high price and a SELL at a low price (same quantities). In this case, an accounting system would just register this lot matching as a "loss" and the unrealized component would be zero. Strategically, instead, these are distinct "players", waiting for their chance to close in profit. Therefore, the "strategic unrealized" will take into account both of them and will not be zero. The corresponding unrealized position is the sum of the absolute quantity of the two orders, while for any accounting system it would just be zero (as the two orders cancel out). Now, since on a given layer, we will have ideally an infinite sequence of options, and therefore a price curve constantly going to 0, as time diverges, we are in theory (and practice) guaranteed, given enough time, to be able to close all (except a possibly negligible quantity) the players at a profit, because we can always (given enough time) pick, in the options matrix, a next price curve which will allow us to do so. Clearly, what we have to fight against to, while collecting these scalps, are possible undercapitalization (margin requirements) and volatility and adverse move problems. For the former, we need to make sure we have enough funds and are not too greedy to use them all, except when really necessary to "survive". For the latter, we use essentially two mechanisms: -long scalping (of the PUT options) [at layer level] to capture the market correction and volatility burst, with buy stranded player recovery, as explained above -"protective structures" [at folio level] which have the effect of slightly reducing margin requirements and also provide protection and an additional source of "extraordinary" profits, in case of a "deep" crash or volatility explosion (we will see later what kind of "payoff" shape these structures create, and how it is made "slide" along with the underlying).
As a devout end-user of your system I'd like to say.... ZZZZZZZzzzzZZZzzzzzzzzzzzzz! You should put rambling drivel and bullshit like this on your web-site instead; maybe in the FAQ or buried in an end-user manual somewhere. That way you can edit it to be more concise as your English and financial vocabulary grows. Not to mention, eventually morons will be suckered in, and then you won't need to point them toward random posts that are wasting space on the ET forum disk-drive. Otherwise it'll appear very disorganized. "The essence of writing is rewriting" --- William Zinsser
Sure, it's a good suggestion spy, finally! I may do that later. For the moment, I much prefer real human interaction (instead of writing monologues or "essays" on my website). Because through discussions and "fights", I can better understand the possible vulnerabilities, and what may not be so clear to a reader or a user. PS By the way, I already have a good number of users/investors. And I can assure you they are extremely far from being either "suckers" or "idiots" (They are actually reading your content, and feeling pity for your condition.)
Don't forget, my ssh key is here and you promised me a demo on one of the many computers you have. This shouldn't be difficult for a such a wealthy, intelligent, generous and kind person like yourself, right? What day should I put the appointment in to my calendar?
why all the quotation marks? is this for accentuation? it comes off as if you're either being sarcastic or questioning yourself with their excess usage. are they used differently in Italian (I think this is your native language?) like, example - 1. I am "writing" this "sentence" which is a series of words to "explain" what I am talking about. vs. 2. I am writing this sentence which is a series of words to explain what I am talking about. obviously you're versed in the Bold & Italics features so I'm just wanting to understand here.
BTW, I'm glad you're finally using code blocks a little more... given that your product is a piece of software and you're a wold-renowned professor of statistics who is a master of software development it's very refreshing.
Thank you lucysparabola Can you enumerate and motivate actual examples where you feel my quotation marks are better to be avoided? And why? I will take note.