hey Guys, nice to see all this feedback. BP= buying power. Id like to know if anyone is using the same strategy as I am. Because I am getting the same return with 500k and 50k BP. Because when I had 500k I never used it all on a good trade, but when I was wrong I would find myself using it all. Causing me to take 25k losses. Being unable to trade espensive movers is a disadvantage am willing to accept. I am concentrating on the cheapest stocks I can find that have the greatest percentage moves in one day. Of course I'm always maxing out my Buying Power. But as I have said It feels so good knowing I CANT blow out. I can afford to loose 50k and stay in the game. because I learned a lesson last year on RFX (refco). I was long at 8$ stock got halted and went bankrupt, opened at 1$. I could have easily had more shares with no control of cutting my loss. So you never know what can happen in this game. Having my risk limited like so and being able to make big returns is key I think.
Not sure what your question is. Are you asking what to do with the rest of your money? Because if you are only 'playing' $50K, you are parking the balance in what? Money markets at 4.55%? How are you getting fills on individual under $10 stocks at $50K a pop without paying exhorbitant commissions? You can't get 'all or nothings' on that number of shares, depending on the volume of your stock picks of course, and the sizes of your individual buys. I 'play' a fraction of my $$ in select brokerages also. The rest are parked in mostly long term buyholds in more traditional brokerages where there's no reason to trade because selling means paying absurd taxes. If I get nervous, I play less and put more into very slow moving high yield corporate/short term bond ETFs. If I feel confident, I risk more and gain more. I NEVER play margin. Period. No clue how BP matters, given that that only comes into play with margin, and if you are only playing 10% of your BP, you are playing with ALL your own cash. Why would BP make any difference to you whatsoever? I don't play with money I can't afford to lose, and I think people who do are nuts.
Maybe I'm reading it wrong... I don't understand the point of only investing 10% of the money, if that's what you are saying. If so, you just took a great 50% big winner and made it into a safer, but just ok, 5% play. I'm not suggesting it would be wise to plow every penny you own into the market, or one stock, but leaving 90% completely on the sidelines ALL the time seems silly. If you are only investing 10% of the money anyway, there would be no reason to use margin, so the "Buying Power" number is pretty unimportant. Whatever you borrow you need to pay back, whether you made money or not. As for trading costs, if he's using TD Ameritrade or Scottrade, or any of the others with a low fixed cost per trade, the commissions are so low it doesn't matter.
I wasent too clear about this. I'm a prop trader, the Buying Power we get from the firm could range between 10 to 20 To 1 Margin. This means for every 1,000 cash we get 10,000$. I cant afford to loose 500,000 which was my previous BP. But I can afford to loose 50,000$ which is my current BP. But thats still not cash, it's all margin. But this amount I can cover in case anything goes wrong.
I think I understand your question Leb. I've been trading a year and I'm pretty cautious with how much Buying Power I use as well. I have access to about 100k Buying Power but I only use up about 25k per day. I close all positions by the end of the day. The reason I use only 25% of my Buying Power is because I know and feel reassured that I wont be bankrupted by the end of the day if something unpredicatable and unexpected happens.. eg. stock gets stopped/halted ... but i guess this a question about how much risk you're willing to take. In my opinion, higher risks usually = greater gains.. and unlike a lot of people here, I play with money that I can't afford to lose. My returns are only ~10-15% per month thought plus I only trade stocks 30$ and up...
i can relate - to a point. i'm not going through a prop place, i have accounts @two brokerages, will eventually open a third. i pull money each month when i'm over X dollars in the account. i trade mainly <$20 stocks, most of those <$10. and most of my trades are short. i do very few long trades, and i do very few options; DNDN last week was one of the very few times i do those. i don't do 100% returns, but that's fine. i know that my system does NOT expand out incrementally - that is, more money in my account will on most days give me the same actual monetary return, but would be less % return. it may in fact give me less money - if i feel compelled that i 'have' to use that money and force bad trades. i don't know, that's a psychological angle. and i think that's part of the OP's msg: that he trades better (psychologically) because he has less money in the account - maybe feels more responsible with it, or what i stated above. so you're not the only one...lots of ways to get good results.
I guess I'm showing my ignorance, but to be honest, I don't know what a "prop" is, and don't understand why they would lend you 10x your capital, let alone 20x when even with my "top of the line", premier accounts the brokers only give me about 1x. Whatever amount you lose, if you lose, you have to pay, or go bankrupt, if you are on margin, is the way I understand it, regardless of anything else. I look at returns from a view of what percentage of my total starting liquid assets did I make last year? In the past 6 yrs, my worst year was 25%. Before that, I felt the market was too "silly", so I stayed out and missed the big crash. I hope to miss the next one, too.
Ya you can get 10 to 1 margin with some firms, but they take a percentage of your profits. If you loose your cash, they cut you off. Of course overnights are not allowed. The bottom line is that I think risk is most important in this business, you have to live to fight another day. The market has tough me some really ugly lessons as I have stated on this thread. I'm very happy with this strategy because my overall risk is limited but my profits are the same (trading the crazy movers, ex DNDN)