This is something that we try to get across to new people (and to people with "systems")....We can make 10 cents on 40 trades per day, or we can make 4.00 every week or so...which would we rather do? We try to focus on the bottom line for the traders, not the % return (especially if we don't take Time into consideration)...
shake the heavens, Don B and I agree! :eek: i have no issues w/ prop trading- can't knock it if folks are makin' a good living w/ it- i only resent the subtle suggestions that its the only way to fly. also not to nitpick but i guess i am nitpicking: percentage gain DOES tell the whole story because there is always a time frame attached. if you tell me you made $5,000, I would say that's meaningless because i don't know how much capital you had at risk to make it. if you tell me you made 20%, i would say thats meaningless because i don't know how long it took you to do it. the language of performance is percentage gain over a defined time period.
Now let me take this one step further. If you made $5,000 per week average, with only $25,000 put up into an account, but actually "used" $1Million every day to trade with.....are you making 20% per week, or .5% per week...??? What really matters is that you made $5,000 in your pocket, since you are allowed to use the extra capital for free. Again, this is just one of the points we try to make....and I certainly don't say that "prop" is the only way to go...but it certainly makes sense for many. Good Luck Mr. DHorse!!
thx don every trader can use luck no matter how good he is so i'll accept your wishes gladly. i submit though that how much capital you "use" is irrelevant. what matters is how much you have at risk. Let's say that i have $25,000 that i can afford to lose and no more. I can go out and get a million bucks worth of leverage, but if at any point my account is down 25 grand, I am done. Its normal practice for aggressive players to leverage their bets one way or the other, but the leverage doesn't matter. What matters is the dollar amount that you can actually afford to lose. And for traders who use an LLC or other protective vehicle, that amount IS limited. If I set up an LLC w/ 100 grand of capital, find enough sucker banks to lend me five million and then blow it all, 100 grand is still what i had at risk. Accounting is a wacky business because there are so many angles to it, this is why Enron etc. blew up and accounting has always been wacky. But the only way to look at performance that actually makes sense is to disregard what leverage is available and look at what money you put in harms way in order to make your return. Also 5K a week is great for some but nothing for others. If I am a trust fund baby with a multimillion dollar account I might be making 20 grand a month in dividends on my grandma plays. Which is why when you talk shop with another trader or investor and want to compare stats, you have to make sure you are both on the same page by speaking in terms of percentage gain over defined time frame in regards to actual capital at risk (not available leverage amounts).
I agree that one must be on the same page as the person on the other side of the chat...and that is why I do my best to find out where a person is "coming from" before I attempt to discuss this business. One small point about capital usage and risk. When I put in my opening only orders, I am "using" $3million plus, but not "risking" it...since I cannot be filled on both sides of every trade...so the risk is actually minimal...yet this tactic works very well for my bottom line every month. Back to you!!
sure, which highlights my point exactly. if i go short 500 shares of a $70 stock with a $1.50 stop, my margin requirement might be $17,500 but my planned risk is less than a thousand bucks. Which is why returns are relevant to "money at risk" but not to leverage used. Exactly as you say and as i said above. Its also one reason why the big leverage offered by prop firms does not appeal to me, because the amount of capital I can afford to lose is still limited to X amount, no matter how much I can "borrow." Many traders hang themselves with the leverage rope because they don't understand that borrowed money isn't necessarily money that it's ok to lose.
Don and darkhorse - Forgive my two cents, but it seems like leverage is the key advantage Don is citing for prop firms (e.g., slinging $1M in stock with only $25K equity) - along with some ancillary benefits like access to bullets, more attractive hedged position margin, etc. But, index futures daytraders can trade with around 30-40x leverage intraday, no uptick rules, no issue about bullets, no screwing with multiple execution routes, rational hedged position margining, and the added advantage of no prop firm needed.
And the argument might still continue when Don will say that trading e-minies is much more difficult than equities. It's probably true there are more pros trading futures, on the other hand comparing how much volatility you buy trading e-minies or stocks, e-minies are actually much cheaper to trade.
I forgot the question. Why is it harder to trade e-minies than stocks? I wanted to ask long time ago anyway.