Sure deaddog. Some most important reasons I can think of now are: - suitable instruments have significant margin requirements - you need enough "slack" to weather drawdowns - traded funds must represent an almost insignificant part of your wealth so that you do not panic and start messing with the system - larger funds allow for better exploitation of corrections and extreme events, riding all the way up/down - larger funds allow to create more suitable long/short configurations, which would be impossible to create with scarce funds - ... In general, the more you have, the more you can make. And I do not mean it in absolute terms (which is obvious), but also in relative terms. For instance, if you are trading 2MM and making 20% per year, that could easily become 30% with 10MM capital. And so on... The reason is essentially being able to better exploit the larger price fluctuations (this is also strategy-dependent, obviously).
This is way above my pay grade (obviously need a startegy with an edge)but I don't see the edge improving with more capital. I can see taking more risk because you are willing to lose more, but that won't necessarily improve your returns. It's kind of like saying you can spend more time in the casino if you have more money.
Yes deaddog, as I mentioned, it strongly depends on the strategy used, and the casino analogy may not apply. For some approaches, it may be not true. In my own approach, it is true. This happens because my automated system tries to "overload" its activity when it sees some larger or extreme price moves and that can be done only if there is available capital. This causes much larger returns. On the contrary, on larger price moves, if there is no $$$ to "ride" them, you may be obliged to hedge (that is, make orders that overall reduce the sell price average or increase the buy price average), and that may dampen or delay significantly the returns.
Margin is a double egded sword. You can both make more and lose more on your capital. Slack must be something like wiggle room, to me it just means larger drawdowns and having to take more risk. Always works except when it doesn't. What has the percent of your wealth got to do with your returns? At what point do you start messing with your system? You mean taking more risk. Whether you have 10K or a million you can take the rollercoaster. I guess we should define larger and scarce. Where is your cut off? - ...
I agree that you need $$$ when the opportunity presents itself. I am a long only equity speculator. I rarely employ margin. My system of buying stocks that increase in value and selling when the trend changes allows me to be fully invested when the market is rising and mostly in cash when it's falling. So when opportunity presents itself I usually have cash available.
yes, deaddog, we have different perspectives. I deal exclusively with automation, and for me, it would make no sense to deal with relatively small accounts. It would be like shooting a mosquito with a big cannon. I would not even have a suitable strategy for those. Stocks also would not even be suitable instruments for what I do. (I would not have a valid strategy for those.) There are infinite possible approaches... so it depends on what one is doing, what he is trading, and what kind of $$$ is using.
Point well taken Ironchef --- We all know it is just the opposite. The more Capital you are trading the more difficult it is to maintain your percentage gain.
What is a relatively small account? Sounds like you are managing or want to manage relatively large accounts, how do your clients react to the relatively large account balance swings? Most money managers I have dealt with (minimum account size 500k) try and keep swings to a minimum.