What's wrong with compounding returns?

Discussion in 'Trading' started by achilles28, Feb 15, 2006.

  1. achilles28


    Several members here seem to favor the extraction of monthly profits as opposed to letting them ride (compounding returns).

    The rationale for regular extraction of monthly profits seems to serve as a hedge against black swan-type moves and supplement or totally support living expenses.

    Are those the only arguments against compounding returns? Perhaps broker insolvency risk? Counter party risk? etc? But those can be avoided within a reasonably high degree of confidence with some prior due diligence, no?

    Assuming a trader has:

    1) a profitable strategy

    2) a conservative position sizing model to negate adverse market moves (black swan-type moves)


    3) other income - necessary to pay the bills...

    Whats wrong with compounding returns?
  2. nothing. an argument could be made if you work at a prop shop to keep as little in the account as possible just in case.
  3. achilles28


    Why don't more traders use it then?
  4. they do. i would bet that most traders trading their own account and their own money do just that. i know i do. i just withdraw what i need for living expenses.
  5. achilles28


    Perhaps I am wrong. I was under the impression many et members withdrew the bulk of their monthly profits to hedge against what? I'm not sure.
  6. that's the whole porpouse of this biz, especially if u start small.
  7. many prop traders withdraw most of their money because their money is in a pool. the right kind of event could put that at risk. so if you are a prop trader it is probably wise to move the money.
  8. achilles28


    Ic. Im not a prop trader. Just an independent neophyte. ;)
  9. dis


    If you take this approach, you will not have much to extract from your account, so you might as well let it compound.
  10. It's good to take money out because this is your job! Pay yourself a salary and enjoy the benefits of what you've worked so diligently for.

    #10     Feb 15, 2006