I've done a ton of reading on this forum, and one thing that strikes me as a bit odd is that so many people talk about blowing out their accounts left and right. Almost like its trendy or stylish to do so. Seems a bit odd to me, so I would appreciate some clarification on a few things. When someone says they blew out their account, they mean it literally dropped to zero correct? Assuming this is correct, your account goes to zero, presumably it could have gone below zero if the positions were not closed out quick enough. So when this happens, how often in the unrealted counterparty in the various trades in the account screwed out of getting the benefit of their size of the (likely favorable) trades? Most importantly, is there some benefit you guys are getting trade wise to having multie smaller accounts and blowing out a few rather than just having one big one? Simple example. One $200k account holding 100k cash and selling 100k of market index atm put options. market tanks 50%. Presumably all 200k is wiped. if you had two separate accounts of 100k each only one is wiped. but couldnt you, in the 200k scenario just put rules into place that effectively make you get out of your put postion when you would otherwise have a margin call in a 100k account scenario and be wiped? Thanks!
Unless you have a direct relationship with a clearing firm, its best not to have huge sums parked in a FCM. Over the years, even reputable FCM's have had issues. Define the leverage or contracts your liquid net worth can handle or you can handle. Than only park enough cash to trade those numbers. If swing trading, you need a swing account, with higher dollar amounts secondary to overnight margins.
My impression is that the term is used somewhat loosely, and they normally mean "ran the account down to so little that there wasn't enough left to 'play on' meaningfully (or maybe 'not enough margin to open realistic positions') without re-funding the account." If I understand what you're asking, here (no certainty!) I think the answer is "never". Most of the people posting about this are trading spot forex against a counterparty whom they wrongly imagine to be a broker executing trades on their behalf in an underlying market. Few will ever really "go negative". Some well regulated spot forex "brokers" offer negative balance protection, anyway. The concept of "counterparty" isn't really meaningful. In the case of anyone using a genuine broker, their unknown "counterparty" isn't affected. Some people who don't like demo accounts do their "experimenting" by using something like a $200 account at a broker like Oanda which offers infinite granularity of position-sizing, and treat it more or less as "play money", taking huge risks with it, to see if they can get it up to, say, $1,000, with the idea that if they do, they'll then start "taking it seriously" and determine more appropriate position-sizing. I think. Understandably enough, they can burn through several small accounts quite quickly, doing that. (They can also totally fail to benefit in the sense that they might actually hit on something that has a genuine edge, but they'll never know that, and abandon it as "no good" because it blew their account. The reality, of course, is that "it" didn't blow their account: they did. ) They're not (normally) talking about $200k accounts. Maybe better just to ignore them completely, rather than worrying about exactly what they mean?
Seems a conventional wisdom about trading is that you have to (or are likely to) blow out your account a time or two as part of the learning experience. I say HOGWASH to that. Every trader's strategy should be, "if the market takes my money, it's going to be like being nibbled to death by ducks."
I think it is actually an unlearing experience. A new trader is conditioned by previous life experiences and society that when you are down in life you should fire up your emotions to motivate yourself to work much harder. This approach works if you are starting a new business or a new job. But to a new trader who is down in his account, 'in the hole', working harder naturally equates to trading more often and trading larger size all while being in a fired up emotional state. It takes most people several large losing experiences to unlearn this.
Prospective traders should learn about this before risking money in the markets. Should be part of their training and education. (I hope Xela doesn't mind me mentioning her... but much to her credit she had a LOT of instruction and a LOT of screen time before she traded real money.) Many/Most new traders have stars in their eyes and "pile in" after getting a notion and a taste. Trading is not like other businesses where "working harder" usually pays off to some degree. Trading requires "working smarter", though doing a better job of paying attention could be called working harder.
Unfortunately for many of us (myself included), the only way to really learn is/was by blowing out an account or two (not necessarily down to zero, but low enough not to be able to trade). It is a stupid way to learn, as many others have said. Much better to learn before jumping into the markets. But I think the egos of most people tell them "don't worry, you are better and smarter than those other guys, you won't blow out your account, you'll become fabulously wealthy..." Losing money can be a good (but overly expensive and really unnecessary) teacher, but even then, the lessons don't always sink in.
I believe new traders don't understand what they're up against. The ES alone trades ~$20Bn/day. That's a lot of pie to get a piece of if you can. Big players with big resources and the best minds they can muster are driving much of that volume. And a new retail trader has some notion he can take their money? You don't have to be "the sharpest knife in the drawer", but you do have to be sharp!
Absolutely! I can't tell you how many people tell me they want to trade for a nice secondary income, or just to make a few extra bucks. As if the money is raining down, and they just need a bucket to catch some! It is as crazy as saying "I'm going to perform surgery on the side for some extra bucks" or "I think I'll open a garage to repair cars for a 2nd job, even though I don't know a gas cap from a headlight."