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ROI on Forex

  • #1
  • First Post: May 10, 2007 9:01am May 10, 2007 9:01am
I realized that alot of people here are following the thinking that, a 20% increase on equity is fantastic.

I do know that many investors and fund managers strive for around 20%-30% return on their portfolios yearly and many posters in this forum always stress that return rate is good. But is it really so?

Sure, a 20%-30% increase in portfolios of stocks would be outstanding, but in the forex market it really isn't so. Bear in mind that, we are trading with mostly 100:1 leverage with some even higher. Let's say that you start an account with $300, a 10% return would be $330. That's 30 pips on a 1 lot ( mini account ). Let's say you compare yourself with a phenomenal investor/trader, like George Soros, his best would be 129% but just to make things simple, we'll put it at 100%. That would be increasing your equity to $600, which equates to 300 pips. Is that really hard to achieve? I don't think so.

Just my 2 cents, I was thinking long and hard about this before I went to bed and I just wanted to post this up for discussion. This is my opinion and I welcome constructive comments. It would be good if somebody comes to change my mind on this, maybe I'm just too ambhitious.
  • #2
  • May 10, 2007 9:22am May 10, 2007 9:22am
Jody,

Make 100% is pretty simple to achieve...the issue, which I think you're missing, is doing this consistently over a long period of time and using a much larger accounts.

The reason it sounds simple with $300 is because to most people, that's a SMALL risk. I would take a single 1-way bet...but tell me how easy it is when you have $1 million or worse, $1 billion in assets (like fund managers do). Tell me, how much risk would you take then??

You're thinking is very relative. With those larger accounts, you don't get the same opportunities to leverage, and even so, there are limits to what banks would loan you.

Think about that...what bank would offer you 100:1 leverage on a $1 million (0.1% of $1 billion) margined trade?

Until you start trading REAL size in this market, you'll find out why you'd be hard pressed to exceed 20% a year (in a phenom year, at that).

Quoting JodyOng
I realized that alot of people here are following the thinking that, a 20% increase on equity is fantastic.

I do know that many investors and fund managers strive for around 20%-30% return on their portfolios yearly and many posters in this forum always stress that return rate is good. But is it really so?

Sure, a 20%-30% increase in portfolios of stocks would be outstanding, but in the forex market it really isn't so. Bear in mind that, we are trading with mostly 100:1 leverage with some even higher. Let's say that you start an account with $300, a 10% return would be $330. That's 30 pips on a 1 lot ( mini account ). Let's say you compare yourself with a phenomenal investor/trader, like George Soros, his best would be 129% but just to make things simple, we'll put it at 100%. That would be increasing your equity to $600, which equates to 300 pips. Is that really hard to achieve? I don't think so.

Just my 2 cents, I was thinking long and hard about this before I went to bed and I just wanted to post this up for discussion. This is my opinion and I welcome constructive comments. It would be good if somebody comes to change my mind on this, maybe I'm just too ambhitious.
  • #3
  • May 10, 2007 9:27am May 10, 2007 9:27am
Quoting JodyOng
Let's say you compare yourself with a phenomenal investor/trader, like George Soros, his best would be 129% but just to make things simple, we'll put it at 100%. That would be increasing your equity to $600, which equates to 300 pips. Is that really hard to achieve? I don't think so.
You guys crack me up. You think turning 100mil to 200mil is great but 300 to 600 isn't that hard.

I don't know but last time I checked % are % no matter how you look at em. Sure it looks easier at times cause your super high leverage but I can assure you most trader that are doing 25 to 35% aren't using crazy high leverage.

If you think it not so difficult you should have that $300.00 account into a few 100k in no time...
  • #4
  • May 10, 2007 9:54am May 10, 2007 9:54am
The point of my post is exactly that turbo.

What I'm saying is that, because of the high leverage most of us are using, can we really expect 20-30% returns on the money we place to be good?

And mrmikal,

I know where you're coming from and I agree. But the reason why I posted this is because I came upon a post replying to another poster regarding his $300 account. The reply was that, getting a $300 account by 10% is already good enough. So I was thinking, is that so? With the leverage we use, 10% is puny. Can we even use percentage to compare because of our leverage?

In fact, when we trade with $300 on a mini account with leverage of 200:1, we can effectively put on 6 lots, so if we want to get 10%, shouldnt we use $60,000 instead of using $300? The $300 is in fact just the margin we place.
  • #5
  • May 10, 2007 10:22am May 10, 2007 10:22am
I see what your trying to say, But I would have to say in any event 30% is still good cause like mrmikal pointed out once you start trading larger amounts you won't be able to leverage over 50:1.

Retail brokers have really brain washed the mkt by allowing people to trade 100:1 and now some even as high as 400:1. In the long run they win not much more different than a Casino.

And they say betting on a football game is illegal. I always wonder how much big money is backing Retail FX
  • #6
  • May 10, 2007 10:28am May 10, 2007 10:28am
Jody,

Well, not to make a huge deal out of this, but who's to say that $300 isn't a lot of money for someone? I know people, albeit none participating in this forum, let alone FX, where $300 could last them easily a few months...because to them $300 is a lot of money. I'm not sure it's our place to judge in that regards.

Secondly whether or not you CAN trade 6 lots at 200:1 leverage doesn't mean that it's sound trading. First of all, you couldn't really trade 6 mini-lots of even the USD/JPY because you'd immediately be margin-called because of the spread...Furthermore, trading with $300 SHOULD teach you to trade with larger amounts. If you're just gambling the money away, then your reasonable expectation of YoY ROI is probably still less than 10% regardless of whether or not you take a 1-way bet with even 5 mini-lots, or whatever...because you're assuming that taking that 1-way bet will ALWAYS result in profit. If it doesn't, how much expectancy can you have?

The point of your post, while invalid, doesn't necessarily promote sound trading principles, which is probably what your post SHOULD have been trying to explain.

Obviously, it were easy to make 100% all the time in forex, it would be easy enough to turn a $300 into a $30,000 account in a few years. While I'm sure there are exceptions to this rule, I very much doubt there are many people that have accomplished this feat without funding their accounts during the process (maybe not all the way, but I don't believe I know anyone that has a 10,000% increase in less than 8 years). I know plenty that have doubled, but that percentage is definitely less than 10% of the people that I know.

Quoting JodyOng
The point of my post is exactly that turbo.

What I'm saying is that, because of the high leverage most of us are using, can we really expect 20-30% returns on the money we place to be good?

And mrmikal,

I know where you're coming from and I agree. But the reason why I posted this is because I came upon a post replying to another poster regarding his $300 account. The reply was that, getting a $300 account by 10% is already good enough. So I was thinking, is that so? With the leverage we use, 10% is puny. Can we even use percentage to compare because of our leverage?

In fact, when we trade with $300 on a mini account with leverage of 200:1, we can effectively put on 6 lots, so if we want to get 10%, shouldnt we use $60,000 instead of using $300? The $300 is in fact just the margin we place.
  • #7
  • May 10, 2007 10:47am May 10, 2007 10:47am
Yes, because of the leverage we utilize, we should be able to reach results much better than 20% on our margin.

I agree that money management is essential. I do not mean to take it point blank that one should trade with 6 lots.

Perhaps the essence of the post should be, are we taking the ROI based on margin or on the total amount we place.

As all of you know, even in futures, when we place a margin, that is not considered our capital. It is just a margin. Same as forex, let's say you are trading an account with $300,000. That is still your margin nevertheless. I have always been doubtful of getting an ROI off the margin we place.

For larger amounts, I totally agree. 30% of a million dollar account would be 300k and achieving that would be phenomenal, but for retail traders, we all start small. So let's use a $5000 account as an example. A 30% return of this would be $1500. On a standard account that'll be 150 pips. Over 12 months, that's around a rough 15 pips a month. So is 30% really good enough?
  • #8
  • May 10, 2007 10:53am May 10, 2007 10:53am
Compounding gains is what matters. Even at 20-30% gains/year, you can add portions of your saving every year and in about a decade or so, you could easily just work part time and live off your profits. It becomes a problem when people think they should earn more. But that's more of psychological issue
  • #9
  • May 10, 2007 11:01am May 10, 2007 11:01am
*sigh* This is turning into what's better. Would you rather make 100% on $500 or would you rather make 30% on $100,000?
This goes back to the pip arguement, on do "pips matter in forex?" 100k is 200times more than $500. If I made 100% on 500 bucks, why can't I trade 200x more? Or even 50 times more. Am I still going to trade mini lots with my 100k account? Unlike a stock where I am completely moving the market, a pip is a pip.
And why am I including leverage and margin in my percentage? Does this mean that my sucess is purely based on my total dollars gained and not percentages or pips now? Wow, you guys really throw everything out now. I may as well give up trading, there's no standards for success here!

I still say pips matter. If I made a trade that netted 100 pips last week, proportionally it should be the same amount of goodness with 500 dollars as it would with twenty thousand dollars.
  • #10
  • Edited 11:29am May 10, 2007 11:06am | Edited 11:29am
Since we are rational, risk averse beings, the return we expect to get should be dependent on the level of risk we are willing to undertake.

That said, retail traders should outperform money managers because of the ease with which they are able to enter and exit trades. I remember Niederhoffer saying that because of the amounts with which he trades, a typical spot FX spread for him is about 30 pips.

In spite of not going into too many details, as I am sure you see the point beyond the need for me to provide more examples, like Mr. Jacko says, it is easy for the small guys to bark with the big dogs; we don't have to worry about a lot of headaches.
  • #11
  • May 10, 2007 11:33am May 10, 2007 11:33am
Quoting dunningduke
I remember Niederhoffer saying that because of the amounts with which he trades, a typical spot FX spread for him is about 30 pips.
I see several 100mil lots going threw currenex & hotspotfxi with 0 to 1pip spread so I would have to question this
  • #12
  • May 10, 2007 1:27pm May 10, 2007 1:27pm
OK...let me clarify

ROI means return on "investment". Now, for me, that means my account balance. Why? because if I put $100K into a forex account, it means that $100K ISN'T being invested somewhere else. So, when I say investment, I mean how much I have sitting in an account.

With that said, let's take your example...

30% of $5000 is a $1500 gain, or about 13 pips a month. Of course this sounds simple.

Now, let's take the $300K example...30% is 90K. If you want to make 90K in 150 pips, you need to trade at lot sizes of $600 a pip or 60 standard lots at a time. Think how big a risk that is relative your $5K example. While technically, it's the same financial risk, pyschologically, it's a completely different story, especially if the $300K isn't the same percentage of your total wealth as it would be at $5K. Think about this carefully...if you want relative risk, you have to be 60 times wealthier to trade with the same risk to your overall portfolio...otherwise, those larger numbers represent a larger risk to your overall portfolio...see what I mean?

Of course, it's easy for us to say, sure, make 150 pips, and make 30%, but you're talking about risk relative to your overall wealth.

Look, there's no doubt that if you have a small account, then you may be prone to over-betting...but that doesn't translate as the size of the forex account increases in percentage of your overall portfolio, so you have to be willing to conceded that the risk is different at those points.

Quoting JodyOng
Yes, because of the leverage we utilize, we should be able to reach results much better than 20% on our margin.

I agree that money management is essential. I do not mean to take it point blank that one should trade with 6 lots.

Perhaps the essence of the post should be, are we taking the ROI based on margin or on the total amount we place.

As all of you know, even in futures, when we place a margin, that is not considered our capital. It is just a margin. Same as forex, let's say you are trading an account with $300,000. That is still your margin nevertheless. I have always been doubtful of getting an ROI off the margin we place.

For larger amounts, I totally agree. 30% of a million dollar account would be 300k and achieving that would be phenomenal, but for retail traders, we all start small. So let's use a $5000 account as an example. A 30% return of this would be $1500. On a standard account that'll be 150 pips. Over 12 months, that's around a rough 15 pips a month. So is 30% really good enough?
  • #13
  • May 11, 2007 2:15pm May 11, 2007 2:15pm
Quoting dunningduke
That said, retail traders should outperform money managers because of the ease with which they are able to enter and exit trades.

I disagree with this saying. Retail traders never outperform money managers in the long term because 95% of retail traders are usually wiped out within the first 2 years of their trading and the remaining 5% actually become money managers.


Thanks,

Nader
  • #14
  • Last Post: May 11, 2007 5:35pm May 11, 2007 5:35pm
As a trader coming from the small mini-lots to large lots, I tend to agree with mrmikal's points.

Even though % is % is % either it be $300 or $3K or $30K or $300K or $3M. But the mechanics of trading differs. Lowered Leverage, broker games and all.

Im not into institutional accounts yet but from my current retail brokers, they play games whenever I trade with large lots - delay execution, slippage (even on simple manual execution away from news). These are RISK factors added to trading big to the point that I would chicken and trade with smaller lots; opportunities are lost here.

(I know I should dump MT4 and go for institutional platforms, but i like MT4 alot with the EA).

Those who are successfull turning $300 to $600 in a month, try doing the same with $10K, or with $100K. I sure like to know how you personally feel risking 10% of it everytime... The feeling is different when risk in $$$ is bigger this time.

With small account, I challenge risk with 20% each time. But I sure cant do the same with big accounts.

Bigger Accounts = bigger Discipline.
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