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Why professionals "only" make ~30% anually

  • #101
  • Feb 1, 2007 6:05am Feb 1, 2007 6:05am
thanks for your responses - it's nice to learn once in a while - at the moment i'm not in that arena of deal size but soon could be and am finding out before i get there.

at the mo i'm dropping around18mi into cable and having no problems - however i do notice that if the market is slow I do make a difference to price, allbeit fleeting at the moment.

here's a second point tho Darkstar - i think it was you who said earlier that dropping a large amount into the market in one lump at the right time would make price move AGAINST you by say 10 pips and then against you by say 10 pips on exit - I dont understand this - if i was to sell say 100mil into cable surely it would put pressure on the short side and not long opposing me yes?

if not, can you explain please?
https://linktr.ee/Soultrader
  • #102
  • Edited 7:13am Feb 1, 2007 7:06am | Edited 7:13am
More volume than is available at the price you want to sell means the price will go down but you won't get filled at the price you saw trading at the levels being discussed. The spread will move to the limit of the fill. You get filled all the way down which at these volumes in a thin market - Asian session - you'd sell GBP until you're filled completely taking all the available lots on the way down.

A good example in another market is horse racing on a betting exchange. You can see all the levels to back or lay available in the whole market. Take all the money available by a certain number of points away and the price shoots down if you back or up if you lay.

If you trade at that level you can see what's available at what price and you'll see how much the market will move against you. The easiest way is to look at a betting exchange - US residents can't use them though - but it's a good example of supply and demand and how it works. Why did any market go up today? More people bought than sold. That's it really.
Do not focus on making money; focus on protecting what you have.
  • #103
  • Feb 1, 2007 7:26am Feb 1, 2007 7:26am
Quoting soultrader
here's a second point tho Darkstar - i think it was you who said earlier that dropping a large amount into the market in one lump at the right time would make price move AGAINST you by say 10 pips and then against you by say 10 pips on exit - I dont understand this - if i was to sell say 100mil into cable surely it would put pressure on the short side and not long opposing me yes?

if not, can you explain please?
I meant it as against your intended entry/exit price. If you want to enter at 100, when you drop a big order your average fill may be 105. An intended exit at 200 might fill at 195. You basically lost 10 pips on the trade because of the market movement you caused.

This says nothing about the vacume that is often created after a big order hits. As I pointed out earlier, afterwards price often drops back to the original price (or even below it) which puts you at a negative until more interest hits the market.
  • #104
  • Feb 1, 2007 7:43am Feb 1, 2007 7:43am
I would agree with merlins post.

BUt would also like to add that there is a different in trading style.
Market makers are links in a market. People who know each other and trade with each other. These people have hundreds of millions and move the market.
If you move the market, you cannot risk alot. As there could be another player twice your size on the other side waiting for you to make a move then stopping you out.
You have to be very very careful on trades you choose when trading higher numbers than 50 million because people want your stop, it means more profits for them.

However if you trade lower amounts, you are simply catching someone elses money, risk does come into it. But if you are accurate enough you can risk 80% per trade and it would be no different than risking 1% except you will benefit more.

Turning a 100 dollar account into 100 in a month isnt THAT difficult to do. However turning 1000 into 10000 is a bit harder, 10000 to 100000 is harder etc etc etc

I trade quite a bit of money, am not a market maker, dont ever plan to be one. Because a loss would piss me off really bad..
  • #105
  • Feb 1, 2007 8:15am Feb 1, 2007 8:15am
Quoting Takisd
However if you trade lower amounts, you are simply catching someone elses money, risk does come into it. But if you are accurate enough you can risk 80% per trade and it would be no different than risking 1% except you will benefit more.

Turning a 100 dollar account into 100 in a month isnt THAT difficult to do. However turning 1000 into 10000 is a bit harder, 10000 to 100000 is harder etc etc etc.
But who here would do that? Risk 80%. Does anybody have the confidence level to do what you describe? I doubt it. And the difficulty increases exponentially with the size and number of lots as you write.

Maybe with a few thousand but I guess it's all relative to your financial position.
Do not focus on making money; focus on protecting what you have.
  • #106
  • Feb 1, 2007 10:59am Feb 1, 2007 10:59am
Quoting Darkstar
Divide $1tril by 28 pairs. ~ $35b

Divide that figure by the daily range of each pair. (say 50 pips) $715m

Divide that by 2 for the buy and the sell side. $357m

Thats what you would find on average at each pip before price would move.

It also fails to account for time. Much of that comes online over a 24 hour period so at any given moment its far less.

Its a very simplified model, but you get the idea. When you factor for the concentration of liquidity, it should be easy to see how an order placed at an inopportune time could spike the market quite a bit.

if u divide that 357 by 24 hrs u get 14.8m per side.

my understanding of the forex maket was always that the bids and offer is simply what one is willing to buy(bid) or sell (offer) the pair for. If one ordr of $1 billion is offering too high for ex, 1.9555 and the lowest offer is at 1.9550, that $1 billion may be forced to lower to the lowest offer price of 1.9550. Then the offer price might fall if he is not getting his fills and becomes impatient, so he lowers the offer to 1.9549 (1 pip), he might get a partial fill...and might lower to 1.9547 for a complete fill. THat is just how i see the market. CORRECT ME IF I"M WRONG OK!
  • #107
  • Feb 1, 2007 11:07am Feb 1, 2007 11:07am
“Stops hunting” is not always a bad thing. Sometimes it provides some additional opportunities for a bigger speculator. A few years ago I commonly used such practice as placing stops outside most recent intraday trading ranges without yet having an actual position. The order was usually in size of 100-200 mio and placed 30-40 pips above or below the current price in relatively thin Asian market. When the market-maker began stops hunting process by shifting the prices toward the stops level, I was taking the actual position in the opposite direction right ahead of my stops also simultaneously canceling the initial order. Such technique used to work well as pretty often the prices almost immediately were coming to the original trading levels.
  • #108
  • Feb 1, 2007 1:32pm Feb 1, 2007 1:32pm
Quoting don perry
If one order of $1 billion is offering too high for ex, 1.9555 and the lowest offer is at 1.9550, that $1 billion may be forced to lower to the lowest offer price of 1.9550. Then the offer price might fall if he is not getting his fills and becomes impatient, so he lowers the offer to 1.9549 (1 pip), he might get a partial fill...and might lower to 1.9547 for a complete fill.!
The actual trade would be slipped to get filled down or up to the volume required IF you have allowed the entry to do that. You only need to enter once. If you want to get filled you'd allow the slip to the level that you can see which will fill you. Enter at 9550 allow slip of 10 because you can see you'll have to go that far to get filled and you take all the money to 9540 or 9560 depending on a long or short respectively.
Do not focus on making money; focus on protecting what you have.
  • #109
  • Feb 1, 2007 1:37pm Feb 1, 2007 1:37pm
yes, and that is what causes the price to change on the global market. the bids and the offers are always the best prices available
  • #110
  • Feb 1, 2007 2:06pm Feb 1, 2007 2:06pm
Quoting Merlin
while its an interesting hypothesis, id have to say no. i think 30-60% is the max reasonable returns you can achieve in the long run (ie without taking excessive risk), and thats why the pros are around that level. there are many who will disagree with this, saying that high returns are achievable without the risk, but when you think about it, thats like shittin' on the whole financial industry. LOL!
You must take into account that someone with 10+ million dollar will not get any leverage. So he needs to put all his money onto the table to pay for a trade.

Quoting Aroon
I am most confident that I can build up my balance again. I see no reason to change my trading style, as it brought me profits. I just have to apply stop losses.
I dont think that you should apply stop losses, but instead proper money management (and no more faults by you like the last one ).
"Never change a running system!"
  • #111
  • Feb 1, 2007 2:10pm Feb 1, 2007 2:10pm
Quoting ilanr
Music for my ears. I'm glad someone uses Kelly. I risk 15% of capital (or 1/2 Kelly's percent, whichever is lower) for my first trade. Should I open a second position, I use 15% of the capital that I would have if I'd lose all the money I'm risking in the first trade, etc. As I usually don't have more than 2-4 trades at once, this works fine for me.

It's clear that if you run a $100M fund AND trade like myself (15% risk, 1:200 leverage), every move you make shakes the market and every loss kills 15% of your investors (heart attacks, strokes, etc.)...
50% of Kelly's percent is supposed to be the optimal since it cuts your risk dramatically while still giving you 75% of the profits of the full percentage. I would think that the 80% cited by the other poster is still too high.

A way you could apply Kelly's theories and run a $100 M fund would be to diversify your trading across many instruments. That way you could reduce your risk while preserving much of your profit.
  • #112
  • Feb 1, 2007 2:16pm Feb 1, 2007 2:16pm
Quoting katzenhai2
You must take into account that someone with 10+ million dollar will not get any leverage. So he needs to put all his money onto the table to pay for a trade.


I dont think that you should apply stop losses, but instead proper money management (and no more faults by you like the last one ).
"Never change a running system!"
Hedge funds utilize leverage, though I see what you're saying.

Stop losses are a part of proper money management, because usually you have to define a maximum loss to get a good idea of how your account will shape up long-term, even if it's a 200 pip disaster stop. A lack of stop losses in a leveraged instrument will blow your account pretty quickly depending on how much leverage you utilize.

If you're going to trade without stop losses, you are in the wrong market. Currencies are a very strongly trending instrument.

Think about it: If you had gone short in March, you wouldn't be anywhere near break-even right now. You'd have a significant portion of your account margin eaten up by a trade that might not come back for years.
  • #113
  • Feb 1, 2007 2:17pm Feb 1, 2007 2:17pm
Quoting katzenhai2
I dont think that you should apply stop losses, but instead proper money management.
Forget the stop loss and trade. Yeah baby. Wait a minute - most books say always have a stop loss. And most here agree with that IMO. I think we're in a minority kat!
Do not focus on making money; focus on protecting what you have.
  • #114
  • Feb 1, 2007 2:26pm Feb 1, 2007 2:26pm
Quoting Why Oh Why
Forget the stop loss and trade. Yeah baby. Wait a minute - most books say always have a stop loss. And most here agree with that IMO. I think we're in a minority kat!
What about this for real money management. Not proper though... or is it?
Do not focus on making money; focus on protecting what you have.
  • #115
  • Feb 1, 2007 2:47pm Feb 1, 2007 2:47pm
Quoting Why Oh Why
What about this for real money management. Not proper though... or is it?
Unless you have an account with $10k+, the wire transfer fees will eat deeply into any profit you manage to make. Even if your super accurate, why would you waste the money when you can set a stop with 1/10th the effort and for free?

I traded without stops a long time ago. After making huge profits for several months, I had one bad day and wiped it all away. Unless you can define explicently what your R is, you have no idea what kind of long term E you are going to get.

Even stop hunters use stops, they just don't place them where you expect.
  • #116
  • Feb 1, 2007 3:53pm Feb 1, 2007 3:53pm
Quoting Far From Average
If you're going to trade without stop losses, you are in the wrong market. Currencies are a very strongly trending instrument.

Think about it: If you had gone short in March, you wouldn't be anywhere near break-even right now. You'd have a significant portion of your account margin eaten up by a trade that might not come back for years.
I see your point here, there are prices at when you made a sell or buy, the market would not come back to it. But it depends greatly on how much you risk per trade and you must consider that you would buy and sell more trades at the same time at prices where the market comes back to it. Aroon mentioned stop losses set "far away" in his post, so there is nothing against "mental" stop losses if you see the market is really strong trending against you. My opinion and experience is: "Never change a running system!". Instead he should more think about how much he risk per trade and lower that. Is there really a need to make $100k in a year out of $10k?

For me forex is not about getting rich, its about "Trading for a living". My living standard is far less than $100k in a year.
I'm very sure that most people here will misunderstand the way of "let your losses running" because they are far way overleveraged.

Quoting Why oh why
Forget the stop loss and trade. Yeah baby. Wait a minute - most books say always have a stop loss. And most here agree with that IMO. I think we're in a minority kat!
I like to be in a minority because stats says only 5% are consistently profitable. So have a look on what the majority is doing and do it otherwise.
  • #117
  • Feb 1, 2007 4:11pm Feb 1, 2007 4:11pm
Quoting Darkstar
Unless you have an account with $10k+, the wire transfer fees will eat deeply into any profit you manage to make. Even if your super accurate, why would you waste the money when you can set a stop with 1/10th the effort and for free?
Then don't make withdrawals until you go above the level you'd be uncomfortable wiping out. Maybe 3 or 4 $1000 accounts funded by credit card or even smaller 6 accounts for $500. And when you go above a certain level of profit with some brokers you could face a margin call and still end up with more than you started with if you were successful initially. So your account could actually grow to twice the figure you'd be uncomfortable losing if you've got the profit there in the first place. You could only wipe out half even on a margin call with some brokers. And then you start again but with more money than initially on the same account.

Scale them in over a period and draw every couple of months so you'd only make one withdrawal a year - if you're successful - from each account in the second example. Tiny money and wouldn't be of interest to the majority but to somebody that doesn't want to use stops and doesn't want to risk $10000 in one account then, IMO, particularly in the current ranging market on EURUSD, this argument is valid.

Finally, don't forget. There will definitely be another REFCO. And remember where you saw that first.
Do not focus on making money; focus on protecting what you have.
  • #118
  • Feb 1, 2007 4:50pm Feb 1, 2007 4:50pm
What I suggested sounds like a lot of work. Why do it? Because with all the stops in the world if your broker goes tits up the chances are you will lose most of your money. Money management - what I describe is real money management and risk management. The business world is full of sharks - we all know that.

Will many people spread accounts like this? No, IMO. Why? Apathy. In England there is an investors protection scheme for saving institiutions known as building societies. The government will indemnify you for 95% of an investment up to £30000 if that institution goes bust. It's happened. So why do people have more than £30000 in any one institution? Apathy? Lack of knowledge perhaps?

Risk management is the number 1 for me in any market. And that's part of money management. Don't have all your eggs in one basket and make more of your trading at certain times without stops. Go with your view. That's all that matters. Use it or lose it. Maybe. But perhaps I don't have a clue. Yeah... that's more likely. Forget what I just wrote. Only joking. Pick out bits you like. At the end of the day we've all got to paddle our own canoe.
Do not focus on making money; focus on protecting what you have.
  • #119
  • Feb 1, 2007 5:00pm Feb 1, 2007 5:00pm
The real secret of life: Observe what beginners do, adapt that style and replace one thing with from the more experienced. Then you have a working system.
Most people tend to think about increasing the signal, but the secret lays into the decreasing of noise.

Most people can't even imagine whats possible with our minds.
  • #120
  • Feb 1, 2007 8:47pm Feb 1, 2007 8:47pm
Quoting Why Oh Why
What I suggested sounds like a lot of work. Why do it? Because with all the stops in the world if your broker goes tits up the chances are you will lose most of your money. Money management - what I describe is real money management and risk management. The business world is full of sharks - we all know that.

Will many people spread accounts like this? No, IMO. Why? Apathy. In England there is an investors protection scheme for saving institiutions known as building societies. The government will indemnify you for 95% of an investment up to £30000 if that institution goes bust. It's happened. So why do people have more than £30000 in any one institution? Apathy? Lack of knowledge perhaps?

Risk management is the number 1 for me in any market. And that's part of money management. Don't have all your eggs in one basket and make more of your trading at certain times without stops. Go with your view. That's all that matters. Use it or lose it. Maybe. But perhaps I don't have a clue. Yeah... that's more likely. Forget what I just wrote. Only joking. Pick out bits you like. At the end of the day we've all got to paddle our own canoe.
I LOVE that expression. Very English. Anyway, one thing you can do to get around this is trade currency futures through the CME. US regulations stipulate that all futures brokers must have enough cash on hand every day to pay out all accounts if the joint goes tits up. When Refco went under, the futures clients got a check in the mail while the forex clients got told to get in line with all the other creditors.
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