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what's the purpose of an account, anyway?

  • #41
  • Jun 23, 2008 11:13pm Jun 23, 2008 11:13pm
Quoting baronfei
You are the one being funny my friend.

Tdion is not talking bout blowing up the 100% of the account.

What he was saying is that whatever remain in the account has only a sole purpose - as margin. Henceforth, whatever is not more likely to be utilised should be directed elsewhere.

Example:

You have an 100k in your account. There's no point to keep the whole 100k if your startegy only risk about 2 - 5% per trade (taking into consideration that you will only open a maximum of say, 3 positions, simultaneously).

It is in fact stupid to keep that 100k in it. If you expect to lose that much you might as well use it to down pay yourself a house or something.

As mentioned, you won't need the whole 100k, so you might want to roughly reduce half of it.

For aggressive traders, we might want to trade more lots per position, hence larger drawdown % wise. That said, I'm risking more for more with my 100k. When you risk a 10% drawdown for a 10% growth and have more than 50% proven record you are doing pretty fine.

It all bore down to the preference and appetite of the trader. (Of course noobs should always follow strict MM). If you are following these 2 - 3 % drawdown risk MM even when you are well experienced, you are either

1. bluffing
2. you dun know your maths
3. bluffing
4. bluffing
5. a really conservative trader (to whom you shouldn't be traduing fx)

dude, can you read my other posts before getting all crazy mad? i already said that i agree with his system, i have said it REPEATEDLY. and liek you said, its all about preference. it goes both ways. he likes to trade agressively i trade conservatively. and that doesnt mean im bluffing.

ok, i think the biggest point im trying to make is that it depends on the way you look at an account. i trade my own money, but i also trade other people's money. i cant just go and blow all their money on a few trades. so therefore, i use the 1 percent rule. i am experienced, i know my math, i am not bluffing, but i still trade 1%. but the thing is, i dont have to be conservative with that rule. the way we work, we do 1 percent a trade, but we can have 5 trades open. thats five percent in case you dun know your maths baron. after those trades are closed, we can put more in. we can do this an infinite amount of times. we can have had 100 percent of the account open, but just not at the same time. also, this isnt a conservative strat. we put in a ton of trades somedays. we do it agressively. but we use the 1% rule to limit losses while still utilizing the margin of the full account.
  • #42
  • Edited Jun 24, 2008 12:38am Jun 23, 2008 11:58pm | Edited Jun 24, 2008 12:38am
Quoting blacksun1
actually i didnt fail to read the thread, if you read the FIRST post, which i was replying to, it says nothing about having any money off to the side. I work for a professional trading firm. we keep all the money in one account. this is how it is done all over the world. and according to you, all the major hedge funds and banks and firms who make millions of dollars A DAY arent smart, right? they put all their trading capital into one account but dont use the full one hundred percent to trade. what idiots. i cant believe that they are making so much money when they are so obviously not smart traders (according to you). i just cant get over the fact that while you are losing your account repeadtly (im only basing this on the fact that there is mention of someone losing the account then putting more money into it), they are making more than any of us will ever see in a lifetime! its insane! how could such dumb people be so smart?

the truth is, because they are smart too!!!!!! there are more ways than one to manage your money. the only problem i had with what tdion was saying earlier was that i though he was risking all of his trading capital. ive said this about three times. i have also acknowleged the fact that his money management sytem works.

oh by the way, i just love the way you classify yourself as a "smart" trader and therby imply that i am not a "smart" trader when in fact you have no clue how i trade. its quite funny. also, you dont have to be "smart" in order to be succesful, and just because youre succesful doesnt mean you are "smart." a "smart" person would realize this and keep his mouth shut.
for a trader, you seemed to be easily stroked to anger. It seems to me you believe i implied that your'e not so smart. Its amazing how human could conceptualise matters based on what they read. The better they are the bigger the ego i guess.

This does mean that im not so smart after all, right?

So Mr Professional trader, heres a cup raised to you. Cheers.
  • #43
  • Jun 24, 2008 1:09am Jun 24, 2008 1:09am
Quoting tdion
does your money sit idley in your account

dormant

no purpose

what is the purpose of the money in the account?

naturally, part of it is for margin....

BUT

the rest should be 100% risk capital

i see a lot of people saying "I want no more than 15% drawdown"

well, friends, i say that the ENTIRE ACCOUNT should be available for drawdown. 100% drawdown. otherwise, what is the point of keeping the money in the account? you have it there to cover losses, not to build some system that you can brag has low drawdown.
well my friend,
hear this,
a job offered here, they have told, they need no more than 5% drawdown.

you know why,
because usually when you have a large portfolio or managed account,
you should have to be ready to pay the customer's funds if he ask for them, without hurting your entire account.

and to do that,
there should be extra liquidity.

but, if you are trading your own account,
do what you want.
  • #44
  • Jun 24, 2008 1:25am Jun 24, 2008 1:25am
Quoting jest1081
for a trader, you seemed to be easily stroked to anger. It seems to me you believe i implied that your'e not so smart. Its amazing how human could conceptualise matters based on what they read. The better they are the bigger the ego i guess.

This does mean that im not so smart after all, right?

So Mr Professional trader, heres a cup raised to you. Cheers.

Cheers for no so smart people like us too... LOL
  • #45
  • Jul 15, 2008 4:40pm Jul 15, 2008 4:40pm
First, a little background. I am a professional trader and manage the FX porftfolio for an investment firm. I happened to be going through the forums when I came to this thread and it disturbed me a little. So, here's my take...

As a professional trader, I would have to recommend not ever trading more than 1-2% of your account. Yes, yes... trading with such little risk seems like the silliest thing you could possibly do with so much money left to sustain your drawdown. But, you if you can win 60%-70% of the time while only risking 1%, you will have a great trading model that will yield a solid ROI by the end of the year.

Now, if you are looking to triple your account in one week, I suggest you trade with 100% risk... however, if you are doing that, you are flat out gambling, not using ANY risk management, and you are also likely to lose your money in one week.

Your capital or equity should never be completely used to sustain your drawdown... your capital should be used to grow your account over time. If you lose 1%, you have a chance to trade the next day... trading 100% could easily make you a bunch of money, but if one trade goes against you and does not come back, you no longer have an account period. And, no matter what anyone tells you, I guarantee you that there WILL be more than one trade that goes against you like that someday.

When you trade, trade with the mindset: How do I PROTECT my money? Not... how can I double it? If you protect your money, and trade consistently and THOUGHTFULLY with a solid trading model that includes a risk management system, you WILL make profits.

Happy trading!
  • #46
  • Jul 16, 2008 8:00pm Jul 16, 2008 8:00pm
JRowaboat I think you are missing the original posters point. He is not saying that you should risk more of your money but that money that you are not risking (the other 99% if you are only risking 1%) should not be sitting in your brokarage account doing nothing but should be in a bank/other investement earning interest. If you lose the 1% then you can transfer more money into your trading account and trade with it. This strategy does not increase risk at all. Although it may be impractical for some of us smaller traders to transfer money so often between accounts I'm sure proffesional traders like yourself do this all the time. (ie. mutual funds hold cash reserves in money market funds or short term bonds, not in brokerage accounts not earning interest)
  • #47
  • Jul 16, 2008 8:48pm Jul 16, 2008 8:48pm
I think he got the point.
I've heard Oanda pays 5% interest on balance which would be the same thing we are talking about here. Rather than holding bonds with 90% of your account and transferring money as needed you could just trade from the account that is making 5% per year. Wow. Some brokers call this float and your IB if he's savvy enough will have negotiations to profit from the float at your forex broker.
It really is that easy.
  • #48
  • Jul 16, 2008 9:33pm Jul 16, 2008 9:33pm
Fxorce, I agree that if oanda pays 5% interest then you might as well keep your money there. Thats way higher than any bank or money market fund will pay in the U.S. Although I don't think this is what JRowaboat was talking about. If your broker is not paying any interest then their is no point in keeping a large account there and only risking 1-2%.

BTW, do you happen to know how oanda is able to offer such a high rate. Its always surprising to see a company able to offer such a better deal than competitors (basically other banks and MM accounts). It makes me wonder if it is a short term promotional thing, or if it isn't how can they offer such a high rate.
  • #49
  • Jul 16, 2008 9:37pm Jul 16, 2008 9:37pm
Read through this thread and you'll find options.
Australian savings rates are much higher than US rates.
I am guessing there are countries paying 10% for their bonds right now. Eastern European countries are having a difficult time with inflation and they are raising rates very far.
It really is that easy.
  • #50
  • Jul 16, 2008 10:11pm Jul 16, 2008 10:11pm
ronald raygun talks about backtax certificates. they are (supposedly) good for 10 to 15% ROI a year...
  • #51
  • Jul 17, 2008 12:57pm Jul 17, 2008 12:57pm
Quoting uni412
JRowaboat I think you are missing the original posters point. He is not saying that you should risk more of your money but that money that you are not risking (the other 99% if you are only risking 1%) should not be sitting in your brokarage account doing nothing but should be in a bank/other investement earning interest. If you lose the 1% then you can transfer more money into your trading account and trade with it. This strategy does not increase risk at all. Although it may be impractical for some of us smaller traders to transfer money so often between accounts I'm sure proffesional traders like yourself do this all the time. (ie. mutual funds hold cash reserves in money market funds or short term bonds, not in brokerage accounts not earning interest)
You're right, I came in the middle of the conversation and I think I missed what the original point was... but I think the conversation turned at some point to risking more than a reasonable amount of equity.

However, if pulling interest from remaining capital was indeed the original point, then I would agree that in an individual account scenario this definitely may be rewarding(though very limited). But, with withdrawal/transfer fees, limited control of assets, etc., this isn't really a viable scenario in the managed account world I live in.

If you can get a broker and a high-yielding bank account with low fees for how often you move your money back and forth and your trading strategy is conservative and does not hold much draw down, you could actually make a few more bucks here and there.
  • #52
  • Feb 6, 2009 1:29am Feb 6, 2009 1:29am
This is the thread of the year, in my opinion.
  • #53
  • Feb 6, 2009 4:30am Feb 6, 2009 4:30am
Just wanted to contribute my 2 pips worth to the thread of the year (or perhaps that was 2008, so I'm too late?)

The way I see it, unused margin lying idle in a trading account is a complete waste. I have investments that are earning 9%-10% p.a. elsewhere (and I'd like to think are invested about as safely as one can hope for, in these troubled times).

There's also the possibility that a broker might do a Refco, and any funds not held in a segregated account are potentially at risk.
  • #54
  • Last Post: Feb 6, 2009 10:10am Feb 6, 2009 10:10am
Quoting hanover
Just wanted to contribute my 2 pips worth to the thread of the year (or perhaps that was 2008, so I'm too late?)

The way I see it, unused margin lying idle in a trading account is a complete waste. I have investments that are earning 9%-10% p.a. elsewhere (and I'd like to think are invested about as safely as one can hope for, in these troubled times).

There's also the possibility that a broker might do a Refco, and any funds not held in a segregated account are potentially at risk.
Agreed. My cash is spread among different brokers but even this isn't ideal. They could all fold quickly like a row of dominoes. Any money stored in a non-segregated account, beyond what we need to actually trade with, is essentially at risk for either no or very little reward.
Like MRGreen suggests, our forex risk money can be stored in a safer place with only what we actually need to avoid margin calls being placed in the forex account. Money earmarked for forex trading, but stored elsewhere, can still be considered in our MM formulas.
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