Account size | Forex Factory

Options

Go to
Permalinks
Print Thread

Similar Threads

Which would you prefer: increasing lot size or TP size? 24 replies

At what lot size/account size do you have scale issues? 39 replies

Account size and trading size 12 replies

Point equivalent is calculated with the account size or traded size? 4 replies

Lot size, contract size, max position ? 1 reply

Account size

  • #1
  • First Post: Oct 14, 2010 2:37pm Oct 14, 2010 2:37pm
Hello,

Still too often I hear people say that you need a big account size in order to become profitable, or put differently, that it is easier to make money with a million dollar account than with a thousand dollar account.

I would like to ask anybody who ever put forward a statement like this to clarify himself, so that we can have a discussion on the validity of such a statement.

Thank you.
The nail that sticks out gets hammered back in
  • #2
  • Oct 14, 2010 2:54pm Oct 14, 2010 2:54pm
You won't find many responses because that statement is patently untrue. Any account size can "make money". It is a matter of degrees where people differ. 12% annually or 50% annually it doesn't matter...it "makes money".

Where this conversation becomes contested is HOW much money it can make as a bottom line...not as a percentage. Clearly the same percent is vastly different in the bottom line. 12% of $1,000 is $120. 12% of $100,000 is $12,000. Big difference but yet the same percent.

You goal will determine how you capitalize your account. Most recommend starting small and increase as you go. This allows you to make your mistakes and not lose much...when you become consistent move up to higher and higher capitalization. All the while you are "making money"...the real question (one you didn't put forth) is how much?
  • #3
  • Oct 14, 2010 2:54pm Oct 14, 2010 2:54pm
Quoting Noloqy
Hello,

Still too often I hear people say that you need a big account size in order to become profitable, or put differently, that it is easier to make money with a million dollar account than with a thousand dollar account.

I would like to ask anybody who ever put forward a statement like this to clarify himself, so that we can have a discussion on the validity of such a statement.

Thank you.
Having a 5 mil account certainly get's you access to top liquidity providers, like Hotspot or Integral. You can do HFT there. But it also makes it harder, since you'll start impacting the market more. A recent report said that the typical forex trade deal size dropped from 3 mil to 1 mil this year. That's only 10 times bigger than what a lot of retail traders use.

And another thing, there's a saying: big money didn't get big by being stupid. Put another way, if you have a big account, it's much more likely that you know what you're doing, so your also more likely not to use 100:1 leverage or to believe that "hedging" actually hedges anything.
  • #4
  • Oct 14, 2010 5:26pm Oct 14, 2010 5:26pm
Quoting Adal
so your also more likely not to use 100:1 leverage .
so d'ya reckon that if i wuz to put $1 million in each of 2 different accounts, one with 50:1 leverage and the other with 100:1 and adjust my lot size and stop loss and such and risk 2% on one trade in each account, which account do ya reckon i'd lose more on if'n i got stopped out in both trades. I wuz just wonderin.
  • #5
  • Oct 14, 2010 6:15pm Oct 14, 2010 6:15pm
Quoting TradeRunner
so d'ya reckon that if i wuz to put $1 million in each of 2 different accounts, one with 50:1 leverage and the other with 100:1 and adjust my lot size and stop loss and such and risk 2% on one trade in each account, which account do ya reckon i'd lose more on if'n i got stopped out in both trades. I wuz just wonderin.
"2% risk" is where you put the stop. It's not necessarily where it will be executed. Ever heard of gaps?

http://en.wikipedia.org/wiki/Liquidity_risk
  • #6
  • Oct 14, 2010 7:02pm Oct 14, 2010 7:02pm
Quoting Adal
"2% risk" is where you put the stop. It's not necessarily where it will be executed. Ever heard of gaps?

http://en.wikipedia.org/wiki/Liquidity_risk
yes'sir.... i've heard of them things they call gaps but i wish you'd kind'a x'plain what that has to do with bigger or lesser leverage... whut i'm sayin is which acount would i lose more money in???
  • #7
  • Oct 14, 2010 8:46pm Oct 14, 2010 8:46pm
Quoting TradeRunner
yes'sir.... i've heard of them things they call gaps but i wish you'd kind'a x'plain what that has to do with bigger or lesser leverage... whut i'm sayin is which acount would i lose more money in???
Read my post. I said "USING 100:1", not "having 100:1" leverage.

1 mil acc, 100:1 leverage -> I open a 100 mil position
1 mil acc, 50:1 leverage -> I open a 50 mil position

Guess where you'll lose more?

If you don't go above 50:1 actual leverage, the two accounts are identical.

If you think that you have more "head room" in the 100:1 account, guess what, it's the exact situation I described above. The first account has 50 mil headroom, the other 100 mil.
  • #8
  • Oct 14, 2010 9:07pm Oct 14, 2010 9:07pm
Quoting Adal
Read my post. I said "USING 100:1", not "having 100:1" leverage.

1 mil acc, 100:1 leverage -> I open a 100 mil position
1 mil acc, 50:1 leverage -> I open a 50 mil position

Guess where you'll lose more?

If you don't go above 50:1 actual leverage, the two accounts are identical.

If you think that you have more "head room" in the 100:1 account, guess what, it's the exact situation I described above. The first account has 50 mil headroom, the other 100 mil.
well sir that shore is somethun to think about but i wuz kind'a sayin' that if i wuz to risk 2% of my account on either account.... on which account would i lose more money if things just all kind'a go to hell??? I mean i know i could open a way bigger position with way bigger leverage but whut if i just risked 2% of either account??? so you reckon i'd lose more with all that high leverage stuff????
  • #9
  • Oct 14, 2010 9:44pm Oct 14, 2010 9:44pm
Quoting Adal
Read my post. I said "USING 100:1", not "having 100:1" leverage.

1 mil acc, 100:1 leverage -> I open a 100 mil position
1 mil acc, 50:1 leverage -> I open a 50 mil position

Guess where you'll lose more?

If you don't go above 50:1 actual leverage, the two accounts are identical.

If you think that you have more "head room" in the 100:1 account, guess what, it's the exact situation I described above. The first account has 50 mil headroom, the other 100 mil.
i reckon u'r still studying about that for a bit. seems like the CFTC or the US Gov or almost nobody (except those to whom the answer is obvious) can answer that question. never matter.... adal and y'all think on it a while cuz i really need some input. got'ta go for now, thank y'all
  • #10
  • Oct 14, 2010 10:11pm Oct 14, 2010 10:11pm
Quoting TradeRunner
well sir that shore is somethun to think about but i wuz kind'a sayin' that if i wuz to risk 2% of my account on either account.... on which account would i lose more money if things just all kind'a go to hell??? I mean i know i could open a way bigger position with way bigger leverage but whut if i just risked 2% of either account??? so you reckon i'd lose more with all that high leverage stuff????
Ah, Slim Pickens returned.

Are you sure you can find a broker who will give you 100:1 on a million. If you could:

Are both trades going to have equal lot sizes and stops? I know the risk will be the same and either leverage amount will result in a 20k loss. 2% of a million has to be 2% of a million (or 20k) in either case but the trades will not perform the same if you are using the full allowable amount of each leverage. If you have one million leveraged at 100:1 it will give you twice the position size. Each pip will be worth twice as much offering twice the reward. But because of the larger position-size/pip-value. your 20k stop will get hit twice as fast.

1mil @ 50:1 = 50 mil = $500 per pip
2% SL = 20k
40 pips til SL

1m @ 100:1 = 100mil = $1000 per pip
2% SL = 20k
20 pips til SL

If I understand your point, you are talking about trading equal lot size, say 10 standard lots, and equal stops and not trading the full amount the account will allow. If that’s the case, all things remain the same, including distance to stoploss
  • #11
  • Oct 14, 2010 10:38pm Oct 14, 2010 10:38pm
Quoting TradeRunner
so d'ya reckon that if i wuz to put $1 million in each of 2 different accounts, one with 50:1 leverage and the other with 100:1 and adjust my lot size and stop loss and such and risk 2% on one trade in each account, which account do ya reckon i'd lose more on if'n i got stopped out in both trades. I wuz just wonderin.
If you are only risking 2% of your account, 50:1 leverage should be more than enough for you to trade. I have had my main account at Oanda for over 5 years now. Their leverage has always been 50:1 and over the years it has never crossed my mind that I would need higher leverage. If you know what you are doing, and know how to manage risk exposure properly, then the 50:1 leverage is all you need. But, if instead of focusing on how to trade, you prefer to cry all over the forum, about how the CFTC killed your profits by limiting you in how fast you can loose your money, then by all means do that.
I do agree that what they did is wrong, but only from the point of getting involved and imposing limitations where they should not have. The limited leverage itself though, will not put any profitable trader out of business...
Stubbornly persistent
  • #12
  • Oct 14, 2010 10:43pm Oct 14, 2010 10:43pm
Quoting billflet
Ah, Slim Pickens returned.

Are you sure you can find a broker who will give you 100:1 on a million....
yes'ir ole' Slim's a pretty shrewd ole' boy. multi-millionaire and all that petty stuff. Really the question equates to the grade school question "which weighs more: a pound of feathers or a pound of lead?"

But your answer is exactly what I thought I would receive; that the difference in leverage is also a difference in the value of a pip.

I can assure that... it is not. Study up a bit, please.
  • #13
  • Oct 14, 2010 10:45pm Oct 14, 2010 10:45pm
Quoting Noloqy
Hello,

Still too often I hear people say that you need a big account size in order to become profitable, or put differently, that it is easier to make money with a million dollar account than with a thousand dollar account.

I would like to ask anybody who ever put forward a statement like this to clarify himself, so that we can have a discussion on the validity of such a statement.

Thank you.
I believe the problem here is a psychological one, more than anything. Not too many people will trade a $1000 account, and be happy with a 3% monthly. So they try to push the limits of what is possible, and shoot for those elusive 50%-100% monthly and end up with blown accounts. If you have a large account, a small % return, will be a lot more satisfying. Those small returns will be a lot more sustainable long term, and will allow the trader to really take their time, and look for those perfect opportunities, while having the appropriate risk exposure. It will also allow the trader to have very realistic goals and those goals are usually much more attainable.
Stubbornly persistent
  • #14
  • Oct 14, 2010 11:07pm Oct 14, 2010 11:07pm
Size matters. Ask any female trader.
  • #15
  • Oct 14, 2010 11:14pm Oct 14, 2010 11:14pm
Quoting 2+2=4ex
Size matters. Ask any female trader.
Best answer so far
Stubbornly persistent
  • #16
  • Oct 14, 2010 11:38pm Oct 14, 2010 11:38pm
Quoting TradeRunner
yes'ir ole' Slim's a pretty shrewd ole' boy. multi-millionaire and all that petty stuff. Really the question equates to the grade school question "which weighs more: a pound of feathers or a pound of lead?"

But your answer is exactly what I thought I would receive; that the difference in leverage is also a difference in the value of a pip.

I can assure that... it is not. Study up a bit, please.

Spoken like a person who didn't read my entire post.

I asked a question. I asked if you were using maximum allowable leverage or equal position sizes. Without knowing that, I gave two scenarios--one illustrated with numbers that pertained to using maximum allowable leverage.

In my summation I said if, on the other hand, lot sizes and stop sizes were equal there would be no difference in anything, including the value of a pip. I didn't say that greater leverage has to equal greater pip value. But in order to answer your question I need to know if lot sizes and stop sizes would be equal in either scenario.

Are you talking about true leverage, or maximum allowable leverage?
  • #17
  • Oct 15, 2010 3:03am Oct 15, 2010 3:03am
Thanks for the contributions so far. As of now, we have identified a number of pros and cons of big accounts:

++++
+Access to liquidity networks with tighter spreads.
+Psychological: Bigger absolute returns reduce likelihood for all-or-nothing behavior.


----
-Liquidity may be too little for big trades - The possibility of affecting market prices. These effects are more significant for less liquid products (e.g. shares compared to Forex).
-Psychological: Bigger absolute drawdowns require stronger mental discipline.

Someone mentioned that there is a bias in the sense that successful traders end up with big accounts, and therefore you see a correlation between big accounts and profitability. This is definately true. However, in this discussion we should ignore this causality, and just look at initial situations.

Disregarding the pros and cons, yes, with big account sizes it is easier to achieve equal absolute returns, but not relative returns. Nevertheless, I'm still looking forward to hearing more from the people that have always stated that big account sizes make it easier to become profitable. Or is it that they just copied what they read, and didn't think about the possible underlying reasons?

Ps. normally people talk about maximum allowed leverage.
The nail that sticks out gets hammered back in
  • #18
  • Oct 15, 2010 6:47am Oct 15, 2010 6:47am
Quoting Noloqy
Nevertheless, I'm still looking forward to hearing more from the people that have always stated that big account sizes make it easier to become profitable.
Because there are a lot more ways of being profitable with a small risk when you try to reach 25% every year than when you try to double you account!!!

With an account of 1 million, 25% every year means a very good living.

With an account of 10K, 100% means another 10K which is 25 times less than the other guy but with 16 times (!!!) more risk and not even enough for a living.

"That's it, that's all", to quote the best snowboard movie ever.
  • #19
  • Oct 15, 2010 6:54am Oct 15, 2010 6:54am
Thank you, I was thinking about writing the same thing just couldn't put it so simple and clear.

Quoting Sauron
Because there are a lot more ways of being profitable with a small risk when you try to reach 25% every year than when you try to double you account!!!
forget about tomorrow, just steal away into the night
  • #20
  • Oct 17, 2010 12:25am Oct 17, 2010 12:25am
Quoting spekitox
Thank you, I was thinking about writing the same thing just couldn't put it so simple and clear.
I would be impressed if there was much of anything that you could figure out on your own but there just isn't, is there Mr. Spitkok?

(tie your shoes, maybe)
0 traders viewing now