… then why do the major players achieve relatively “crap” results like 10% pa? Or is achieving 5% per month not realistic for a professional retail trader? There are a few posts here indicating at 10% per month is doable. If retail traders can do this with a simple laptop and a calculator, then why not the major players with their highly-talented traders and multi-million dollar gizmos? I’m really curious. 
There is only ONE number that matters in this game, and it’s what YOU can earn.
the only way to find out that number is to trade your account and take note of the results.
why, why? Are you sure these why are true first? Professional traders count their profitability per year too.
This is gonna be brief, because really an entire dissertation could be written on this subject and it would still leave some asking questions, and frankly, i don’t have the time these days… (too busy trading).
But, here’s the list:
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Liquidity. Yep. taht’s right. bigger players find it much more difficult to make 10% per month ROI on 20 million than they do $20,000. In my limited experience managing OPM, I can say in some markets i trade, I can’t get filled in all the accounts I trade for at the same price. Sometimes, I don’t get filled in 1 or more at all. But of course, every losing position I take fills completely. (think about it and you’ll likley figure it out). Doubt this? Read the original “market wizards”. Every single bigger player in that book (100 mil+ under managment) says the exact same thing. To take a trade, someone needs to take the other side of your order. If your order is big enough…there just isn’t gonna be enough at that price to do so…not to mention that you need to be able to get OUT of it… and this is where it can REALLY get tough
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Limitations of the structure of the “investment vehicle”. long story short, mutual funds suck. Did you know, that in fact, the vast majority of mutual funds basically have in their prospectus that they are going to be invested in something 100% of the time? Yep. thats right. Even if they KNOW it’s gonna dive bomb…they CAN’T take it out…they MAY be able to move it…but only within the assests outlined in their “prospectus objective”. Tell you what… why don’t I tell you that you can only invest in financial stocks… any one you want, but only financials, and no you can’t be in cash. See how well you do.
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#2 continued: mutual funds can’t go short. most can’t go inverse ETF either. Again, not only can they not get flat, but they can’t go short either. I don’t know why these things exist honestly, other than as tools to be used by fat cats who want a yacht more than they want to be botherd thinking about trading. Tell me how well you’d do being invested 100% long all the time, no matter what. always. period.
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Most of the REAL true pro traders you won’t here of…because they are private, they work referral only, their clients are primarily “accredited investors” (per U.S. and other soverigens federal securities laws) and they are CLOSED to your money.
They DON’T WANT IT. Because they know LIQUIDITY SUCKS if they take on more. Again. read market wizards… you’ll here every single guy say the same thing. -
Forget liquidity…how about just plain old “opportunity”? I mean…lets face it. any ol’ joe can open a mechanic shop, or buy a mcdonalds franchise…and make $100K - $300K per year. But, how many BILLION DOLLAR business are there for one to start…or buy, or… invest in? That’s right. Opportunity abounds if you have $100K and wanna make good money. But, for 100 mil… that’s a whole other ballgame… you can’t just take 20-30 pips out of the markets at a time, becuse your too ****ing big to get in and out without 20-30 pips of SLIPPAGE. So, you need to find triple digit opportunties…which are fewer. And they are harder to “time”. Catch the bottom of a 20 pip bounce…no problem. Catch the bottom of a 200 pip retracement because your order will cost your 15 pips on each end to fill and get out off, and that’s essentially a 30 pip spread, so you better try to run stops, and HOPE the stops don’t OVERWHELEM your run…or you’ll just be aiding the enemy, and btw…if you ARE wrong…your stop loss will just send you back another 15 pips of slippage. So much for risking that 1% on 20 pips eh? Oh, and you need to know how to trade out of a loss…because a “stop loss” order will only push the market furhter against you just when you need it MOST…not when you need it least.
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Speaking of stop losses. You want out now, here? right now? ok…cool. pay your spread, and your done. Oh…wait…i’m sorry…you want me to take the other side of $75 MILLION?!? Buddy, the market is running fast… i’ll fill you on 10 lots…thats 1 mil…u figure the rest out at the next level. in other words… the “stop loss” order basically is your guillotine, but so is the “take profit” order. If news comes out against you, and you try to close your $75 mil positions…instead of the news pushing the market a mere 60 pips away from you…YOU could be responsible for pushing the market 100 pips away from you…and STILL need to fill the other $35 million.
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Speaking of harder… u ever had to literally have your entire career and family fortune live and die by the trading decisions YOU make? Kinda stressful sometimes. Oh, now…try to do that…for $100 mil of OPM…and now, have a “slow month”. Managing money has killed some folks (no exaggeration). Think trading your own account for a living is stressful? Try trading a few dozen or hunderd accounts of millionaires who care nothing more than “how did you do for me THIS month? and by the way… Don Rich-man over there did double your ROI last month…maybe i’ll go with him… I’ll just have my attorney send you a letter with my requirements, otherwise, i’m pulling my money. tah tah!” - and that’s a KIND communication. Psych pressures go up 100 fold when managing OPM.
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There is also something to be said for just plain old “sucking” at ones job. I’ve spoken to a few “money managers”…and i’ve heard the most half baked, hooey filled, rot-gut B.S. ideas on how to trade the markets. Think I’m being overly cynical or naieve? How many real estate agents you know of knew the real estate “crash” was coming. or heck…how many real estate agents you know of that don’t own any investment properties themeslves? most are in this boat, IMO. What about “stock brokers”… u know any who made their money in their investments? i didn’t think so.
I remember one telling me that the truth is if one missed the 15 best days of the stock market in the year, that would essentially result in an average ROI of 0% or worse. And I thought “Yep…that’s true dummy… but considering those top 15 days usually trail the end of the WORST 15 days… your entire logic is flawed. good luck with that 20 mil u got under management”. No Joke. Not even a little bit. They don’t know how to trade. They are glorified analysts with licenses and titles.
and who said these firms employ “highly talented traders”? And I think by now we should all pretty much know that multi milllion dollar gizmos don’t necessarily make you anything in the markets.
Anyway, i could go on, and on, and on. In summary, no one takes the other side of their bet, stops and targets don’t work like they do for you, their spread is double digit pips, overexposure is a b*tch, their “company prospectus” restricts profitable trading, and even money saving “sidelining”, those are are good are not taking you, companies do not hire talented traders for the most part, million dollar gizmos don’t necessarily make profits for many of the firmst that employ them (at least…some do, and some don’t. and that’s a fact"), trading big money comes with it’s on unique incredibly stressful psych issues, and i can’t tell you how many “traders”…basically just… suck.
There you have it. agree, disagree, no matter to me. I’m happy making well over 5% per month with much less than a 7 figure account, and have no interest in managing 9 figures.
Jay
I agree with most, if not all, of Jay’s points.
Managing OPM, no matter how much of it, always sucks: if you succeed you’ll hear ‘That’s what we pay him for’ … if you have a bad run you’ll hear ‘He sucks’ or ‘He’s cheating us’.
It’s just not worth it.
Best thing really is to have a properly capitalized account for oneself and trade it … way less headache.
If you have a million or two and can manage a 20-40% annual return on that, all is good.
You won’t be rich, but you’ll be definitely be comfortable.
Cheers,
O.
eremarket, I’m really grateful for your detailed reply!!! :35: It’s very informative.
LOL! Did you say brief?
Hehe, I had a chuckle about that, too.
Probably he wanted to make it a three-liner, then got into it properly.
It’s a post worthwhile reading though.
O.
Perspective is key.
My friend’s boss grew his fund from £5,000,000 to £24billion under management in 6 years.
Understand that at 1.5% a month for 12 months is 18% a year which earns £4.32billion for the year at that level.
Risk is the most important issue.
Number one difference between professionals and retailers is that funds don’t trade to pull out money to pay the rent. They progress steadily making sure money with minimal risk of blowing their account then more investors pile in to share their wealth.
10% every month (120% for the year) is preposterous and unsustainable and involves a ridiculous hazard to (real) capital if you make average wins and losses like everyone else does. 10% a month turns 24billlion to 52.8billion in one year.
Ever seen a 100 contract S&P trade moving. $25,000 a pip. 10 pips against you is $250,000. Some funds survive by kamikaze trades here and there that pay off. The more money you have, the more your exposure and the more prudent you have to be if you want to still be around in 5 years.
The basic answer to your question is that professionals understand the underlying numbers with respect to risk. Majority of retail traders don’t. Professionals also know that you need money to make money - preferably other people’s. If you do 10% a year on £20,000 you made £2,000. A fund with £200,000,000 does £20,000,000. You can’t live on that £2,000 and the fund of 10 people takes 2% in fund management fees and 30% performance fees which is £6,400,000 for the year. £100,000 a year salaries leaves £5,400,000 for other costs (rent, supplies, marketing, research), shareholders and carry-forward to next year as cash-in-hand. Why trade more? JUST MANAGE MORE. Small percent of huge cake is more than huge percent of a crumb!
Some funds are more aggressive than others but this is a business not a computer game
Modern…I agree with you most of the time…but, something rings…off, with this post here.
Your saying that 10% per month is preposterous without taking extraordinary risk. I would beg to differ. It is in fact… IMO…very doable, without risking over 1% of total capital to any particular market at any given time… but not probably not with 5 million…and absolutely not with billions. not even close.
I agree that the more you have, the more your exposure, and the more prudent one must be…yet, 100 contract S&P trade with a 10 pip move against you would be very reasonable if you had, say, 100 million under managment, and as long as your overall exposure to the stock markets was not overextended to the long side in other areas (if you happen to be short several weak industry stocks/options at the same time your long S&P…all the better IMO)
What I’m getting at here is that 10% ROI per month is doable. consistently. with reasonable risk parameters of never risking more than 1%-2% per trade. But not with hundereds of millions, and maybe not even with tens of millions. But with hundereds of thousands or less? Sure.
Anxiously await your response…
Jay
[B]This forum has a problem parsing the percent sign if u follow it by a number - bad JavaScript programming??[/B]
I agree with you about the 10pc but how much is being taken out and how does this affect funds? Can folks live on that 10pc for the month?
Three hypothetical traders make one trade for the month on same platform:
$100000 gives you $10/pip
$10000 10pc margin
$100 needed at 1:100
that’s 1pc of *$10,000 balance (forget stops for now)
make 100 pips you get $1000
1pc deposit made 10pc if market went up straight away
balance of $100,000 would have made $10,000.
$10,000,000 gives you $1000/pip
$1,000,000 10pc margin
$10,000 needed at 1:100
1pc of *$1,000,000 balance (forget stops for now)
make 100 pips you get $100,000
1pc deposit made 10pc if market went up straight away
To make $100,000 the first one needs 100 trades.
1/10 times capital of 2nd
1/100 times capital of 3rd
The second needs 10 trades.
10 times capital of 1st
1/10 times capital of 3rd
The third needs 1 trade.
10 times capital of 2nd
100 times capital of 3rd
So far everything scales obviously as long as capital remains untouched.
Now if the traders are all equal. *Let’s say after this month that all need $1000.
First one takes out that $1000.
Needs 10pc next month (of $10000)
Second takes out $1000.
Needs 0.92pc next month (of $109000)
Third takes out $1000.
Needs 0.09pc next month (of $1099000)
So next month just based on capital under management:
First must take 100pc (of 1pc) of the risk taken in first month in month two to survive.
Second must take just 9pc (of 1pc) of previous month’s risk to make what they need.
Third must take 0.9pc (of 1pc) of previous month’s risk to make what they need.
After 12 months the first is still risking 1pc to take out 10pc while the other two risk levels keep plummeting (allowing more trade chances to win or lose the same percentage of capital).
One trade a month risking 1pc is one thing.
Open it up to the number of trades needing to gather 100 pips with wins and losses and it gets messy.
1pc risk sounds tiny - that’s 100 bad trade guesses to death for the month. *Dying in 100 trades is extraordinary to guys in the game 1000s of trades later. *Some funds are doing 200 trades a day.
if we’re in multiple markets and asset classes at the same time we will risk 1pc on each position.
Great money managers manage risk across the whole portfolio to survive.
Of course one can do 10pc every month, no problem there, it’s just that all things but balance equal, compared to professional risk exposure, retail investors risk lofty amounts percentage wise to achieve the same amount.
The point is hard to make cos there are many ways to make 10pc but of course it’s doable.
But how many are doing 100pc a year?
25pc is stellar - 1 quarter of that 1pc risk per trade.
1pc risk doesn’t bust an account in 100 trades
Just my 2cents
GG
