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what's the purpose of an account, anyway?

  • Post #1
  • Quote
  • First Post: May 12, 2008 6:22pm May 12, 2008 6:22pm
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.
It's simple - you have the remaining money so that if while trade A is running trade B comes along you have money left to take it.

Odd that you'd rather blow your account than close a trade when it fails though.

Drawdowns are determined by stop, stop determined by trade, risk determined by Monte Carlo and expectancy....

Not saying "why aren't you risking all or nothing on every trade" so that it sounds cooler...trading isn't about show, it's about money.
Trust price. Know yourself.
i never said i wouldn't close a single trade trade than blow my account.

most of us experience losing streaks from time to time.
Quote
most of us experience losing streaks from time to time.
yes, we all do suffer losing streaks which is exactly why we manage risk to a small portion of our account. Its really nice to have money left to recover with. I get your point though. if you are only risking 1-2% on any trade, then even with 10 positions running you are only risking a maximum of 20% of your account balance. Therefore, it is wise to have a large portion of your trading capital placed in a safe interest bearing account. The funds would remain available to top up your trading account if required. I sort of do this - I trade a 1k micro as if it were 5k with the credit card at the ready incase I blow it- lol Not a recomended practice
BTC Return This Year: 21.8%
Quoting tdion
i never said i wouldn't close a single trade trade than blow my account.

most of us experience losing streaks from time to time.
Well then I don't get it. You pretend like it's about getting what you "want" or not. The whole point of the expectancy game isn't "wanting" a max. drawdown of 15% or 100%, but to AVOID the 100% bust out.

Ideally there's never even 1% drawdown, but the whole point of MM is to avoid 100% bust out, not 15% drawdown...

I'm not sure where your problem is yet quite frankly.
Trust price. Know yourself.
what's up guys i've been taking this thread's subject to heart lately

fact is, money in the account is there for two things... margin and drawdown....

if you have a 100K account, i suppose you are ready to lose all 100K, right? otherwise, you'd put what you aren't willing to lose into bank CDs or real estate or something else....

are you willing to look at a 99% drawdown on your account? i am. that's just me.... i mean, what the hell else is the money there for anyway?
Quoting tdion
what's up guys i've been taking this thread's subject to heart lately

fact is, money in the account is there for two things... margin and drawdown....

if you have a 100K account, i suppose you are ready to lose all 100K, right? otherwise, you'd put what you aren't willing to lose into bank CDs or real estate or something else....

are you willing to look at a 99% drawdown on your account? i am. that's just me.... i mean, what the hell else is the money there for anyway?
Compounding mostly. Let's say you have that 100k, and you take a position with 2K. If you had a 2k account that would be 100% and if the trade went bad that would be your entire account gone. Nevermind the fact that you wouldn't be able to take any new positions.

I see what you're saying, but what is the alternative once you consider the time it takes to move money around like that when needed? Why not just leave it there and have the ability to open up several positions at once?

It's the same thing.
yeah that's a great point

i guess what i'm saying is, for people risk 1 and 2 percent per trade, they will likely never hit a 50% drawdown....

which begs the question....

if i never need that other 50%, why do i have it in my account? the one smart answer is to trade with oanda, and get 5% interest a year on the balance.... at least you are making some cash too....
Quoting tdion
yeah that's a great point

i guess what i'm saying is, for people risk 1 and 2 percent per trade, they will likely never hit a 50% drawdown....

which begs the question....

if i never need that other 50%, why do i have it in my account? the one smart answer is to trade with oanda, and get 5% interest a year on the balance.... at least you are making some cash too....
Exactly. It doesn't matter where the cash is physically, it matters where it is in your head. If you've alotted a certain figure to FX trading then that's your account, regardless of whether only 50% of the figure is actually over at the brokerage. So if you decide to put some of it elsewhere, for instance in high yield bonds or I don't know, whatever you want....then you just have to realize that the money you're using for that is your FX trading money, NOT bond trading money. If you lose it elsewhere, then it's gone from your FX trading account not wherever you lost it. So you'd have a 50% drawdown. It's just easier for people to transfer 100% of whatever money they're willing to risk and not have to track it all over the place, but when it comes down to it you're really looking at the same piles of money..they're just reorganized with a memory of what came from where.

Loans esentially..to yourself, from yourself.
Quoting tdion
yeah that's a great point

i guess what i'm saying is, for people risk 1 and 2 percent per trade, they will likely never hit a 50% drawdown....

which begs the question....

if i never need that other 50%, why do i have it in my account?
It increases your position size (read leverage)......... with less risk.

And mine draws interest with Oanda
Same Whore .... Different Dress
It's simple risk:reward...

eg. 1:4 or 5%:20%

In a 100k account, i'll make 20k, but only lose 5k. So if for every 3 losers, i win 1, i'm still profitable by 5k. Lets improve performance: if for every 3 winners i lose 3, i still am profitable by 45k. In a 10k account, i'll only make 4.5k. I'd rather have 45% return of 100k than 10k.

I won't be so arrogant as to assume every trade i enter is a winner. Everyone has losers. The people who make money know how to limit their losers. Everyone else blows up their account.
Quoting howdytest
I won't be so arrogant as to assume every trade i enter is a winner. Everyone has losers.
I wouldn't be so quick to make such blatant "one-size-fits-all" statements... not everyone has losers. What would be more correct is to say, everyone takes on risk. However there are people who make thousands of pips a year, for 5+ years and never have a loser. This is not to say they don't take on risk, like everyone else. There is possibility to blow account. However they have a 100% win rate until that occurs, if ever.

It just depends what style you choose. I would say that most styles of trading will produce losers sooner or later.

I won't explain further, just wanted to point that out.
Quoting ycomp
I wouldn't be so quick to make such blatant "one-size-fits-all" statements... not everyone has losers. What would be more correct is to say, everyone takes on risk. However there are people who make thousands of pips a year, for 5+ years and never have a loser. This is not to say they don't take on risk, like everyone else. There is possibility to blow account. However they have a 100% win rate until that occurs, if ever.

It just depends what style you choose. I would say that most styles of trading will produce losers sooner or later.

I won't explain further, just wanted to point that out.
I'm kind of a recluse so I don't really get out much but I have yet to hear of anyone that has NEVER had a loss
Same Whore .... Different Dress
  • Post #14
  • Quote
  • Edited 8:43pm Jun 22, 2008 8:31pm | Edited 8:43pm
Quoting johnedoe
I'm kind of a recluse so I don't really get out much but I have yet to hear of anyone that has NEVER had a loss
well I didn't say that... I just said that there are people who have not had a loss in a very long time. well maybe I did say that. What I mean is like once you are skilled, then you open a new account and start trading that... and then don't have a loss for a very very very long time and then perhaps never after that. Obviously this does not go for every style of trading and obviously there is drawdown involved at certain points. but yeah, of course people have losers in the learning process. Nobody is born a great trader (that I know of)

anyhow, this is the point I was making... just because someone has not heard of something, does not mean it isn't possible.
ycomp, at this point i don't know whether you're agreeing with me or not. But in your rush to point out another's ignorance, you neglected my point.

Quote
I won't be so arrogant as to assume every trade i enter is a winner

Can anyone hit the "buy" button and know it's a winner? NO. People can have a reasonable expectation, but there is no certainty in this game. Therefore, we employ risk management.

I'll concede that a very long term trader might go years without a loser, but even at that point can not assume he'll have 100% success in the future. To assume such would assume the ability to predict freak market occurances, such as black monday, or disasters, such as 911.

I wouldn't be so quick to "correct" a statement perceived as "wrong" next time.
  • Post #16
  • Quote
  • Edited 9:49pm Jun 22, 2008 9:34pm | Edited 9:49pm
Quoting howdytest
Can anyone hit the "buy" button and know it's a winner? NO. People can have a reasonable expectation, but there is no certainty in this game. Therefore, we employ risk management.

I'll concede that a very long term trader might go years without a loser, but even at that point can not assume he'll have 100% success in the future. To assume such would assume the ability to predict freak market occurances, such as black monday, or disasters, such as 911.

I wouldn't be so quick to "correct" a statement perceived as "wrong" next time.
why not?

my intention was not to point out another's "ignorance", there is nothing wrong with not knowing everything - obviously I do not know everything either... I was trying to expand horizons. think outside the box helps on this one. I know some people might not believe, but that is their loss... it is enough to know that something is possible. I love to find out that things are possible that I didn't think previously were possible. I am telling you it is possible (and not luck) but it all depends on the style you choose, and all styles have their characteristics. It is impossible to eliminate risk completely, but that does not mean one must always at some point experience a loss.

previously you wrote that "everyone has losers". This is incorrect, that's all what I was saying. Someone might die before he encounters a freak event that would adversely affect him. Events like 911, black monday, london bombings, etc. are not as extreme as you are making them out to be... as far as the forex market is concerned (if you look at the charts). With some styles of trading, sure it will make it a loss but not all styles. With some styles 20 pips down is a disaster, with others 200-300 or more doesn't matter.

I am saying it is very possible to close 1000 trades without a loss and even more and still turn out very respectable account growth but obviously only with certain styles of trading.

If I have helped to open but one person's mind, I have achieved my purpose for posting...

perhaps I should not have used the word "blatant" in my original post, it is just that I don't like generalizations passed off as reality so sometimes I get a bit strong with my language my apologies... reason is, because some people might read it and take it to be a truism.
few (of my) reason:
1.money needs money to move, it is not that wise to move 'em too often, (yes sometimes they pay their self) so we put lots of backup

2. it is planned, as the (1.)cost count.
3. we think that we'll lost it again and again (or already does), and so we start (again) with bigger capital, and advise everybody else to do so.
I agree with tdion. Account is used for margin. Risk is totally different. So if ur risking 1% of your acc on every other trade, ur literally wasting ur margins. You dont wanna waste ur money where its not worth putting, collecting dust.
I am along the same lines tdion.

Most of my trading capital is in the bank earning 8% interest p/a. Don't trust my cash with a broker, insolvency could be a killer.

I'll usually risk 50% of my broker account each trade (other 50% is there for other trade opportunities that may surface). Sometimes I'll go all in with 100%, some profit is locked in though if I do this.

50% of my broker account balance is still only 0.1% of my total trading capital. So my MM is all good.
where are you getting 8%? that's good....

Quoting NuckingFuts
I am along the same lines tdion.

Most of my trading capital is in the bank earning 8% interest p/a. Don't trust my cash with a broker, insolvency could be a killer.

I'll usually risk 50% of my broker account each trade (other 50% is there for other trade opportunities that may surface). Sometimes I'll go all in with 100%, some profit is locked in though if I do this.

50% of my broker account balance is still only 0.1% of my total trading capital. So my MM is all good.
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