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It seems to be the general consensus in the list that if you are
consistently making 40% on your money trading, you da boss. Okay, let's
break this down a bit. What if you are trading stocks? Specifically,
baskets of stocks, like QQQ, DIA, SMH etc.? Can this super trader make
40k on a 100k account, doing this full time? If so, what is the DD this
trader faces? Would 10k be too less? I think not.
So we have this dude/duderina making about 40k in any 12 month slice of
time, while never having a DD of more than 10k in that same 12 month
slice. Trading QQQ & SMH, daytrading & short term swing trading. He/she
has 100k in this account, uses 1:1.5 margin at most to avoid margin
calls on overnite positions.
Now this trader decided to stop trading QQQ and start trading NQ only.
Now with going long one emini NQ, we are long about a $29k basket of
QQQ. Instead of taking on a 4000 share QQQ position, we only take a 5
contract position. Can we expect a similar result in a similar
timeframe? If so, let's examine some other differences in this 2 approach.
Cost of 4000 share r/t = $45 at IB
Cost of 5 NQ r/t = $24 at IB.
Assuming only one r/t trade per day avg., or equivalent, we make about
$21 more. 200 working days in a year makes $4200 more. That alone makes
the return on the $100k account to be 44% instead of 40%. And we are not
even looking at better tax treatment, absence of margin interest cost etc.
But then, is is reasonable to trade 5 NQ with a 100k account? Your
margin req. for 5 ctx would be under $10k. Surely we can do atleast 10
ctx? We would still be trading with under 5 times margin. Yes, the DD
would be higher, but a 20% max DD of your capital can't be all that bad,
right?
My point is this. if the trader manages to keep his/her head firmly
screwed on, trading futures makes a good stock trader make much more,
and makes a poor stock trader lose a lot more. But we are talking about
Traders in the "make more" camp here. And if the trader knows what
he/she is doing, the trader is either making way more than 40% or not
making much / losing a lot. I fail to see too many "I trade futures
fulltime, but neither make or lose too much".
What if you say my stock traders results were too rosy to begin with? If
the trader is only making 20% on the account? I dunno about you - but
someone making 20% in a year trading stocks *fulltime* is certainly
good, but surely no guru material.
Thoughts?
Regards,
Abhijit
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