100-300% Yearly Returns Discussion

[JoshM]

Am I the only one that thinks that people who sometimes harp about 100-300% yearly returns as "nearly impossible" are sometimes just a tad ignorant or pessimistic?

Yes, don't get me wrong it's pretty difficult to do with a huge account, but when thinking about the assets being traded it really doesn't seem impossible to do consistently when you think about relative returns.

Let's say you have a $5000 account and you trade on average 2 contracts in the emini s&p. Considering those assets are valued in the market at roughly $200,000 and the markets have averaged a 10% return each year since existence, one could potentially expect a return of $20,000 annually for that amount (which is a 400% return on a $5000 account).

Yes, 400% sounds crazy and makes people think your a scam artist when you say it's possible but isn't it really just a 10% return on what your trading?

Likewise, trading 10 contracts with a $30,000 account represents a million dollars in assets and thus a 10% return would be 100k (which is a bit more than a 300% return).

Obviously, everything gets more difficult as you scale up since it is harder to find liquidity.

I don't know, I'm curious what you guys think I just find it funny that so many people think a 400% return is like the sun exploding when in reality it is just a 10% return on the assets your trading. (And let's be honest, when is a 7-10% return too much to ask for on an annual basis in the markets).

Anyways, the point of this post is not to say it's easy but just to draw attention to the fact that a 200-300% return annually isn't like the sun exploding. Maybe I missed something, but I'm curious what you guys think.

 

[southall]

Maybe I missed something, but I'm curious what you guys think

the markets have averaged a 10% return each year since existence

Likewise, trading 10 contracts with a $30,000 account represents a million dollars in assets and thus a 10% return would be 100k (which is a bit more than a 300% return).

You not looking at the downside.
With 10 contracts traded, a 60pt move will wipe out your account.
A 20pt move against you would probably trigger an overnight margin call.

Otherwise everyone would just load up on ES futures all the time.

They don't always go up, they go down too as well.
They were down 300 pts earlier this year, from 2100 to 1800 if i recall.

You would have to pick a bottom with very good accuracy but in reality picking bottoms is extremely hard, otherwise we would all be rich.

But in hindsight bottom picking looks easy. But you don't consider all the times you will get it wrong.

 

[OptionGuru]

Am I the only one that thinks that people who sometimes harp about 100-300% yearly returns as "nearly impossible" are sometimes just a tad ignorant or pessimistic?

No .... they are knowlegeable and realistic.

 

[Martinghoul]

Firstly, people very often talk about unlevered returns, which are different from the numbers you describe as possible with leverage. Secondly, who cares if you made 300% on a small account once, say? That's obviously not impossible, but also not particularly interesting. It's consistent annual returns of 100+%, which are hard to imagine, simply because there's an assumption that your account has to grow when you're producing numbers like that.

 

[Pekelo]

Underlying asset value is completely irrelevant in futures trading. It is your account size compared to the margin call what is relevant. Return % should be accounted profit vs. account size, again, asset value is meaningless and irrelevant...

 

[Gezunt]

Where are these traders who earn 200% per year on average? Success in business is everywhere with proof to go along with it. Where is the same proof of successful traders?

 

[JoshM]

It's consistent annual returns of 100+%, which are hard to imagine, simply because there's an assumption that your account has to grow when you're producing numbers like that.

Yes, I will agree with you there. Once one's account size gets to a certain limit 100%+ returns consistently would be ridiculously difficult. I mainly wrote this post though because it seems to me that the financial world tells everyone that a 10% return consistently is like all you can expect and anythings above like 50% annually is like absolutely ludicrous. I mean, yes a 100% return for a multi billion dollar hedge fund is seriously impressive and difficult, but for smaller players higher returns to a point using levered assets and sound risk management are certainly possible and not ridiculously out of the question.

You not looking at the downside.
With 10 contracts traded, a 60pt move will wipe out your account.
A 20pt move against you would probably trigger an overnight margin call.

You are correct, but that's what risk management and stops are for. Likewise, when the market is trending so heavily to the downside you just reverse and start shorting. It's obviously not super easy, but not impossible.

Underlying asset value is completely irrelevant in futures trading.

And I somewhat disagree with you that underlying asset value is irrelevant to futures trading considering others hedge portfolios purely based on its value. If Mark Zuckerberg or any other super rich person wanted to hedge out their massive stock positions using futures during the election or some other time he'd definitely be paying attention to underlying asset value.

 

[eurusdzn]

Lets say your trading 2 contracts with 5k and on day 1 you have a 25 point move down followed by a day two 25 point move down. "And its Gone"

 

[southall]

You are correct, but that's what risk management and stops are for.

But when you use high leverage every time you get stopped out a big chunk of your account is gone.

In your example of 10 contracts, a 5pt S&P stop would eat 8% of your 30K account. A 10 pt stop 16% of your account.

Three or four of those in a row and you will soon stop using leverage. Traders get long losing streaks all the time, especially when using stops.

You are severely under estimating the probability of having a losing streak that will
a) Destroy your account,
b) Destroy your confidence/boldness in using high leverage.

As the saying goes, 'There are old traders and there are bold traders but there are very few old bold traders'

 

[monet]

There's a variable that you control that can dramatically increase your return.

It's not account size.

It's not the amount of risk per trade.

It's not profit factor.

It's not win rate.

If done right, this variable will get you into the 100-300% range and beyond.