Am I overleveraged?

Q

qll

How do you define an overleveraged situation?
I am adding more and more new positions using profit from my other position + margin + refinance loans. Although no single position is too large, I am still worried -- not sleeping well. Here is my current break down:

Equity in stocks / Total (including margin)
309K/640K
All of my equities are in LONG. I don't like shorting.

Futures:
350K (120K is from refinance loan)

The perfect ratio between stock:future, i feel is 5:1, because future is riskier. However my portfolios are in two currencies in two countries that I can not move between two accounts.

All of my positions are overnight positions. I sometimes day trade, but mostly end up with loss in day trading.


Experts, do you guys think I am in overleveraged situation? The only thing I am worried is a big market correction, especially after HSBC and NEW's earnings -- looking like bad housing sector will drag the market further.
 
Quote from giggollo:

I am far from being an expert, but if you are not sleeping well, then you are overleveraged, and im not kidding
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I guess my not sleeping well is not only from worry of losing money. Living in a city requires too much income to have a fun life. $100k/y does not do much here. My main and almost only income now is from this risky activity, that puts great presure to make good money year after year which can only be done in taking more risks.

From the book of Trading Your Way to Financial Freedom, it says, unless you start from $1M, don't depend on income from trading!
 
No expert either, but yeah, I think you are way too over leveraged. If there is a big correction, you'll be crushed in both the futures and your equities and may loose everything. I would reconsider all of your positions. Everyone is expecting a correction, if you are long, then you may be cut. If there is a big margin call, do you have enough to cover it? If you loose all of your positions, would you be able to still support your lifestyle?
 
it all depends on your bankroll. if your total risk exposure is just 30% or less of your entire bankroll and you have diversified across dif names and uncorrelated strategies, then i would say you are OK. anything beyond that threshold is a typical overleveraged situation that most likely will lead to disaster.

in order to estimate your risk exposure you should calculate your worst case scenario loss. thats quite complicated, so you can use some rough estimate to come up with a fair approximation. but keep in mind that since you're are holding overnight, your risk is substantially higher than in a intraday ops. in most cases the exchange calculation for overnight margin is, pretty much, the best indication of what your worst case scenario is, although shit happens from time to time...
 
why not buy long-term OTM Put options on the worst stocks in the sectors you've bought? Cheap insurance, rather than holding on to a futures position.
 
<i>"All of my equities are in LONG. I don't like shorting."</i>

Sooner or later, your long-only portfolio will be either sideways or drawn down for some period of time. If you attempted to live off such a strategy from early 2000 thru late 2002, the results would be dire.

You aren't sleeping well because you consciously know what you are trying to accomplish is unsustainable. It is inevitable that the $100k+ yield on a long-only portfolio will eventually be interrupted, to say the least.

Your mind is telling you it knows what you're doing cannot last... that tactic is working now, but for a limited time to come.
 
Quote from qll:
Living in a city requires too much income to have a fun life. $100k/y does not do much here. My main and almost only income now is from this risky activity, that puts great presure to make good money year after year
More...
I'm sorry to say this, but I believe you have exactly the WRONG approach. Don't come to the market thinking "Ok I need to make an annual income of US $120,000 to have this certain lifestyle I want to keep". Ultimately, this can lead you to taking greater and greater risk because you hit a dry spot trading and you feel forced to increase leverage and risk in order to stand a chance at making your absolute dollar return goals.

Take what you can from the market. One year it might be 5%, another year it might be 50%. A 5% year doesn't necessarily mean you were trading worse. Maybe that's just all that was offered for the taking by the market for that respective year. The market will not give you a steady income. It's designed to TAKE your money, not to give you anything in fact.

If you want steady income use (ordered by increase in risk):

- fixed deposit
- bonds
- lower risk real estate (i.e. not in hotspots)
- Income CEFs

I would recommend to gradually shift profits from your riskier assets into a diversified portfolio of above assets which generate annual income at a lower risk than stocks and futures. Once you reach a level of income from these "more secure" assets that cover your annual expenses at your current lifestyle, you can use the excess cash for riskier traders without putting your current lifestyle and monthly financial commitments at peril.
 
Quote from qll:

I guess my not sleeping well is not only from worry of losing money. Living in a city requires too much income to have a fun life. $100k/y does not do much here. My main and almost only income now is from this risky activity, that puts great presure to make good money year after year which can only be done in taking more risks.

From the book of Trading Your Way to Financial Freedom, it says, unless you start from $1M, don't depend on income from trading!
More...

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First ,NEW did get slaughtered so to speak, as you said ;
but HBC, as Europe's larget bank, apparently the market is respecting its diversification.

qQQll-trader;
Also having lived in a large city, before;
you can find fun [wisely]under 100k. Dont miss that one!!!!!!!

Especially since you mentioned ' sleeping,'pressure''/more risk'';
sounds like your guts know you want changes.

For sure fun can be had for well under 100k per year;
especially with car paid for.
:cool:
 
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