I don't understand why there is such a huge disparity between what people consider a good annual return to be, and what traders are REALLY making. A daytrader can have just a $25,000 bankroll and make an average of $500/day in futures or forex and they'd be up over 500% on the year. If they are exploiting a small intraday edge over and over again, they basically never even have losing months. How does a hedge fund manager making 25% get so much more notoriety? And why don't all the hedge fund managers employ only intraday strategies to minimize their drawdowns??
Confusion about annual return %'s?
- Thread starter BillySimas
- Start date
you mean since hedge fund people trade bigger size they need to have a strategy where they can only scale in and out?
what is appealing to large money is not huge returns, but low volatility. Nobody can make 500%/year without using huge leverage, and therefore taking large amounts of risk. You can't even talk to a guy with 100 million about 500% per year....
plenty of daytraders make good money trading small accounts. they build them up and make the same 500% the next year. 25% is BS.
I'm trying to make a point that's completely opposite of what you're saying. If you exploit a small intraday edge over and over and you are in and out 15 times a day, your volatility should be LOWER because that edge will play itself out quicker and you won't even have a losing month. Hedge fund managers don't do this, a hedge fund can easily have a big losing YEAR.
The way I see it is as that the daytraders make their living off of the natural inefficiencies that come when large orders are entered, especially fearfully or greedily. The orders come from all the various institutions that are trying to chase after a 25% (or 15%, or 10) annual return on vast sums of money.
A good daytrader can consistently profit on a monthly basis by getting in front of institutional orders and profiting off of natural intraday inefficiency. With a $10,000 deposit he can make several hundred thousand dollar in one year - a return of perhaps 2000%. However, that percentage is meaningless because the daytrader can only take so much size, and the more size he takes the more he becomes crippled and prey for other daytraders and market makers. A daytrader who makes $500,000 in a year is a superstar.
Let's say you have a way to fully and without error program precisely the strategy that a trader uses to make $500,000 per year. Because that trader only can monitor limited information and thus can't trade all the setups, let's assume there is $3,000,000 in that strategy if it's traded by a computer.
The strategy only utilizes $500,000 BP, but just to be cautious you use $1,000,000 with a $100,000 deposit, thus your return will be 3000%.
Someone with $100,000,000 to manage can do better putting his money in the bank than he can with a daytrading system that makes 3% per year.
You can bet your ass whatever $3,000,000 that is left on the table is being fought for by hundreds - perhaps thousands - of daytraders and investment banks, hedgefunds, market makers, market manipulators, and all the other various participants.
For anyone trying to make a living off of fees on asset management, it is not worth it to try to make $3,000,000. They must instead try to make $30,000,000 on $200,000,000 for a hedgefund, or manage $1,000,000,000 for a mutual fund. Because the positions required to achieve such returns are so large, it makes it very difficult to freely get in and out of a position in response to short term market action - something daytraders can do - so as long as thousands of institutions are fighting to make $20,000,000 or $300,000,000 on huge sums of capital, we daytraders can fight for our $150,000 - and if we keep $10,000 up at our firm, we can call it a 1500% return, even though whoever is making 15% on 100,000,000 laughs at Joe Daytrader's huge % return number.
Conclusion: percentage return comparisons of daytraders vs. asset managers are completely useless because of the way the markets work.
A good daytrader can consistently profit on a monthly basis by getting in front of institutional orders and profiting off of natural intraday inefficiency. With a $10,000 deposit he can make several hundred thousand dollar in one year - a return of perhaps 2000%. However, that percentage is meaningless because the daytrader can only take so much size, and the more size he takes the more he becomes crippled and prey for other daytraders and market makers. A daytrader who makes $500,000 in a year is a superstar.
Let's say you have a way to fully and without error program precisely the strategy that a trader uses to make $500,000 per year. Because that trader only can monitor limited information and thus can't trade all the setups, let's assume there is $3,000,000 in that strategy if it's traded by a computer.
The strategy only utilizes $500,000 BP, but just to be cautious you use $1,000,000 with a $100,000 deposit, thus your return will be 3000%.
Someone with $100,000,000 to manage can do better putting his money in the bank than he can with a daytrading system that makes 3% per year.
You can bet your ass whatever $3,000,000 that is left on the table is being fought for by hundreds - perhaps thousands - of daytraders and investment banks, hedgefunds, market makers, market manipulators, and all the other various participants.
For anyone trying to make a living off of fees on asset management, it is not worth it to try to make $3,000,000. They must instead try to make $30,000,000 on $200,000,000 for a hedgefund, or manage $1,000,000,000 for a mutual fund. Because the positions required to achieve such returns are so large, it makes it very difficult to freely get in and out of a position in response to short term market action - something daytraders can do - so as long as thousands of institutions are fighting to make $20,000,000 or $300,000,000 on huge sums of capital, we daytraders can fight for our $150,000 - and if we keep $10,000 up at our firm, we can call it a 1500% return, even though whoever is making 15% on 100,000,000 laughs at Joe Daytrader's huge % return number.
Conclusion: percentage return comparisons of daytraders vs. asset managers are completely useless because of the way the markets work.
In other words, scalability 
Great post, thanks very much for your input.
I suppose the confusing thing is that most people do, in fact, compare returns between asset managers and daytraders. If you're a daytrader and someone who doesn't understand trading inquires about your annual return and you tell him 2000%, he would think you're absolutely out of your mind. It's pretty clear to me though that there are many many independent traders doing this. There's no daytrader with a $100,000 account that thinks he's actually doing well when he makes $25,000 at the end of the year. That is garbage, many successful people are making 10 times that with the same $100,000.
Great post, thanks very much for your input.
I suppose the confusing thing is that most people do, in fact, compare returns between asset managers and daytraders. If you're a daytrader and someone who doesn't understand trading inquires about your annual return and you tell him 2000%, he would think you're absolutely out of your mind. It's pretty clear to me though that there are many many independent traders doing this. There's no daytrader with a $100,000 account that thinks he's actually doing well when he makes $25,000 at the end of the year. That is garbage, many successful people are making 10 times that with the same $100,000.