How do you go about raising capital?

Quote from TraderZones:

Asking money from people close to you, who somehow really don't understand what you are trying to do, but they trust you anyway is ludicrous
More...
Not as ludicrous as expecting 3rd party investors to place money with him -- investors who have the choice between investing with one of 10,000 CTAs with audited track records > 5 years or investing with a greenhorn garage setup with no track record whatsoever.
 
Quote from TraderZones:

One of the worst suggestions in the trading world. Most systems blow up. Multi-billion dollar systems blow up (look at the last year - they thought they had it figured out).

Asking money from people close to you, who somehow really don't understand what you are trying to do, but they trust you anyway is ludicrous.

Do you really want to explain to your little sister why you lost her $10,000 that took her a few years to set aside, because something you never anticipated brought the Risk of Ruin home in a way you never imagined????

Do you want to be embarrassed the rest of your life every time you see her?

If you want to keep your family and friends, don't risk their money. Seriously
More...

I agree with one exception.

If you clearly state to your friends/family that they should only invest money they are willing to loose then it should be OK. It is like buying a lottery ticket for them. If they can afford to loose $10,000 then why not.

If you get a big inventor to invest in you it will be the same. They will only invest an amount that they can afford to loose with you. They will spread their investment around. Why will anyone invest more then 1% of their money with you?

If your friends have 200,000 - 500,000, they might be willing to put 2,000 to 5,000 and see what happens.

If you need 1,000,000 then you should look for someone with 100,000,000 or more.

As far as borrowing from a bank at 4%. You are on the line for that loan. If you are so sure that your system works and you borrow 100,000 at 4% then go ahead. But... What happens if you loose it all? Are you going to loose your house?

Try telling the bank how you are planning to use the money. The bank wants 4% because their risk is supposed to be very low on that loan. It will be connected to your house. These days I don't think it will be easy to get such a loan unless you have 80% ownership of your house or more and the value of the house is much higher then 100,000. You will be gambling your home.
 
Quote from ivanbaj:

I agree with one exception.

If you clearly state to your friends/family that they should only invest money they are willing to loose then it should be OK.
More...

right up until they ask for it back and you can only give them .15 cents on the $1.00 ...:D
 
OK, to answer a few questions. intradaybill asked what my ave winners and loosers were. On average, I make 1.58X and loose -.8X on my trades. This is measured over the course of approximately 4300 trades (hence my P/L ratio of 1.97 : 1).

Now, as far as borrowing money from friends and family, not a chance in hell. I'm confident enough to borrow money, but I don't want to do it through family members, for two reasons. 1) Money/Family and Friends don't mix. 2) I would feel like they would expect too much in return and I would feel obligated somehow to appease them.

My account with IB (right now) is a non-professional account, but let me ask this..... What does one have to do to sign up as an Institutional trader and does that give me any additional buying power? I know my exchange fees increase, but if that's the only ramification of registering as an institutional vs non-professional trader, then to hell with that.

Jason
 
Quote from sappjason:

OK, to answer a few questions. intradaybill asked what my ave winners and loosers were. On average, I make 1.58X and loose -.8X on my trades. This is measured over the course of approximately 4300 trades (hence my P/L ratio of 1.97 : 1).
Jason
More...

Accoring to the numbers you gave your expectancy is:

E = 0.4177 x 1.58 - (1-0.4177) x 0.8 = 0.19

and not 0.24 as you said.

Also, your profit factor is equal to:

o.4177 x 1.97/(1-41.77) = 1.41

Both the expectancy and the profit factor values are very low and indicate a system that may be very sensitive to slippage and other noise. I do not trade systems with profit factor less than 2.5 and if it drops below that during real trading I start watching the system behavior closely.
 
Quote from sappjason:

Now, as far as borrowing money from friends and family, not a chance in hell. I'm confident enough to borrow money, but I don't want to do it through family members, for two reasons. 1) Money/Family and Friends don't mix. 2) I would feel like they would expect too much in return and I would feel obligated somehow to appease them.
More...
Then bury your plans of trading other people's money for the next couple of years. Stick with your own funds and build a track record over 3-5 years and get it audited.

With decent results you can then re-visit your capital raising plans.
 
Quote from intradaybill:

Accoring to the numbers you gave your expectancy is:

E = 0.4177 x 1.58 - (1-0.4177) x 0.8 = 0.19

and not 0.24 as you said.

Also, your profit factor is equal to:

o.4177 x 1.97/(1-41.77) = 1.41

Both the expectancy and the profit factor values are very low and indicate a system that may be very sensitive to slippage and other noise. I do not trade systems with profit factor less than 2.5 and if it drops below that during real trading I start watching the system behavior closely.
More...

I am envious that you have a system with PF of 2.5. Can you share you win%. How long does it take you to make 40 trades?
 
Yes, IntradayBill, you are correct. I fubared my EV calculation and you are also correct in that I do have some (very minor) slippage issues with my 170K account right now. However, based on my past trading, I can still eek out north of 150% return with an account around the 300K to 500K level.

However, my system generates less and less percentage return as my account size grows (due to slippage issues). I don't think I'll be able to pull out more than $1,000,000 per year, before this particular edge is all used up.

But, hey, I'm fine with that. What I'm really looking for is to be able to devote more focused time on further system development and once I get beyond the 400K per year point, I'll be ready to do that. I'm just can't do it on my current 170K account.

So, with all of that said, it looks like I may just have to keep trudging along at my day job, while my account builds up and then reevaluate.

Intradaybill, thanks for you input. So, ya wanna work together??????? I'm one hell of a software engineer and slowly evolving into a good trader......

Jason
 
Quote from ivanbaj:

I am envious that you have a system with PF of 2.5. Can you share you win%. How long does it take you to make 40 trades?
More...

Win rate is in the range 64% - 68%. This is a swing/position trading system. I have to overcome my risk aversion and start taking more risk. I risk no more than 1% of my acount on each trade due to my silly risk aversion because I cannot deal with large drawdowns psychologically that is. I am working on fully automating the system to deal with those emotions. It trades ETFs and forex. A good percentage of trades are intraday positions. Stock signals are based on daily data and forex signals on 15 and 30 minute bars. Underline method is patterns combined with statistical analysis and a few other indicators. Not for sale. If it works like that for 2 more years I will try to raise capital to trade bigger size. I have no other big plans at this point because eveything depends on track record.
 
You must log in or register to reply here.
Back
Top