Not sure what his intention is, but if my assumptions are right (margin of 4 X your money) and you have 2% per month consistently with an original 10,000, my math is damn right!
How the Hell do You Make a Million Dollars with 2% Compounded?!
- Thread starter RGLD
- Start date
Not sure what his intention is, but if my assumptions are right (margin of 4 X your money) and you have 2% per month consistently with an original 10,000, my math is damn right!
Compounding @ 2%/mo is "only" about 26%/yr. That's good work, but not extraordinary.
Unrealistic to expect/hope you could turn $10,000 (even with x4 leverage) into $1MM in less than 20 years.
In addition to "trading well" (and not making any serious, big mistakes), you really need to bump up your capital if you want to get wealthy from the markets.
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20 years is 240 months, with 40k (10K leverage 4) you will reach after 20 years over 4.6 million. 4,635,549.40611775 to be exact.
To make 1 million you need to make 1.350232668823456% every month, more or less.
So mathematically it is not a problem at all.
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It was the "^" button on my calculator that got me interested in trading in the first place.
Here are some questions:
- Assuming a trader has an edge and discipline, is it realistically possible to make 50 intraday trades that have reasonable expectancy per month?
- Is it reasonable to expect, on average, a gain (ROI) of 0.25% per trade?
- Without compounding, at the end of an average month, is it correct that the gain on the trading account would be ~ +10%?
- Is it correct that by compounding each month, the trading account will triple by the end of the year.
- After 5 years of repeating this, would an initial $10k stake now be worth over $1M?
On the one hand, Scataphagos (some say a well practised and well informed individual) is saying this is unrealistic. On the other hand, another reasonably respected member has stated these rates of return (and higher) are achievable.
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Here's what I KNOW.... I did some research on professional money managers some years ago when I was striving to make a name for myself in the "big money" arena... There were at least "thousands" of money managers reviewed (might have been >10,000, I don't recall)
Considering all commonly available vehicles.... stocks, bonds, mutual funds, hedge funds, options, futures... etc..
30% average annual return for 10 years (independently audited) = ~0.1% of players, regardless of discipline/vehicle.
40% average annual return for 10 years... well, you could count them on your fingers.
Conclusion... if you're expecting/hoping for/rationalizing significantly greater returns than the above, you're merely hoping "in the Twilight Zone". (Don't believe? Suggest you do the research yourself today.)
To go from $10K to $1MM in 5 years (presuming no capital gains taxes yearly) would take a bit more than 151% average compound rate of return. That's a bet you should fade if you could.
Considering how the markets have been dumbed down from lack of volatility in recent years (thanks to our omnipotent Fed), I'd be surprised if you could find even ONE professional money manger who has averaged 30% return for the last 10 years.
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Professional managers live from their management fee and their incentive fee. They trade other people's money because they don't trust themselves and know they might blow up. So if they blow up it is better to do that with other people's money. If they blow up they start again with new victims. Professional managers are second hand traders.
Traders with high returns are in general limited in the amount of money they can manage. They trade short term and have problems to build up big positions because of that. Because they have high returns they have after some time the problem that they cannot even invest their own capital as it becomes to big in relation to the positions they can handle. Due to the compounding that works very fast with decent returns.
Because if these reasons they don't want to trade other people's money. Better to take the full profit themselves instead of management and incentive fees as they are too limited to trade size.
The fact that apparently almost no "professional money manager" makes good returns confirms that they are second hand traders.
But for a "small" trader who trades only his own capital, it is possible to make a 7 figure net income a year. Not easy and for most not possible but I know a few who do this. And they are "invisible", so they will never appear in any research. So what is the value of research if the most succesful are not part of it?
Conclusion: very difficult to succeed but surely not impossible. Not possible for most (+98%) of ET posters.
Traders with high returns are in general limited in the amount of money they can manage. They trade short term and have problems to build up big positions because of that. Because they have high returns they have after some time the problem that they cannot even invest their own capital as it becomes to big in relation to the positions they can handle. Due to the compounding that works very fast with decent returns.
Because if these reasons they don't want to trade other people's money. Better to take the full profit themselves instead of management and incentive fees as they are too limited to trade size.
The fact that apparently almost no "professional money manager" makes good returns confirms that they are second hand traders.
But for a "small" trader who trades only his own capital, it is possible to make a 7 figure net income a year. Not easy and for most not possible but I know a few who do this. And they are "invisible", so they will never appear in any research. So what is the value of research if the most succesful are not part of it?
Conclusion: very difficult to succeed but surely not impossible. Not possible for most (+98%) of ET posters.
Great overall post and point about compounding. People don't seem to get the fact that compounding will be limited once a certain account size is reached. If one trades a market with an average of 50 contracts on the bid/ask, he can be pretty nimble getting into and out of positions with a 5 or 10 lot clip size. As the account size grows, in order to get the same return, the position size will have to greatly increase. A trader will have to drastically change the way he trades if he's trading 200 lots in an average bid/ask environment of 50. He'll have to work the orders differently and change the way the game is played.
People that make "neat" little spreadsheets assuming 5% a month compounded blah blah blah until you have 100 mil work great on paper and I'm not saying it's impossible because I tend to believe almost anything can happen but these calculations don't account for position sizing relative to the market traded.
Opening myself up to a shit storm.., but what the hell
No - trade to trade - the outcomes are uncertain (iow random)
Over a series of trades..., which concludes at the end of each session (day)
Like you said - assuming the trader has the discipline (iow can manager their self throughout)
You'd be pleasantly surprised what is achievable
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Lose pennies / nickles -> while making nickles / dimes / quarters - shit adds up pretty quick - also makes digging out oh soooo much easier
And for the record - 50 trades a day is a helloflot - in fact too much (scalpers notwithstanding)
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Some will adamantly maintain it can't be done - more power to Ya
RN
No - trade to trade - the outcomes are uncertain (iow random)
Over a series of trades..., which concludes at the end of each session (day)
Like you said - assuming the trader has the discipline (iow can manager their self throughout)
You'd be pleasantly surprised what is achievable
===================
Lose pennies / nickles -> while making nickles / dimes / quarters - shit adds up pretty quick - also makes digging out oh soooo much easier
And for the record - 50 trades a day is a helloflot - in fact too much (scalpers notwithstanding)
=============
Some will adamantly maintain it can't be done - more power to Ya
RN
