If you were given 5x the buying power, would you trade 5x bigger?

I'd trade ___ bigger:

  • 5x

  • 4.5x

  • 4x

  • 3.5x

  • 3x

  • 2.5x

  • 2x

  • 1.5x

  • 1x (the same)

Results are only viewable after voting.
M

meatyoaker

I'm wondering what people would do in this situation.

Let's say you've proven yourself a profitable trader with around $100k equity, 4x buying power on a retail margin account = $400k (let's ignore 6x portfolio margin exists for a sec), and your live max drawdown has been about -17.5%.

Then you were magically given 5x more buying power through some deal, and now have $100k risk capital with 20x = $2,000,000 buying power that's fixed and doesn't decrease. Originally, you'd need $500k equity for that kind of buying power, but now have the opportunity to go bigger on your $100k.

You know the max drawdown increases linearly, however things like risk of ruin and amount to recover from drawdown and get back to breakeven increase at an even faster rate. But let's say you have zero emotions and a huge pair of titanium balls.

Would you trade 5x bigger position sizes and just accept the potential 5x drawdown on your original $100k and pretend it's gone?
 
Last edited:
meatyoaker said:
...Let's say you've proven yourself a profitable trader with around $100k equity, 4x leverage on a retail margin account = $400k (let's ignore 6x portfolio margin exists for a sec), and your live max drawdown has been about -17.5%.
More...

In my mind, changing anything from the original equation will lead to failure.

If the above worked, do not change a thing. Just do it more often if needed.

It is not a complicated formula.

A+B=C

So why introduce A+B*5+-S equals holy crap?
 
5x buying power is quite low actually.
I am ok with 50x, 500x ... buying power.
The higher the leverage, the better it is as I just need to
put lesser money into my trading account.

The trading quantity will be as per my trade plan.
It wouldn't increase with increased leverage.
 
I do not use margin and use only my capital. The use of leverage is to increase the potential gains. However, you are taking a larger risk in relation to your actual capital base. Using only my capital, I would risk only 2% per trade. Leverage I already have with trading stock options. Gains of 100%-600% are attainable although, not every trade. After 1 year, assuming I have increased my total capital, I would use 2% of that larger capital now. Repeat the cycle over and over and your capital base now increases too. No need for margin. "Remember, leverage is a double edge sword, use it wisely."
 
17.5% x 5 = 87.5% drawdown = dead

1.5 is the highest I could recommend based on that track record, and that is only if you truly have "titanium balls"

coincidentally 1.5x4 = 6 (portfolio margin)
 
So your account size remains the same (100 k USD) but your buying power is increased by a factor 5?
In that case I would keep my position sizes unchanged: the buying power is an artificial number, whereas my account value is a real value. My risk settings are based off of my account value, not some artificial buying power number.
 
If you have 100k usd in cash or equivalent in foreign currency or securities then apply for portfolio margin and get 6x margin.
 
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