I don't understand what kinds of annual returns are realistic for trading futures or equities with leverage. I work for a brokerage firm and I've come across several accounts of traders who made 100-300% on their money for several consecutive years with only a few losing months here and there. This return is way better than Warren Buffett, the supposed king of investing who has only averaged like 20%. I understand that people may be using more leverage and thus the risk and reward is inherently larger but these people still rarely have losing months so their drawdowns aren't that large even with leverage. What am I missing?
Leverage and typical annual returns, what am I missing?
- Thread starter BillySimas
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Perhaps BillySimas could provide that info - what is the dollar amount of the accounts?
That's a good point about strategy scalability but I still wouldn't think there would be such a large difference in the return.
BillySimas ....... How is it that you can recall "several accounts of traders who made 100-300% on their money for several consecutive years with only a few losing months here and there" but you didn't notice the account sizes?
The first thing that pops up is the account size, while trying to figure out the percentage P/L over a few years would take some effort.
The first thing that pops up is the account size, while trying to figure out the percentage P/L over a few years would take some effort.
If you are looking at it from the broker's point of view you will never know exactly what notional base the client is using or assuming. I used to run SMA's at a hedge fund. The client would inform us, in writing, what notional amount we should assume for trading purposes. Say, for example, that number was $10MM. We would trade an amount of futures that would give the account an exposure (at whatever leverage) for that account size. Now, understand that $10MM never actually appeared in the brokerage account. 5% or 10% or whatever was placed in there to satisfy margin requirements. So, in my example they would put in $1MM (10% of $10MM). If they made 20% on the notional, which would amount to $2MM, that would make it look like they made 200% on the actual amount in the futures account.
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BillySimas ....... How is it that you can recall "several accounts of traders who made 100-300% on their money for several consecutive years with only a few losing months here and there" but you didn't notice the account sizes?
The first thing that pops up is the account size, while trying to figure out the percentage P/L over a few years would take some effort.
If only 5 or 10% is being used to cover margin requirements, why even bother with the $10 MM figure? Seems arbitrary. That's a 200% gain to me.
But risk is against the notional, so gains should be too.