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[Jay_Ap]

Quote from Maverick74:

Hold on here guys, we have what is called a "failure to communicate". You guys are all talking about different things. Portfolio margin has nothing to do with leverage except in the cases in which it can be abused. Portfolio margin was created to give offsets in most cases were no risk was being added to a portfolio but just notional exposure.

Adding 10 to 1 risk to what the "standard" risk parameters of portfolio margin would be suicidal. You will lose your 500k and quickly at that. That money will be gone. You will NOT see it again. There are no refunds in this game.

This goes back to my very first complaint on this thread. It was not meant to be directed at dark horse but rather the idea that very few people are going to understand this program.

You can't add leverage to leverage. You simply can't do it. I don't care if all you're going to do is crack two eggs and make an omelet. The way you need to think about this program is through notional exposure. You put up 500k, the allocator puts up 4.5 million and you are trading a 5 million dollar account. That is the account value. You have a 10% threshold before they cut you off. If the fund is down 10% on 5 million, you lose everything. Game over. Don't even use the word leverage as it only complicates things.

As dark hose said, you might want to trade the account as if it's a 2.5 million dollar account allowing yourself a better drawdown threshold. What your strategy is and what you want it to do is not relevant to the allocator. You have to understand the math. You can believe whatever you want in terms of risk, just understand that once this fund is down 500k, it's time for you to move on.

No, I think we are absolutely talking about similar things. Portfolio Margin has everything to do with leverage. While your point about offsets is true, it's certainly not the entire story.

A portfolio margin account will allow for up to 10 times leverage on some positions, and six times leverage on individual equities.

Let's just focus on the leverage aspects: How is this any different than the leverage obtained through the allocator?

 

[cdcaveman]

darkhorsy goes off at the flip of a hat about leverage.. haha

 

[darkhorse]

Quote from Maverick74:

Did you just read his follow up post? LOL. Pay me. I won this bet.

Look, I'm trying to help you. I'm not even talking about leverage that is how confused you are. I'm not trying to save anyone. What I'm asking you to do is simply provide the math. Not get involved in a deep meaningful conversation about the nature of risk. Read this guy's response and tell me he understands. Do it with a straight face if you can.

I didn't know we agreed to wager, and I'm not even sure I lost - but in the spirit of good sportsmanship I will pay you in the form of beer. Let me know next time you're around Lake Tahoe to collect.

 

[Maverick74]

Quote from Jay_Ap:

No, I think we are absolutely talking about similar things. Portfolio Margin has everything to do with leverage. While your point about offsets is true, it's certainly not the entire story.

A portfolio margin account will allow for up to 10 times leverage on some positions, and six times leverage on individual equities.

Let's just focus on the leverage aspects: How is this any different than the leverage obtained through the allocator?

Because it's a moot point to the conversation. All you need to know is, you put in 500k, they put in 4.5 million. Once the account is down 500k, you're done. How you trade is up to you. Leverage it up as much or as little as you want. They are not "giving" you leverage per se. They are giving you a 5 million dollar account of which 500k is yours. You can call it whatever you want. Trade it however you like. Once you are down 10%, your 500k is gone and the account is closed. That is the only thing you need to know. Portfolio margin is irrelevant.

 

[darkhorse]

Quote from cdcaveman:

darkhorsy goes off at the flip of a hat about leverage.. haha

Meh, I'm just having fun here. A mellow guy who likes taking the engine up to 7,000 RPMs now and then for shits and grins.

 

[pikerforlife]

could someone please go over some of the examples further. how much of that great 9 to 1 return does the trader actually keep? if he is only getting 20% of that return, he is making the *exact same* as he was before, per the example, best case. $150-180k a year, still only a dentist, right?

also, if/when that expected 6%-10% draw down happens, isn't the trader's money actually down that same 9 to 1, in a month? so, a somewhat expected bad -4% month puts his $500k down $200k, or off 40%, in one month, instead of the usual 4%, $20k hit he would have taken to his nut?

i don't see how this is a better return that what this fantasy "36% per year 12% draw down" trader (using no leverage already? really?) could gain by simply getting a margin account for himself and working for 'only' 20% per year instead. without the hassles of worrying about that next (expected!) small draw down taking half his money in a few weeks.

i'd rather pull out my teeth, and be my own dentist, than sweat the inevitable everyday ruining my equity. all while making a nice risk free nut for someone else. seems a step backward for that fantasy trader grinding it out year after year already with his own system.

 

[Maverick74]

Quote from darkhorse:

I didn't know we agreed to wager, and I'm not even sure I lost - but in the spirit of good sportsmanship I will pay you in the form of beer. Let me know next time you're around Lake Tahoe to collect.

The second this guy mentioned efficient frontier I won. LOL.

 

[Jay_Ap]

Quote from Maverick74:

Please remove the words portfolio margin from all posts on this thread. You are going to drive this discussion over a cliff. You are taking something that is complicated and adding complexity. Albert Einstein is rolling over in his grave right now.

"Everything should be as simple as possible, but not simpler."

How this guy wants to trade is his own problem. He puts up 500k, you give him 4.5 million. Total account value is 5 million. Once the account is down 500k, the account is shut down and trader loses 100% of his investment. The trader also needs to understand that his percent return will be measured on what he makes on "5 million". Keep it simple guys.

Maverick, I honestly fail to see a more relevant and simple comparison. From a leverage perspective, Portfolio Margin is pretty much the exact same thing, except with a few more risk constraints.

 

[darkhorse]

Quote from Jay_Ap:

No, I think we are absolutely talking about similar things. Portfolio Margin has everything to do with leverage. While your point about offsets is true, it's certainly not the entire story.

A portfolio margin account will allow for up to 10 times leverage on some positions, and six times leverage on individual equities.

Let's just focus on the leverage aspects: How is this any different than the leverage obtained through the allocator?

Well, for one, portfolio margin will give you increased leverage only under certain circumstances - and they may not be the circumstances that are ideal for your strategy. Keep in mind too that, under certain concentrated position circumstances, portfolio margin will give you less leverage than Reg T.

If you have allocator leverage, on the other hand, you can take your leverage up or down as you choose.

So think of portfolio margin leverage as coming with all kinds of caveats - and for directional traders, the concentrated position caveat is a HUGE one.

Let's say, for example, that a major, major macro event has just taken place. A discretionary trader is already up 20% for the year, having brilliantly played the secular bear decline.

Now, in the flash of an instant, this trader sees that the entire game has changed... that the time has come to go "long the world," so to speak -- risking 500 basis points, or a quarter of his accumulated profits, to do so -- and he is able to do this with a very tight risk point, say in S&P futures, because of the epic inflection point that has just crystallized, allowing him to put on a HUGE amount of upside leverage in a very concentrated space.

Our hero trader tries to go long S&P futures, all above considerations taken, with his portfolio margin account.

The portfolio margin engine says "sorry, no dice - that's too much concentrated risk." One of the biggest opportunities of the year, maybe the decade, to make a sick killing has been cut short. Our hero trader makes a lot of money, but not NEARLY as much as he could have made, had he not been reined in by a robot.

With allocator leverage, there would be no such automated restriction on concentrated positioning. Allocator leverage is thus not subject to one of the biggest flaws of treating portfolio margin as a source of leverage - the fact that concentrated positioning is not always a negative, depending on planned risk, situational dynamics, and other factors.

And the same can apply in complex ways to more advanced market neutral type strategies, though the details are too hairy to come up with a quick example here...

Bottom line being, portfolio margin leverage is not "true" leverage in that it is not "always available" leverage. It is subject to a pre-determined robotic formula, the calculations of which do not alway properly account for situational dynamics.

 

[Jay_Ap]

Quote from Maverick74:

No way. I'll bet you right now a dime to a dollar that the OP's head is spinning. He doesn't have a f*cking clue now what you are offering. Take my word on this. It's a strong as oak.

Portfolio margin adds no merits to this discussion because portfolio margin itself is highly complicated in terms of what it is and how the margin is calculated. Now adding 10 to 1 leverage to something that is ambiguous at best is going to end in disaster. Here's how we solve this dark horse. You don't have to pay for this. It's on the house. Don't ask this guy about his strategy. Don't ask this guy what he is having for dinner tonight. Simply explain to him the math. What he puts up and what he can lose. We can save our existential conversations for another thread. What we need here is simple and concise math. Trust me on this.

Jeeze Mav .... The discussion of leveraging my capital 100-to-1 was simply a exaggerated example I used to illustrate the concept and foster discussion. I wasn't suggesting this is a prudent strategy.