Scalability

[sgsaxton]

I have a question.

Assume on average I can make 1.5% per day in the FX market with an account of say $50k and I compound my returns on a monthly basis.

Will I be able to pull in the same sort of returns with a much larger account of say 5 or 10 million or is there some dynamic which would prevent this?

The reason I ask is that I once read somewhere that returns cease being geometric at some point.

 

[Trader/God]

Well because if you did that continuously you would in short time have more money than all the wealth that has been accumulating on earth since the dawn of time, that could be a limiting factor.

Trader/God

 

[late apex]

There is nothing intrinsic, from a numerical perspective, preventing returns on larger amounts from being geometric.

However, I can think of 2 limiting factors at play here: liquidity and psychology / behavioral finance.

Liquidity: if you ever manage to grow your account beyond the typical retail forex limits -- whether through reinvesting of profits or through fund-raising or both -- you'll no longer have access to instant at-will execution or sky-high leverage. How essential are those to your returns?

Psychology: without exception (that I know of), the more AUM (assets under management) a trader or manager gets to play with, the more risk-averse he becomes. Get the account / fund large enough, and even decidedly mediocre, barely positive, annual returns produce an abundant, decoupled from time-and-effort (hey now), ongoing revenue stream. Leaving virtually no incentive to swing for the fences.

Oh, and 1.5% average per day, sustained over 20 trading days, uncompounded, is equivalent to 30% a month. Compounded over 12 months, that translates into 2,230% annual return, or nearly $1.2 million by the end of year 1. And $27+ million by the end of year 2. To say that the odds are heavily, dramatically stacked against you would be something of an understatement.

 

[sgsaxton]

Quote from late apex:

There is nothing intrinsic, from a numerical perspective, preventing returns on larger amounts from being geometric.

However, I can think of 2 limiting factors at play here: liquidity and psychology / behavioral finance.

Liquidity: if you ever manage to grow your account beyond the typical retail forex limits -- whether through reinvesting of profits or through fund-raising or both -- you'll no longer have access to instant at-will execution or sky-high leverage. How essential are those to your returns?

Psychology: without exception (that I know of), the more AUM (assets under management) a trader or manager gets to play with, the more risk-averse he becomes. Get the account / fund large enough, and even decidedly mediocre, barely positive, annual returns produce an abundant, decoupled from time-and-effort (hey now), ongoing revenue stream. Leaving virtually no incentive to swing for the fences.

Oh, and 1.5% average per day, sustained over 20 trading days, uncompounded, is equivalent to 30% a month. Compounded over 12 months, that translates into 2,230% annual return, or nearly $1.2 million by the end of year 1. And $27+ million by the end of year 2. To say that the odds are heavily, dramatically stacked against you would be something of an understatement.

Thanks for raining on my parade!

 

[late apex]

Hey, you're welcome.

If some 45-year-old from Montana by the name of Larry Williams can turn $10,000 into $1,147,607 within 12 months, trading futures for the 1987 World Cup (+11,276%, i.e., averaging +1.9% per trading day, compounded daily), all without the "benefit" of today's retail forex leverage of 100:1 to 400:1, then surely you can set your sights low and shoot for a mere 1.5% daily.

 

[sgsaxton]

Quote from late apex:

Hey, you're welcome.

If some 45-year-old from Montana by the name of Larry Williams can turn $10,000 into $1,147,607 within 12 months, trading futures for the 1987 World Cup (+11,276%, i.e., averaging +1.9% per trading day, compounded daily), all without the "benefit" of today's retail forex leverage of 100:1 to 400:1, then surely you can set your sights low and shoot for a mere 1.5% daily.

Well, you know, I figure I'm sitting here anyway, why not have a crack at it....