I also average around 2 cents (4 cents really because you have to buy and sell each share), and my % has always been between 63-73%. When I get up around 70% I know I'm being too conservative. But I only trade 45 min a day and 400,000 shares per month. Is that even respectable? I don't ask the other traders because I know they trade millions per month. But hey, I'm just an engineer so the supplemental income is pretty nice.
The Real Cost of being a Proprietary Equity Trader
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I also average around 2 cents (4 cents really because you have to buy and sell each share), and my % has always been between 63-73%. When I get up around 70% I know I'm being too conservative. But I only trade 45 min a day and 400,000 shares per month. Is that even respectable? I don't ask the other traders because I know they trade millions per month. But hey, I'm just an engineer so the supplemental income is pretty nice.
You know guys...quantity is not as important as consistency and bottom line profits...don't let those "high volume traders" intimidate you for any reason.
A quick example: I did an analysis of some of our lower volume remote traders, and found one woman who turned out to be our most "quality" trader (most cents per share, something like 19 cents per share net profits).
She was only trading about 30-30K shares per month. I suggested that, if she can dial up the volume a bit without altering her mental state then she may want to do so. She did, she started making considerably more money.
This is your business - don't let anyone else bug you.
Don
A quick example: I did an analysis of some of our lower volume remote traders, and found one woman who turned out to be our most "quality" trader (most cents per share, something like 19 cents per share net profits).
She was only trading about 30-30K shares per month. I suggested that, if she can dial up the volume a bit without altering her mental state then she may want to do so. She did, she started making considerably more money.
This is your business - don't let anyone else bug you.
Don
You know guys...quantity is not as important as consistency and bottom line profits...don't let those "high volume traders" intimidate you for any reason.
A quick example: I did an analysis of some of our lower volume remote traders, and found one woman who turned out to be our most "quality" trader (most cents per share, something like 19 cents per share net profits).
She was only trading about 30-30K shares per month. I suggested that, if she can dial up the volume a bit without altering her mental state then she may want to do so. She did, she started making considerably more money.
This is your business - don't let anyone else bug you.
Don
A quick example: I did an analysis of some of our lower volume remote traders, and found one woman who turned out to be our most "quality" trader (most cents per share, something like 19 cents per share net profits).
She was only trading about 30-30K shares per month. I suggested that, if she can dial up the volume a bit without altering her mental state then she may want to do so. She did, she started making considerably more money.
This is your business - don't let anyone else bug you.
Don
You know guys...quantity is not as important as consistency and bottom line profits...don't let those "high volume traders" intimidate you for any reason.
A quick example: I did an analysis of some of our lower volume remote traders, and found one woman who turned out to be our most "quality" trader (most cents per share, something like 19 cents per share net profits).
She was only trading about 30-30K shares per month. I suggested that, if she can dial up the volume a bit without altering her mental state then she may want to do so. She did, she started making considerably more money.
This is your business - don't let anyone else bug you.
Don
A quick example: I did an analysis of some of our lower volume remote traders, and found one woman who turned out to be our most "quality" trader (most cents per share, something like 19 cents per share net profits).
She was only trading about 30-30K shares per month. I suggested that, if she can dial up the volume a bit without altering her mental state then she may want to do so. She did, she started making considerably more money.
This is your business - don't let anyone else bug you.
Don
I'm not really clear on why a serious person would need to spend time thinking about the fairly insignificant fixed costs associated with trading - and more to the point - many firms offer everything free...
The only two things that need to be considered when trading (and they are very hard to estimate) are...
1. Opportunity cost of your time TODAY and in the FUTURE.
-- How much could you be making doing something else?
-- Since most daytraders are fish, they routinely overestimate thier expected (and risk-adjusted) income trading.
-- There is something to be said for the fact that trading is a young man's game mostly because there IS a limit to the amount of money one can make when using his own capital as an account base to which leverage is applied... and even worse - the risk-adjusted return (the monthly deviation in profitability) often yields a small or negative number... over time, daytraders lose money compared to thier peers who are progressively making more. While the daytrader might eek out 150k in absolute terms, when divided by the std deviation of monthly returns, it's probably closer to 50k. After 5-7 years of that, when all of one's friends are getting raises and stock options - it might be cause to re-evaluate one decision as a 22yo.
2. Risk of Ruin
-- How much leverage are you using?
-- How long can you last without making money?
-- What are the chances of losing everything quickly?
-- Profitable trading is like any other hard-won victory in life: It often goes to the one who arrives early and stays late.
The only two things that need to be considered when trading (and they are very hard to estimate) are...
1. Opportunity cost of your time TODAY and in the FUTURE.
-- How much could you be making doing something else?
-- Since most daytraders are fish, they routinely overestimate thier expected (and risk-adjusted) income trading.
-- There is something to be said for the fact that trading is a young man's game mostly because there IS a limit to the amount of money one can make when using his own capital as an account base to which leverage is applied... and even worse - the risk-adjusted return (the monthly deviation in profitability) often yields a small or negative number... over time, daytraders lose money compared to thier peers who are progressively making more. While the daytrader might eek out 150k in absolute terms, when divided by the std deviation of monthly returns, it's probably closer to 50k. After 5-7 years of that, when all of one's friends are getting raises and stock options - it might be cause to re-evaluate one decision as a 22yo.
2. Risk of Ruin
-- How much leverage are you using?
-- How long can you last without making money?
-- What are the chances of losing everything quickly?
-- Profitable trading is like any other hard-won victory in life: It often goes to the one who arrives early and stays late.
being a trader is much cheaper and better chance of high success then running a business.
but those who are getting into prop firms need to realize the fixed costs and learning curve. you dont sit down and make money after installing your trading platform on your desktop.
from what Ive seen (take that with a pile of salt
)
-office fees range from $300-$600 a month
-chart programs $100-$250
-exchange fees $50-$100
-nasdaq level 2 $50
-news source (text) $50-$75
-audio (trade the news) around $300
-(misc fees, parking, mark error fees, internet, buying additional computer software etc)
-training classes $1500-$5000
-average 6 month learning curve
-oppertunity cost of not earning salary income from some job
then your capital is at risk, over coming commissions, if the firm takes a %
alot of firms advertise to a non trader the job may have a base pay with comm etc. not the case!
new traders just need to realize the barriers to entry and the fixed cost with trading (even trading remote)
but prop trading is a much better way to earn a $$ then trying run a business anyday of the week
but those who are getting into prop firms need to realize the fixed costs and learning curve. you dont sit down and make money after installing your trading platform on your desktop.
from what Ive seen (take that with a pile of salt
)-office fees range from $300-$600 a month
-chart programs $100-$250
-exchange fees $50-$100
-nasdaq level 2 $50
-news source (text) $50-$75
-audio (trade the news) around $300
-(misc fees, parking, mark error fees, internet, buying additional computer software etc)
-training classes $1500-$5000
-average 6 month learning curve
-oppertunity cost of not earning salary income from some job
then your capital is at risk, over coming commissions, if the firm takes a %
alot of firms advertise to a non trader the job may have a base pay with comm etc. not the case!
new traders just need to realize the barriers to entry and the fixed cost with trading (even trading remote)
but prop trading is a much better way to earn a $$ then trying run a business anyday of the week
To further Don's point:
Probability of Trade Win & Ratio of Profit/Loss
Tuesday, April 14th, 2009
by Grace Cheng
When trading the forex market or other markets, we are often told of a common money management strategy that requires that the average profit be more than the average loss per trade. Itâs easy to assume that something that has been so widely advised must be a good thing. However, if we take a deeper look at the relationship between profit and loss, it is clear that the âold,â commonly-held ideas may need to be adjusted.
Profit/Loss Ratio
A profit/loss ratio refers to the size of the average profit compared to the size of the average loss per trade. For example, if your expected profit is $900 and your expected loss is $300 for a particular trade, your profit/loss ratio is 3:1 - which is $900 divided by $300.
Many trading books and âgurusâ advocate a profit/loss ratio of at least 2:1 or 3:1, which means that for every $200 or $300 you make per trade, your potential loss should be capped at $100.
At first glance, most people would agree with this recommendation. After all, shouldnât any potential loss be kept as small as possible and any potential profit be as much as possible? The answer is: not always. In fact, this common piece of advice can be misleading, and can cause harm to your trading account.
The blanket advice of having a profit/loss ratio of at least 2:1 or 3:1 per trade is over-simplistic because it does not take into account the practical realities of the forex market (or any other markets), the individualâs trading style and the individualâs average profitability per trade (APPT) factor, which is also referred to as statistical expectancy.
APPT is Key to Profitability
Average profitability per trade basically refers to the average amount you can expect to win or lose per trade. Most people are so focused on either balancing their profit/loss ratios or on the accuracy of their trading approach that they are unaware that a bigger picture exists: Your trading performance depends largely on your APPT.
This is the formula for average profitability per trade:
Average Profitability Per Trade = (Probability of Win x Average Win) - (Probability of Loss x Average Loss)
Letâs explore the APPT of the following hypothetical scenarios:
Scenario A:
Letâs say that out of 10 trades you place, you profit on three of them and you realize a loss on seven. Your probability of a win is thus 30% or 0.3, while your probability of loss is 70% or 0.7. Your average winning trade makes $600 and your average loss is $300.
In this scenario, the APPT is:
(0.3 x $600) - (0.7 x $300) = - $30
As you can see, the APPT is a negative number, meaning that for every trade you place, you are likely to lose $30. Thatâs a losing proposition!
Even though the profit/loss ratio is 2:1, this trading approach produces winning trades only 30% of the time, which negates the supposed benefit of having a 2:1 profit/loss ratio.
Scenario B:
Now letâs explore the APPT of a trading approach that has a profit/loss ratio of 1:3, but has more winning trades than losing ones. Letâs say out of the 10 trades you place, you make profit on eight of them, and you realize a loss on two trades.
Here is the APPT:
(0.8 x $100) - (0.2 x $300) = $20
In this case, even though this trading approach has a profit/loss ratio of 1:3, the APPT is positive, which means you can be profitable over time.
Many Ways of Becoming Profitable
When trading the forex market, there is no one-size-fits-all money management or trading approach. Traditional advice, such as making sure your profit is more than your loss per absolute trade, does not have much substantial value in the real trading world unless you have a high probability of realizing a winning trade. What matters is that your APPT comes up positive and that your overall profits are more than your overall losses.
Probability of Trade Win & Ratio of Profit/Loss
Tuesday, April 14th, 2009
by Grace Cheng
When trading the forex market or other markets, we are often told of a common money management strategy that requires that the average profit be more than the average loss per trade. Itâs easy to assume that something that has been so widely advised must be a good thing. However, if we take a deeper look at the relationship between profit and loss, it is clear that the âold,â commonly-held ideas may need to be adjusted.
Profit/Loss Ratio
A profit/loss ratio refers to the size of the average profit compared to the size of the average loss per trade. For example, if your expected profit is $900 and your expected loss is $300 for a particular trade, your profit/loss ratio is 3:1 - which is $900 divided by $300.
Many trading books and âgurusâ advocate a profit/loss ratio of at least 2:1 or 3:1, which means that for every $200 or $300 you make per trade, your potential loss should be capped at $100.
At first glance, most people would agree with this recommendation. After all, shouldnât any potential loss be kept as small as possible and any potential profit be as much as possible? The answer is: not always. In fact, this common piece of advice can be misleading, and can cause harm to your trading account.
The blanket advice of having a profit/loss ratio of at least 2:1 or 3:1 per trade is over-simplistic because it does not take into account the practical realities of the forex market (or any other markets), the individualâs trading style and the individualâs average profitability per trade (APPT) factor, which is also referred to as statistical expectancy.
APPT is Key to Profitability
Average profitability per trade basically refers to the average amount you can expect to win or lose per trade. Most people are so focused on either balancing their profit/loss ratios or on the accuracy of their trading approach that they are unaware that a bigger picture exists: Your trading performance depends largely on your APPT.
This is the formula for average profitability per trade:
Average Profitability Per Trade = (Probability of Win x Average Win) - (Probability of Loss x Average Loss)
Letâs explore the APPT of the following hypothetical scenarios:
Scenario A:
Letâs say that out of 10 trades you place, you profit on three of them and you realize a loss on seven. Your probability of a win is thus 30% or 0.3, while your probability of loss is 70% or 0.7. Your average winning trade makes $600 and your average loss is $300.
In this scenario, the APPT is:
(0.3 x $600) - (0.7 x $300) = - $30
As you can see, the APPT is a negative number, meaning that for every trade you place, you are likely to lose $30. Thatâs a losing proposition!
Even though the profit/loss ratio is 2:1, this trading approach produces winning trades only 30% of the time, which negates the supposed benefit of having a 2:1 profit/loss ratio.
Scenario B:
Now letâs explore the APPT of a trading approach that has a profit/loss ratio of 1:3, but has more winning trades than losing ones. Letâs say out of the 10 trades you place, you make profit on eight of them, and you realize a loss on two trades.
Here is the APPT:
(0.8 x $100) - (0.2 x $300) = $20
In this case, even though this trading approach has a profit/loss ratio of 1:3, the APPT is positive, which means you can be profitable over time.
Many Ways of Becoming Profitable
When trading the forex market, there is no one-size-fits-all money management or trading approach. Traditional advice, such as making sure your profit is more than your loss per absolute trade, does not have much substantial value in the real trading world unless you have a high probability of realizing a winning trade. What matters is that your APPT comes up positive and that your overall profits are more than your overall losses.