iceman,
let me explain. i've got a swing trading system that i've been paper trading for the past 2 years, refining it the whole time. The thing has some great ratios and statistics and has backtested well for the past 7 years (i'd test longer, but my data doesn't go back that far). Anyway, I'm not trying to boast my paper trading or my system, but I am trying to explain why I asked the original question.
I want to divide my account into 10th's because I've found that to be about the optimum risk level for my desired volatility and returns. The problem is that the system often generates more than 10 open positions at once. So I started thinking of how I can open double the number of positions without cutting my position size in half. So the solution I came up with is to double my account through margin, but instead of doubling up my position size, just have more of the same position size, i.e.
without margin:
-- ten 10k positions in a 100k account, 5% stop loss
with 2:1 margins becomes:
-- twenty 10k positions in a 100k account, 5% stop loss
The risk level per trade is the same, still 10k positions w/ 5% stop loss, only now I can open 20 positions at a time instead of 10, which solves the problem.
I was trying to see if this use of margin is dangerous, which I don't think it is, given I still have a 5% stop loss on all my same sized 10k positions.
To illustrate the impact of freak gaps on the margin strategy, I brought up the "lose all your money but no debt thing"-- it's not an accomplishment, but it shows this use of margin isn't crazy either.
As to your comment on diversification, my system isn't really diversified. All of the stocks are highly correlated and are either all long or all short. I first establish a bullish or bearish short term bias for the dow, then I accordingly either long or short a group of highly correlated to the dow stocks (i could also use nasdaq, s&p, etc). So in that sense, the strategy is concentrated.
I agree with your comments about diversification, though. In my testing I've found that establishing a 'market neutral' stance, with a balance of longs and shorts, leads to medicore returns, with the big cap stocks I'm testing anyway. And I'd rather not deal with illiquid small cap stocks, so i've given up on being market neutral or truly diversified.
Anyway, I'm very satisfied with my system and it's results. I just want to be able to open more positions at once with it. So, for my purposes of wanting to take on double positions without cutting my position size in half, I think the use of margin may be viable. I'm just checking what others think.
