I don't know about all this analysis, but Andover is going to e-mail me with a $300,000 margin call tomorrow morning.
It's days like that I wish I had chosen prop over retail.
It's days like that I wish I had chosen prop over retail.
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Using Margin for More Positions
- Thread starter Corso482
- Start date
It is not the risk PER trade that is important but the TOTAL risk. What you don't seem to understand is that taking more positions is equivalent to using more leverage and more leverage is more TOTAL risk. You think that you will benefit from diversification. Diversification only works statistically for independant items. It is not the case for stock market assets. It can be apparently true during normal condition but when conditions are normal there is no problem since you managed the risk in these case. It is in abnormal conditions, when risk is unpredictable within the framework you have, that "real" risk arise. Random fluctuation under control is not "real" risk that's the easy part to manage and that what gives the illusion to some risk managers as illustrated by Nassim Taleb:
"A trader according to the Chicago legend, 'made 8 million in eight years and lost 80 million in eight minutes'. According to the same standards, he would be, 'in general', and 'on average' a good risk manager." Nassim Taleb
As a conclusion diversification is another mean of using leverage, using leverage intelligently can push your return, but using diversification badly can hurt you since it is equivalent to leverage.
"A trader according to the Chicago legend, 'made 8 million in eight years and lost 80 million in eight minutes'. According to the same standards, he would be, 'in general', and 'on average' a good risk manager." Nassim Taleb
As a conclusion diversification is another mean of using leverage, using leverage intelligently can push your return, but using diversification badly can hurt you since it is equivalent to leverage.
Quote from Corso482:
Ok, that's a nice "piece of market wisdom," which I'm sure is true most of the time. But what about using margin in the circumstance I outlined in my first post-- not increasing your risk per trade, but taking more of the same risk. Could you explain your reasoning as to why using margin in this way is still a bad idea?
Quote from harrytrader:
"A trader according to the Chicago legend, 'made 8 million in eight years and lost 80 million in eight minutes'. According to the same standards, he would be, 'in general', and 'on average' a good risk manager." Nassim Taleb
I don't know whether to be relieved, impressed, or terrified :-|
"A trader according to the Chicago legend, 'made 8 million in eight years and lost 80 million in eight minutes'. According to the same standards, he would be, 'in general', and 'on average' a good risk manager." Nassim Taleb
I don't know whether to be relieved, impressed, or terrified :-|
You are doing your maths improperly for your risk statements.
Your fixed values for protection are not very swift either.
Your fixed values for protection are not very swift either.