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Questions about trading S&P 500 emini futures.
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Questions about trading S&P 500 emini futures.

  #11 (permalink)
Market Wizard
Germany
 
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KevinMas View Post
I understand why it sounds nuts but if I have good stops in play and only trading 1 contract it could work no? I'm doing this it get rich quick haha, I just want some experience in the real futures market. Can you elaborate more on why its "simply nuts"?

Let's do the math:

With one single ES you trade a synthetical portfolio of $50 x ~2050 = ~$102.500 of notional value at the moment.

With a 6k account your effective leverage is 1 / $6000 / $102.500 = ~17.1 which means that a single move (shark bite) or a
string of losses (paper cuts) of less than 6% (in the ES) less slippage less commissions less margin* will wipe you out.

*The margin part in this calculation only ends your 6k trading career and you get back a remaining amount should there be one.
If there is no remaining amount, the end of your account isn't the end of your liabilities, i.e. you are going to pay your debts.

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  #12 (permalink)
Trading Apprentice
New York, New York
 
Futures Experience: Beginner
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choke35 View Post
Let's do the math:

With one single ES you trade a synthetical portfolio of $50 x ~2050 = ~$102.500 of notional value at the moment.

With a 6k account your effective leverage is 1 / $6000 / $102.500 = ~17.1 which means that a single move (shark bite) or a
string of losses (paper cuts) of less than 6% (in the ES) less slippage less commissions less margin* will wipe you out.

*The margin part in this calculation only ends your 6k trading career and you get back a remaining amount should there be one.
If there is no remaining amount, the end of your account isn't the end of your liabilities, i.e. you are going to pay your debts.

Ah that makes sense thank you. And yeah it can happen at any given moment but the odds of the futures dropping 6% in an instant seems rather unlikely. And I don't plan on holding overnight at all so I'd be able to stop out of my position and not lose 6k in an instant.

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  #13 (permalink)
Market Wizard
Germany
 
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KevinMas View Post
Ah that makes sense thank you. And yeah it can happen at any given moment but the odds of the futures dropping 6% in an instant seems rather unlikely. And I don't plan on holding overnight at all so I'd be able to stop out of my position and not lose 6k in an instant.

Esp intraday beginners vastly overestimate their winning probabilities and the resulting statistical expectations.
That's why I emphasize the paper cuts which regularly cause the end of intraday scalping accounts without ON business.

In that sense low-margin brokers only speed up the end since they encourage the over-leveraging.

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  #14 (permalink)
Trading Apprentice
New York, New York
 
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choke35 View Post
Esp intraday beginners vastly overestimate their winning probabilities and the resulting statistical expectations.
That's why I emphasize the paper cuts which regularly cause the end of intraday scalping accounts without ON business.

In that sense low-margin brokers only speed up the end since they encourage the over-leveraging.

Thank you! But I don't plan on over-leveraging my account, like I said I would just do 1 contract at a time and now max out my account with margin and do 12 contracts. You'd had to be insane to bet where each tick is $150 a tick. That's crazy to think you can make so much money in an instant. Or lose it. I guess that's the addiction. Thanks again!

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  #15 (permalink)
Market Wizard
Germany
 
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KevinMas View Post
Thank you! But I don't plan on over-leveraging my account, like I said I would just do 1 contract at a time and now max out my account with margin and do 12 contracts. You'd had to be insane to bet where each tick is $150 a tick. That's crazy to think you can make so much money in an instant. Or lose it. I guess that's the addiction. Thanks again!

Nice that you consider your current effective leverage of 17.1 (less everything) with a single ES contract not being over-leveraged

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  #16 (permalink)
Trading Apprentice
New York, New York
 
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choke35 View Post
Nice that you consider your current effective leverage of 17.1 (less everything) with a single ES contract not being over-leveraged

Clearly I'm missing something because I assumed the more contracts the more leverage?

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  #17 (permalink)
Market Wizard
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KevinMas View Post
Clearly I'm missing something because I assumed the more contracts the more leverage?

That's why I did the math for you with the single contract that you want to trade.

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  #18 (permalink)
Trading Apprentice
New York, New York
 
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choke35 View Post
That's why I did the math for you with the single contract that you want to trade.

Yeah I think I don't fully understand the 1 / $6000 / $102.500 = ~17.1 equation here. I understand that technically the portfolio I'm trading is well just call it 100k but I only actually have 6k so a 6% decrease in the portfolio value would actually end up causing me a 100% loss. Am I on the right track with this? What does the 17.1 represent? Thanks!

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  #19 (permalink)
Market Wizard
Germany
 
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KevinMas View Post
Yeah I think I don't fully understand the 1 / $6000 / $102.500 = ~17.1 equation here. I understand that technically the portfolio I'm trading is well just call it 100k but I only actually have 6k so a 6% decrease in the portfolio value would actually end up causing me a 100% loss. Am I on the right track with this? What does the 17.1 represent? Thanks!

You are planning to move a single ES contract with only a fraction of 5.85% (or a leverage of 1/5.85% = ~17.1 respectively) of your own capital.
The remaining 94.15% are a virtual loan via your broker.

To make the point clearer: At the beginning you asked about PDT rules which apply to intraday stocks, ETFs etc trades. These rules consider
leverages of >4 as being over-leveraged. Applying such standards you are already starting your race far offside.


Last edited by choke35; March 31st, 2016 at 06:58 PM.
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  #20 (permalink)
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KevinMas View Post
Yeah I think I don't fully understand the 1 / $6000 / $102.500 = ~17.1 equation here. I understand that technically the portfolio I'm trading is well just call it 100k but I only actually have 6k so a 6% decrease in the portfolio value would actually end up causing me a 100% loss. Am I on the right track with this? What does the 17.1 represent? Thanks!

Trading with a 6k account size is absolute insanity.
Trading with a 25k account is the minimum threshold at which I believe your probaility of ruin is such that you can successfully make a living at trading the ES. It won't be easy though.
Trading with a 50k account is the sweet spot of where you want to be.

Trust us on here. You are tapping in to hundreds of thousands of hours of screen time.

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