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What % of Your Net Worth do you Keep In Your Trading Account?


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What % of Your Net Worth do you Keep In Your Trading Account?

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  #1 (permalink)
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Title says it all: What % of your net worth do you keep in your trading accounts?

I know you probably have multiple accounts - some of which might engage in buy + hold strategies. I'm not counting those - only those you'd use for actively speculating / trading.

(I'm also assuming that any money in money market accounts that are used for futures trading and/or cash is included in this %).

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  #3 (permalink)
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Almost everything. I keep about a year worth of living expenses in the bank, the rest is with my clearing firm. I definitely wouldn't recommend it, but I have a relatively capital intensive trade, so I don't have much choice.

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  #4 (permalink)
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Not more than 5%. Though if you ask me how much of your total liquid money you keep in trading account then its about half of it. Other half I keep for expenses/bills and emergencies, often some of it goes into investing it into long term assets. This is also not consistent formula, amount often changes places, I don't like to keep money that is actually not getting trading in account ideally, also our government has made it compulsory for broking houses to send surplus back to traders bank account if it is seating ideally for more than one quarter. So, anything that is not getting trades or invested in stocks or other assets, gets sent back anyways.

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  #5 (permalink)
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smtlaissezfaire View Post
net worth


LastDino View Post
liquid money

This is an interesting question, and potentially even a good poll question (@Big Mike). Problem is it needs definition. What is net worth? Is it liquid worth? Does it include illiquid assets? How do you treat a house or a mortgage on that house?

I was once at an event where the speaker talked about after after losing money in the (I think the) PFG fiasco he now only keeps 25% of his funds in his trading acccount. He then went on to claim he made X% in that account. I really wanted to ask was that X% on the account or X% on the account + 3X the money in reserve for the account? (I currently have 1/3rd of my trading funds in a trading account and 2/3rd in an instant liquidity interest yielding account). Additionally I have an account with future hedges against a physical position. How do you think of that?

Finally the question is also very net worth dependent. I'd be a lot more surprised/concerned about somebody with a net worth of $10K with $5k in their trading account than I would be a millionaire with $100k in their account!

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  #6 (permalink)
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SMCJB View Post
This is an interesting question, and potentially even a good poll question (@Big Mike). Problem is it needs definition. What is net worth? Is it liquid worth? Does it include illiquid assets? How do you treat a house or a mortgage on that house?

I was once at an event where the speaker talked about after after losing money in the (I think the) PFG fiasco he now only keeps 25% of his funds in his trading acccount. He then went on to claim he made X% in that account. I really wanted to ask was that X% on the account or X% on the account + 3X the money in reserve for the account? (I currently have 1/3rd of my trading funds in a trading account and 2/3rd in an instant liquidity interest yielding account). Additionally I have an account with future hedges against a physical position. How do you think of that?

Finally the question is also very net worth dependent. I'd be a lot more surprised/concerned about somebody with a net worth of $10K with $5k in their trading account than I would be a millionaire with $100k in their account!

Yes, you have to also consider this from point of individual. Just take average trader in my country for example, you will be hard pressed to find anyone who keeps more than 5 lacs (Approx $7k), but that seemingly small amount is usually well educated and well placed Engineers yearly salary, which is quite a lot. Also, here trading one lot of Nifty requires no more than USD 1k and 1 lot of BankNifty requires no more than 0.5 k, I'm not counting brokerage house leverage. Options are even less expensive, you can trade one lot for little over USD 110 and USD 30 of Nifty and BankNifty respectively.

Point of telling this was that you really don't need much money to trade, sometimes even less if you actually hold stock portfolio with the same broker, you get to leverage against it and trade without having a single penny free in demat, of course that's only as long as your MTM is not forcing you to drill hole in your holdings to pay your dues. Basically, if you are option trader and not a heavy hitter (10x Lots), you can trade with USD 200 account to your hearts content, which is as cheap as one of those cheap budget Mi Phones.

If you talk about Net-Worth here people count both fixed+liquid, which would be painting very different picture. Therefore it is better to count in "what % of -lets say- your yearly earnings do you keep in your trading account?"
Not counting the stock or other long term portfolio.

Not to sound morbid here but people who keep half of fixed+liquid in their trading account usually end up committing not just their own net worth, but friends and family too and this leads to very bad outcome, many commit suicides to get away in the end. People are very greedy, and they often come to trading with view of "Doubling your money in short times, sometimes in a single trade", this leads to them gambling with more than what they can afford to lose, and anyone who has been around in stock market knows we tend to lose a lot in early years.

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LastDino View Post
Therefore it is better to count in "what % of -lets say- your yearly earnings do you keep in your trading account?"

Interesting idea to think of it that way. Obvious anomaly would be somebody who is retired but still trades a lot.

LastDino View Post
Not to sound morbid here but people who keep half of fixed+liquid in their trading account usually end up committing not just their own net worth, but friends and family too and this leads to very bad outcome, many commit suicides to get away in the end. People are very greedy, and they often come to trading with view of "Doubling your money in short times, sometimes in a single trade", this leads to them gambling with more than what they can afford to lose, and anyone who has been around in stock market knows we tend to lose a lot in early years.

Again at a lower net worth point this may be true but at a higher net worth people can and do lose a lot of money and it not be material to their lifestyle in anyway.

This question also hinges heavily on how and why you are trading. Consider these scenario's
  • Professional trader, trading for a living. Goal is to make 20% of capital to live off. Hence required trading capital assuming no reinvestment is 5X. As such probably has a high % of net worth in trading account.
  • Part time trader trying to improve his lifestyle. Has full time job paying Y and is hoping to use trading to pay for next vacation/childs wedding/kitchen remodel. As such probably has a much lower % of net worth in trading account.
  • Part time trader that has watched too many get rich quick advertisements. Is trading with money they can not afford to lose! Trading account is dangerously high $ of net worth. And then...
  • Retiree, who with a large pension account is looking at bonds yielding 1% and hence any low risk trading strategy that yields more is interesting. $ of net worth? Who knows?

This is actually where machine learning could have insight into a question like this.
  • Question 1. What % of your liquid net worth is in your trading account
  • Question 2. What % of your total net worth is in your trading account
  • Question 3. How much debt do you have as a % of your net worth
  • Question 4. What % of your income comes from Trading
  • Question 5. What is your desired/expected return from Trading as a annual % of your account.
  • Question 6. How long have you been trading.
  • Question 7. How would you rate your trading experience from 1 (Low) to 9 (High)
  • Question 8. How would you rate your trading aggressiveness from 1 (Low/Looking for Yield only) to 9 (High/Highly leveraged)
  • you get the picture...

As a math guy I think the results would be extremely interesting but you would need a lot of responses for them to be statistically significant and even then your population may not be representative of the real population.

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  #8 (permalink)
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SMCJB View Post
Interesting idea to think of it that way. Obvious anomaly would be somebody who is retired but still trades a lot.
Again at a lower net worth point this may be true but at a higher net worth people can and do lose a lot of money and it not be material to their lifestyle in anyway.

This question also hinges heavily on how and why you are trading. Consider these scenario's
  • Professional trader, trading for a living. Goal is to make 20% of capital to live off. Hence required trading capital assuming no reinvestment is 5X. As such probably has a high % of net worth in trading account.
  • Part time trader trying to improve his lifestyle. Has full time job paying Y and is hoping to use trading to pay for next vacation/childs wedding/kitchen remodel. As such probably has a much lower % of net worth in trading account.
  • Part time trader that has watched too many get rich quick advertisements. Is trading with money they can not afford to lose! Trading account is dangerously high $ of net worth. And then...
  • Retiree, who with a large pension account is looking at bonds yielding 1% and hence any low risk trading strategy that yields more is interesting. $ of net worth? Who knows?

This is actually where machine learning could have insight into a question like this.
  • Question 1. What % of your liquid net worth is in your trading account
  • Question 2. What % of your total net worth is in your trading account
  • Question 3. How much debt do you have as a % of your net worth
  • Question 4. What % of your income comes from Trading
  • Question 5. What is your desired/expected return from Trading as a annual % of your account.
  • Question 6. How long have you been trading.
  • Question 7. How would you rate your trading experience from 1 (Low) to 9 (High)
  • Question 8. How would you rate your trading aggressiveness from 1 (Low/Looking for Yield only) to 9 (High/Highly leveraged)
  • you get the picture...

As a math guy I think the results would be extremely interesting but you would need a lot of responses for them to be statistically significant and even then your population may not be representative of the real population
.

Wholeheartedly agreed. Interesting questionnaire, would be very interesting to see result of something like this assuming we can some how get fair representation.

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I keep >90% of my liquid net worth in my trading accounts. My only high-value possession is my car which accounts for about 10-15% of my total net worth - everything else is liquid. I currently have 6% of my liquid net worth invested in buy-and-hold stocks and the remainder is used for trading.

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mtzimmer1 View Post
I currently have 6% of my liquid net worth invested in buy-and-hold stocks and the remainder is used for trading.

If you want to increase your exposure to buy and hold stocks but want to keep money in your trading account then just buy and hold some ES futures and treat them as an investment rather than a trade. (That's what I do)

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