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IB advertises margin for accounts over $100,000, on a simplistic dividend paying strategy, where you buy, hold, pay margin interest carrying fees (hence their advertisement), and collect quarterly dividends,
presumably, stagger the purchase of stocks so that their regular dividends are paid on consecutive months, so that the quarterly payments all coincide with monthly payments throughout the year,
that conservative strategy would be better suited to a $5,000,000 account, imagine the leverage they would assign that opening balance....
the only problem would be to hedge the positions with either opposite or protective options puts or cap the potential rise in stock value with profitable call sales...
then consider the tax implications, as these are equity trades of a shorter term nature than futures trades subject to the 60% s/t, 40% l/t risk adjustment
ohh, why not just go to a (mostly incompetent) broker or wealth manager and have him do the same, just for substantially more fees.
one thing is certain, you're going to pay a substantial learning curve tuition, (read the thread on spending over $10,000 in education on trading), just to capture either:
1) your aforementioned 150 nightly pips on the Euro, or some portion thereof
2) your well defended but delusionary 2.5% or 25% yield, whether or not the decimal was properly placed or not
You created quite a contradiction here! There are a wide range of capabilities on this board. Anyone coming to a board is looking for a wide range of insights and input. They will take the next step, with the knowledge that this is a first level or a starting point.
Last edited by tradetree; September 13th, 2011 at 11:37 AM.
If I had 5 million I would use a multi pronged approach.
I would place some in a manged situation.
Some I would auto trade multiple futures markets with multiple strategies. I would use strategies that were daytrade only and others that held for longer time frames.
I would do options spreads directional non directional. etc...
I would hold some in reserve waiting for those special moments when market crashes and good companies get real cheap.
You get the picture.
I would put a few million in very safe investments in case the above went very wrong.
Develop a logical comprehensive plan with excellent money management. 5 mil is enough that you can easily diversify which may mean giving up some profit but also means you can protect what you have.
"The day I became a winning trader was the day it became boring. Daily losses no longer bother me and daily wins no longer excited me. Took years of pain and busting a few accounts before finally got my mind right. I survived the darkness within and now just chillax and let my black box do the work."
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Could you clarify what you're asking for here? You do have $5MM to invest or you want to manage your money as if you had $5MM to invest? Sorry, I didn't see any clarification on this.
This is not investment advice but just some ideas to consider. If you do have $5MM+, there are a variety of investment vehicles not available to the retail market. You could "trade" a small amount on your own if you really wanted to and obtain $3k - $5k on a daily basis if you know what you're doing. "If" being the key part of that statement and this should be an average figure as some days work out well and some days don't. But for a few million, I would, and I don't know what your personal situation is but work with an investment bank to create a portfolio of structured notes each benchmarked against an index of your preference (S&P, Euro, etc.) These notes can provide protection of principal with a max monthly/quarterly gain and/or notes that don't have principal protection but have a higher alpha opportunity vs the underlying index. They're essentially an underlying option strategy which I can explain more if interested. Talk to a few PWM firms such as Goldman or UBS or whoever. You'd also have access to many hedge funds/funds of funds, private equity funds, etc. I would also dedicate a sizable amount into even more of a passive investment structure such as a fixed income portfolio. You really shouldn't be risking that amount of capital within one investment strategy. I would think capital preservation and income would be higher on your list vs trying to aggressively grow this amount further.
If you're just trying to invest like you have $5MM and are just looking for someone to explain a few set up's to you, well there are a lot available on this forum but I personally haven't seen anything that really looks intriguing but would recommend learning what looks attractive to you and look to take what you like of them and create your own methodology that coincides with your strengths and comfort zone. The cap preservation issue I spoke of would obviously be irrelevant as you're looking to consistently grow your assets and a lot more risk will be required to do so.
Feel free to ask me any questions should you really need help with the cap preservation issues. I came from that world...
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I used to invest in real estate, and I realized something about this person's predicament. If you develop a property or business, the value of the asset is not visible. If he were to watch the value of his company before he sold it, it would make his knees buckle. He invested some funds and a great deal of time, and perhaps it was worth $100K. Over time it made it to $1M, then went back to $500K, then up to $2M. Then back to $1M etc until it finally sold at $5M.
If you were watching a stock and your investment went from $1M to $2M and then back to $1M, you would have thought you were a crazy gambler! - Yet, because for a company the value was hidden, you didn't see the great fluctuations.
I sold my last property in Oct 2007, just before the real estate crash. I would have lost hundreds of thousands of dollars if I had not gotten out. The same is true for any business; they vary in value to even a greater degree. But watching the stock market, it looks like a bunch of crazy people to jump in there, because the prices are all available all the time.
In reality, given all the investment options available, the risks can actually be made much lower than the risk that company represented. The difference is that he knew that company and that industry, and in contrast does not know the world of investing.
The only solution to this problem is to get educated. You don't have to learn how to trade, but instead how to evaluate CTA's, systems, hedge funds etc.
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Of course, trading a one lot account is EASIER than trading 20-50-100+ contracts each trade. you're not going to affect the market or direction with your trades, where someone trading 50 contracts could end up affecting the price movement.
My point is if you can't prove the performance with a simple one lot trade (which requires $5000 for overnight maintenance, but i am assuming daytrading), you can forget about $100k, $2 million, whatever.
And i'd contend the difference between sim trading and real trading versus $5k and $100k is the factor of emotion. There could be slippage but if you were to sim trade with limit orders, the slippage can be minimized. The difference is going to be emotional factors and self doubt when one's money is at play. Same goes from $5k to $100k.
However, if you can control it (this is where most traders fail), it is definitely scalable.
There is always, however, going to be uncontrollable factors - when i started trading over 15 years ago in college with stocks, i built my account from $10k to $30k only to see it drop to $15k in 20 minutes We were all trading this company around 6-7 bucks a share, forgot the name of it. Anyway, it was great, lots of volatility - and then the stock halted. Pending news. News was the company filed for bankruptcy. Next tick, $3 dollar and change. I got out, took the hits. Some other traders decided to ride it out (right) and ended up in a penny stock section. Talked to a trader in Texas who adviced me to trade stocks with options (deep in the money but since options are limited in the risk level..). Did that, rebuild the account back up in less than 9 months back in 1993-94.
So while I am new to futures, i am not new in terms of market action and trading as well as the emotional tolls involved. It's funny because after grad school in 1998 i went and worked for a engineering company (or two) for 10 years and didn't ahve the time for daytrading and can only manage the account with overnight positions. In 2006 I exited all stock market positions except for a few energy sector plays (oil, etc.). Many of my colleagues did not and once oil prices hit $140, i exited completely. My accounts rose about 13% in 2008 where many others lost 30%, and i only put in about 25% of the accounts in oil related funds and exited pretty close to the peak. Many of my former colleagues are still waiting for their retirement fund to get back to even at 2006. It's sad because as the market dropped from 14,000 to 12,000 in 2008, many of them still hold out hope that it will recover even though if you had pay any attention to the housing market, you know something horrible is going to happen. They let their emotions got the best of them and instead of exiting with a loss, they decide to held on. And I am sure it wasn't easy seeing their account goes to 6700 in the low of Mach 2009.
Similarly, bet lots of traders went bellyup in the flash crash last year in futures. Their stops means nothing because by the time it was executed, it might be 10 points lower. The risk of losing it all in daytrading is there in a single day. Think 9/11 - traders went long, market halted, opens days later at 15-20% lower (which will wipe out your overnight margin plus a couple extra margins).
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