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Oops, I forgot to answer your last question. Even when day trading (margin
requirement = $0), we always calculate our return based upon initial margin.
And back in 1974 (I think), I was caught in 8 limit days down in Bellies.
Back in the early 60s, I bought a bunch of wheat because it was nearing the
price support level. I thought there was limited risk, so I bought more
than I should have. Kept dropping and cost me a pretty penny. You name the
mistakes and we've made them. There's nothing like the school of hard
knocks to sharpen up the old gray cells, especially when trading futures.
Again, have you been trading for 30 years or were you a broker who did some
trading for 30 years? There's a big difference.
Guy
Paranoia...you only have to be right once to make it all worthwhile!
-----Original Message-----
From: owner-metastock@xxxxxxxxxxxxx [mailto:owner-metastock@xxxxxxxxxxxxx]On
Behalf Of Macromnt@xxxxxxx
Sent: Tuesday, July 11, 2000 1:49 PM
To: metastock@xxxxxxxxxxxxx
Subject: Re: Risk of Ruin
Two years is a very short period for a trader who hope to survive. There are
some events that may happen once in four or five years and you have to be
ready and able to go through without getting killed. They are very unlikely
events but they happen.
Few examples of my almost 30 year experience: in 1974 Sugar rose in Paris
from 2,000 FF per tone to 8,500 FF and the market went sometimes four or
five
days in a row limit up. They were very unlikely circontancies and to make a
long story short it happend (among other reasons) because of different
regulations between Paris , London and NY. It should not have happened but
it
did not help the short who got absolutely whacked. And of course they where
right. Subsequently prices collapsed soon after. No need to day that if your
risk was 30% before 4 limit up in a row, I don't know by how much you would
have ended down but I would guess between 500% and 1,000%. As a matter of
fact then exchange closed because a lot of overleveraged clients just did
not
pay.. and for the one that were winners their money was under escrow during
one year.
A lot has been said about LTCM but the circunstancies were indeed
exceptional.
Those extraordinary events happen and you will never survive them if your
risk/trade is too big.
Anyway to go back to the beginning of this controversy , the mesure of risk
pertrade has absolutely nothing to do with the initial margin. The
assumption
that your risk is 30% because you have deposited 30% in initial margin is
absurd. And what if you have not deposited initial margin (that happens if
you are extended a line of credit) is your risk zero?
Jean Jacques
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