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Trader J wrote:
>
> By what right, by what moral code, by what standard of justice, do you
> presume to regulate my freedom to act? The public good? Who is the public?
> Everyone but me?
>
>
No one should prevent you from acting in any way that does not harm
another. Nor prevent you from expressing your opinion, whether it be
about the government or about corn.
However, as soon as you choose to operate a business, you begin to
operate in an arena that is governed by certain regulations. If someone
is offering food for $, then he/she must follow health regulations. As
one who works in a chemical related industry, I doubt I am permitted to
sell industrial strength chemicals to the general public who has not had
appropriate hazard-communication about how to not injure themselves with
the chemical. (BTW, you want to see regulations, paperwork, etc.? - run
an industry that uses and then must appropriately dispose of
chemicals... but whats the alternative; without the regs., the chemicals
would be in YOUR drinking water).
Futures trading is risky. I started out with the Ken Roberts course
which is pitched to small traders, even "struggling families" (taken
from his tape). I didn't actually use KR's methods because I was
concerned about a lack of a track record. Instead I subscribed to a
signal service (Commodex). Commodex had a brochure which stated that
they made about 100% per year on margin and showed a graph suggesting
using 50% of acct. as margin in a full account. (In another piece of
lit. they showed a portfolio using 33% of margin. I have to give them
credit for that, but they did not really explain why you should only use
this low a % for a small account) Elsewhere in their brochure they
stated that their max. drawdown was 40% in 20 or 30 years of realtime
trading. But this was for a port. of 30 or more commodities! I did not
realize that trading just a few would likely not have as consistent
results. So I figured i would pick a port. that would use about 60% of
margin since they stated a max. dd of 40%.
I had many educational and other debts (about 40K). So over the course
of a few months i borrowed 20K (on credit cards!). I assumed that I
would make about 40% per year and would be able to pay off both what I
borrowed plus the old debts in just a few years. Well it didn't work
that way. After following Commodex quite closely, the acct. was down
80%. I never risked more than about 5% (one exception was one trade @
10%). Commodex appeared to be making money, just not in the commodities
I was following. I felt I had to stop and sure enough that was when the
good trades came along in my portfolio. Commodex finished out the year
in profits, I believe even in the limited portfolio.
I have had several runups in my account since the first phases, but
have not been able to recover permanently. As it stands now, the debts
have already ruined my credit rating and I stand on the brink of
bankruptcy. I am resisting that as a solution because i don't think
its' responsible, but eventually one of my creditors may force me into
it. Even if i recover, my credit is screwed for 7 years or so. Never
mind buying a house. Interest rates on car loan would be sky high,
etc. (My 84 car which barely runs now is yet another problem. It
humiliates me every morning as i drive to work).
I recognize that I made mistakes. But some of them were made because I
had information that was incomplete or not adequately explained for
someone unfamiliar with portfolios, drawdowns, etc. (I had never
invested in anything but a CD before.) In my opinion, there needs to be
a minimum level of risk disclosure in any material presented to the
public and that needs to be set more complete and clearer than presently
required. And yes, the NFA and/or CFTC should be involved (perhaps
even writing a standard brochure *illustrating* the risks). They could
also write standard definitions of how drawdowns should be calculated,
etc. (none of this drawdown as a % of 10 years cumulative profit which
i've seen occasionally). They could set a minimum, standardized
performance data set that must be presented. In my view requiring
registration with the NFA is not a bad idea. Not only does it provide
them with funds to keep operating it lets them know who the vendors are.
Believe me, I am not proud to submit this opinion because of what it
says about me. But I feel strongly that the "free speech" advocates are
in good measure off base here. **Yes, for the public good there needs
to be regulation. And that starts with the regulating agencies knowing
who you are.** Just like we have to get a permit to discharge our
treated wastewater.
P.s. While i think Ken Roberts material is extremely misleading, I
don't want to be too hard on Commodex. I didnt' understand at the time
about the need to use it but they post a trade by trade track record on
their website (commodex.com). There are some real problems with what
prices they use for entries and exits but using the dates provided you
actually could construct what the results would be for your own accont.
Given that its a report (hypothetical but without the benefit of
hindsight- ie., not backtesting), it may be worth something. But I
believe they, and all vendors recommending trading need to supply a
*illustrative* chapter on risk management.
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