LOL_Niederhofferaments

[DesertCat]

Just wondering, do any traders here work without leverage?

[mal_noles]

My personal portfolio uses minimal leverage, sometimes none.

Trading energy at work I am obviously considerably leveraged.

[kimchi]

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Just wondering, do any traders here work without leverage?

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I used to trade ETFs without leverage (not through choice, but because they were held in a tax-free account that didn't allow leverage).

I would have done better just buying & holding the funds I traded - although I made gains while only being on average invested 30% in equities at any one time. If I could have used leverage, then obviously I would have done better.

People always think leverage and futures etc. are risky. The S&P500 futures contract is known as 'the rocket' for being very volatile - but its not. It's just that most people who trade it don't have sufficient enough capital to employ proper position sizing and risk management.

Leverage is only risky if you don't employ proper risk management.

That Niederhoff link won't open for some reason, but I suspect that since he was using OPM, then he took on riskier positions which is a definate incentive to do due to hedge fund manager's payment/commission schemes. These payment stuctures emphasise them striving for huge gains in a single financial year at the expense of long-term risk management.

I suspect that given a fee structure which favoured risk-adjusted returns, he would stop busting out every couple of years. But then 'investors' love to gamble.

I read some interviews a while back with some famous hedge fund traders from the 80s & 90s (Market Wizards books maybe?) and if they had a year returning much over 25% then they would look again at their risk-management and search for ways to reduce risk.

[mrbaseball]

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The S&P500 futures contract is known as 'the rocket' for being very volatile - but its not.

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The S&Ps are tame puppies compared to the Russell 2000 and Midcap and if you really want volatily there is Rbob and Crude and only for the very adventurous Natural Gas. Natural Gas is truly the widowmaker.

[DcifrThs]

[ QUOTE ]
[ QUOTE ]
The S&P500 futures contract is known as 'the rocket' for being very volatile - but its not.

[/ QUOTE ]

The S&Ps are tame puppies compared to the Russell 2000 and Midcap and if you really want volatily there is Rbob and Crude and only for the very adventurous Natural Gas. Natural Gas is truly the widowmaker.

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what about JGBs? at my old job that was definitely the riskiest position in my portfolio. i didn't trade natural gas though.

Barron

[kimchi]

[ QUOTE ]
[ QUOTE ]
The S&P500 futures contract is known as 'the rocket' for being very volatile - but its not.

[/ QUOTE ]

The S&Ps are tame puppies compared to the Russell 2000 and Midcap and if you really want volatily there is Rbob and Crude and only for the very adventurous Natural Gas. Natural Gas is truly the widowmaker.

[/ QUOTE ]

I understand you're a scalper. I've heard you guys take high-probability trades but get a few pretty sick outlyers go against your positions. You must have a very strict and conservative risk-management strategy (unlike Niederhoff) as you've previously described how you survived October'87 and the Asian meltdown in '97

One well-known simple way to manage leverage:- If one market has an ATR of 5 points and one contract is worth $10/pt, then buying 100 contracts is just as volatile as buying a single contract of another market with an ATR of 20 points traded at $250/pt.

This allows you to normalise risk across different markets - then you decide how much risk you're prepared to accept and size your positions appropriately. I suspect Victor is a talented trader, he just took on position sizes that increased his risk of ruin beyond reasonable levels.

If buying 100 contracts of one market might expose your account to a greater than 1% risk before your stop-loss is hit, then it probably means your account is too small to risk buying a single contract of the 'volotile' market.

IMR is often temptingly and deceptively low.

[mal_noles]

Natty gas takes it and its not even really close. I trade RBOB and Crude all day, and Natty makes me cry like a little girl.

[mrbaseball]

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I understand you're a scalper. I've heard you guys take high-probability trades but get a few pretty sick outlyers go against your positions. You must have a very strict and conservative risk-management strategy

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I am very risk averse and trade mostly spreads. In fact most guys that make markets in the electronic markets trade mostly in some sort of spread/strategy form. All the guys in my office do anyway. And when trading outright directional stuff you have to stay pretty small because you can get run over in a heartbeat. Electronic trading is a lot different from pit trading. In the pit it's easier to do bigger size because you know the spots where you can puke and can really feel the flow of the market. Electronically you lose a lot of that. Doing 100 lots in the pit is like doing 10 lots on the screen.

[mrbaseball]

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what about JGBs?

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I feel stupid [img]/images/graemlins/smile.gif[/img] What are JGB's?

[TLC]

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