Slow Trader

Tag: retail trader

  • Margin to increase for retail traders

    We have been awarded professional client status by our brokerage.

    To be classified as a professional client the qualification is 2 out of the following 3 statements below:

    1. Carried out CFD, spread betting or forex, in signicant size, at an average frequency of 10 per quarter over the previous four quarters
    2. An investment portfolio (including cash deposits and financial instruments) exceeding €500,000
    3. Work or have worked in the financial sector for at least one year in a professional position, which requires knowledge of CFDs, spread betting or forex

    Why is professional client status a big deal? Because margin requirements will increase substantially for ‘retail traders’; for professional clients they will not.

    What is ‘margin’?

    • It is a good faith deposit that a trader puts up for collateral to hold open a position.
    • It is not a transaction cost, but a portion of our account equity set aside and allocated as a margin deposit.
    • When trading with margin the amount of margin needed to hold open a position is determined by trade size. As trade size increases, margin requirement increases.

    This has no effect, however, on our usual spread payment: which we consider as a true identification of a retail trader. If we pay a standard spread then by definition we are retail traders.

    Institutional proprietary traders (or ‘prop’ traders as they are known) trade the firms money (not clients money) and often at a reduced spread cost, or no cost at all. They are, to our mind, non-retail traders.

    But to be considered a professional client, and thereby maintain a desirable margin commitment, is great.

  • Reward/risk has to be right

    Rather embarrassingly on my part, I discovered something simple but fundamentally wrong with my trading. I made the adjustment today, and amended the ‘algo to trade by’ page. Even a tweak, if it is a fundamental tweak, can make a profound difference.

    As in many things, but I feel particularly in trading, I cannot be so keen on my backtest work that I’m not prepared to take a fresh look once I’m in the trading room for real. As Yogi Berra said, “in theory there is no difference between theory and practise; in practise there is.”

    My foundation is my reward/risk, or what is referred to as R. To achieve a planned 2R (actual R can be much better) means that my planned reward is twice my planned risk. I had the minimum acceptable R as too small. Again, in theory (or backtest) it’s fine but in practise – often with a less precise entry point and a variable spread – working with less than 1R is not viable for me.

    I call a 1R a scalp and a 2R a swing. My strategy, because of my abundance of less than 1R scalp opportunities, was scalp/swing. And this provided me with few swings. Moreover, the scalp element (less than 1R) required an 80% (win/loss) success rate to see accumulation of reward.

    Changing to swing/scalp and limiting scalp to not less than 1R is greatly preferable. Profitable scalp percentage is now 60% – still high but that’s the issue with scalping. And the swing percentage to be profitable is 40%; anyone suggesting less does not have a spread to contend with (prop trader rather than retail trader) or they’ve ignored it.

    To a non trader this all seems a lot about nothing. But it’s like a golfer playing a match without the long clubs and therefore having to take too many hits on the par 5 holes.

  • The retail traders advantage

    As with many areas, the financial market is not as active during much of the month of August. Nevertheless, for those trading, good opportunities still present themselves.

    We traded fewer times this week. Trading opportunities and trading time being the reasons. However, it was a good week. Out of the several trades we managed a couple were break even and the remainder were profitable adding nicely to our Slow Trader fund.

    As I explained previously, this coming week will see us taking few (if any) trades. Trading, however, is like flying in the sense that we must remain current. Therefore, finding time for a few hours of trading will be beneficial. Importantly, any trading must be without distraction.

    On return to full-time trading mid September, and after ‘hols’ in Majorca, I’m going to trade from home. Most retail traders trade from home. That’s the advantage of being a retail trader. It requires a different discipline – with me it’s making sure I don’t over trade.

    This decision to trade from home will save a 50 minute each way commute and allow me more flexibility to be ready for key trading times. Between 6.30am and 8.30am on the opening of the UK market; early afternoon on the opening of the US market; and late afternoon to early evening where good opportunities can also be provided.

    James and I will continue to share trade talk throughout much of the trading day, but now via Skype and a headset.  We’ve traded together, side by side, for so long now that we feel we can communicate trade information (and two heads are better than one) without seeing each others screen.

    When I’m back in the trading chair, and current in the market, we’re ready to move up our usual trading amount a few notches.