C2 Suggested-Minimum-Capital Way Off The Mark

C2
1

I am not sure how C2 calculates the Suggested Minimum Capital, but for my strategy (and a number of others) it seems significantly overstated (in my case by 2x).

For instance, in my strategy (LongShortPortfolio) I am trading 2-4 stocks long at any one time, with around $50k capital (eg., $12.5k per stock x 4 stocks). This can be scaled down by any subscriber who wishes to trade smaller amounts. In addition, I hedge the entire position using Russell 2000 micro futures (M2K), which trade at $5/point (alternative instruments are IWM, SH, etc). So, for instance if I am long $50k stocks, and short 6 contracts of M2K (around $50k value), the typical margin on this would be 1:2 for the stocks ($25k), plus the margin on the futures, which according to IB sits at around $6k, so all told, even if scaled 100%, the margin required on the strategy would be approx $30k.

C2 is quoting the Suggested Minimum Capital at $60k. Granted I am sure it is not a perfect science, but this seems way off the mark. The concern is, with so many strategies in the grid (and leaderboard), when potential subs are looking for a decent strategy, they may filter out the ones with a higher sugg-cap requirements, without knowing this key detail.

C2 needs to work on the data to get it closer to reality, which is why I bring this up in good faith. Would appreciate any feedback from the team, or any strategy-manager who is exp similar issues.

2

I’ve also noticed on occasion this inconsistency. I started my strategy with the basic 10K amount and it has always shown 25K as suggested capital. It’s something I’ve yet to understand.

3

You open long for 50k, then futures for ~6k and your max dd is 5k, so finally if I don’t want to use margin min capital will be 50+6+5 = 61k, which is close to C2 estimates. I think C2 underestimate it a bit.

4

Your strategy is not accessible now, what do you trade?

5

What I think is happening has to do with the micro’s. If you see my recent post regarding commission errors with the Micro’s, you may very well be experiencing this as well. If the commish schedule is in error, it’s not a stretch that the margin calcs are in error as well and that C2 is using the margin for regular size contracts which would account for the extrra 30k. It would account for the errors in my strategy as well. The calc above presented by JIFT is completely wrong and lacks any understanding of how margin is calculated.

Here is my strategy. It shouldn’t be hidden? https://collective2.com/details/125686673

6

Sorry that you didn’t understand that the calcs were not about the margin but the capital required.

7

Actually you are incorrect again, it IS based on margin plus a ‘buffer’.

“It is calculated by looking at what margin was required to trade at a minimum autotrade scaling factor (based on past trade history) which does not result in account oscillation (i.e. no rounding, no position truncation). In addition, a buffer is added based on historical drawdown and volatility.”

The margin on stock is either 1:2 or 1:4, but using 50% for overnight requirements nets 25k for the 50k example. Add to that 5-6k/future contract (which is in error for the micros) plus some ‘buffer’ for drawdown and you have the 60k number, which again is likely in error as a result of the micro contracts.

8

Again, sorry that you didn’t get it. You may want to read my post more carefully. Everything is explained there, also I didn’t say that my numbers should match c2 numbers.

9

LOL, again you are wrong for the 3rd time. I read your posts and you have no idea how to calculate margin. For stock C2 uses 50%, you used 100% plus other factors. Really don’t know why this is becoming so difficult for you to understand. There is clearly an error with the micro’s, read my other thread regarding commish errors and pull up some profiles, it is blatantly obvious there are errors with the micros. I fully expect this is related to the same problem. Not sure what your problem is in understanding this situation is though.

"For stocks, we assume traders have access to margin trading, and thus need only to put up 50% cash for any given position. "

10

Agree here. To my knowledge, C2 shows less than IB would require. I guess it is a good thing. Specifically trading options.

11

It nevers ceases to amaze me how people lack a complete misunderstanding of simple math. Your reply does nothing to address the original posters complaint and my efforts to show everyone what exactly the error is. It’s also sad that C2 doesn’t reply to the problem in question when it is so clearly wrong when it pertains to the micro contracts.

12

Ok, a few things.

  1. C2 allows you to pull down a “drop down” menu to see various commission rates. For the “IB Commissions” we didn’t include a few of the “micro contracts” special (small) commission rate, while we did so in the “C2 default commissions” rate. That’s why, when you make the effort to pull down the IB rate, your results seem worse than under “default” commissions.

  2. The good news is: no stats or results are based on the non-standard, non-default commission rates. So the fact that our “default commission rates” includes micro contracts means that all your stats, results, etc. get the benefit of those smaller “micro” commissions. That’s good.

  3. Commissions rates have no relation to the “Suggested Minimum Capital.”

  4. Now, to the Rooster: about Suggested Minimum Capital. Suggested Minimum Capital is what our software thinks is a reasonable amount for an account to have in it in order to trade a particular strategy. It’s not meant to be the absolute minimum you can “get away with.” It’s an attempt at calculating a reasonable amount, based on the type of instruments traded, the trading style, the drawdowns to date, the average daily leverage deployed, etc. The number may not be perfect, but my goal is to try to help protect investors, and so I prefer the Suggested Minimum to be more conservative rather than less. If you disagree with the number then you can certainly make a case (via the help@collective2.com help desk), and explain why, but my advice is to sit tight for a while. (@TheRooster) Your strategy is very new. You have not one month of trading history under your belt. My suggestion is to keep plugging along, building your track record so that C2 and the software can see more data and can gain more comfort. After this - if you still believe that an investor can trade your strategy with less than $25K - a conversation may be warranted. For now, just continue building the track record, and lets see how it goes.

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