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That didn’t use to be true here on Collective2. I am not sure how/when C2’s margin call system for model accounts became broken, but once upon a time the model account trading (and margin calls/position liquidations) would perfectly mirror what would happen in a real brokerage account. I notice recently that there are several C2 systems that are able to trade through zero or negative balances.
I find it absurd that these systems show recoveries that would never happen in real life (and that the C2 trade execution system allows it). I also find it ridiculous that these system managers would want their model accounts to reflect something that couldn’t happen in a real trading account; failing to adequately reflect a true life trading outcome in a hypothetical account exposes them as “fake” system managers who lack risk management skills and credibility.
I started a topic about this problem called Serious Problem Continues in C2’s System Accounting that’s in the C2 forum category.
Back in June, I raised the same issue in a topic named Two Serious Problems in Hypothetical Performance Accounting for Futures also in the C2 forum. C2 assured me that margins were used and thought the problem was due to bad margin tables. It quickly changed the way the margin tables were updated and was very responsive at first, but then dropped the ball.
It’s easy to find other systems that take trades that wouldn’t be allowed in real life based on the account equity. Look at Draken ETF, for example. The systems that trade with negative equity are the most dramatic, but there are plenty of systems that show trades that could not be taken in real life because of lack of equity or margin.
I think the problem is in the (hidden) leverage. When I take Draken EFT example, the owner trades the system with 200 - 230% leverage. When the last DD started the model account had about 50K value but he invested about 100K. With the current DD of about 75K, the model account is of course in negative but the “real” account still has some equity left and is not subject to a liquidation.
I think this is not a far way how to show the system results. It looks like you can make the same profit if you use the same account size as the model one but in reality you need more than double to follow it 100%. I guess this is true for more systems here.
I’d like C2 to limit the amount of money invested by a system owner to the max of the model account value, otherwise it is hard to tell how much leverage the owner uses. You either need to ask him and trust him or check the trades and see if the trades made correspond with the model account value.
“I find it absurd that these systems show recoveries that would never happen in real life” - well, it depends on the angle of the view. If you look from the model account size, this can’t happen cause the account has negative value. But if you take the leverage money, if he holds on to the position and it starts to revert, it can recover to positive.
All of this is misleading and not fair to traders.
I think the problem is in the (hidden) leverage. When I take Draken EFT example, the owner trades the system with 200 - 230% leverage. When the last DD started the model account had about 50K value but he invested about 100K.
Sorry, Martin, but that comment makes no sense to me when you look at what C2 SAYS it is doing. Here’s part of the description of what a model account represents:
For any trading strategy on our site, hypothetical results are based on the assumption that you invested the starting amount shown on the strategy’s performance chart.
You can’t suddenly claim the model system has more money than it shows it has and then invest that non-existent money to produce higher returns. If that were possible, no system would ever lose money–the martingale approach to investing would always win, since there’d be no limits to the amount of fake funds that could be thrown in. C2 does not have any mechanism to add funds to its model account when things go bad–and if it did, the additions would show in the account history.
It’s perfectly OK to use leverage in the trades–that’s what the margin tables are meant for. But trades in excess of required margin are bogus trades–and surely when your equity goes negative you’re sold out and have no money left to trade with.
I replied to this in the other discussion but I think C2 doesn’t took into the account margin required for 3x leveraged ETF he traded and calculated usual 200%. Thus allowing him to buy 2x value of the model portfolio, which is unrealistic, at least with IB and margin account (not portfolio margin account).
May be my explanation was not clear, I wanted to point out he was able to buy much more than a real account would allow (again in IB with margin account). Surely I didn’t mean he could add as much money as he wanted and use them in trades.
And regardless of the margin required, no broker is going to allow the account to hold positions when the equity goes negative or anywhere close to negative. So even if a broker allowed the trades, they’d have been liquidated and the putative profit could not have been achieved.
Wrt Draken and leveraged ETFs, C2 has acknowledged the error and is fixing it. Great.
Wrt Pattern Z . . . where is it? It appears to have been deleted from the database. I can not find it doing a search and I can’t find it by going to to @JohnPelsky’s profile.
I understand if a C2 margin simulation error allowed it to accidentally go into negative equity and then come out again. Accidents happen and its just good that we caught it. However from that point onwards the system history should have been corrected and now that it is bust it should be frozen in time and viewable for everybody to see.
So why has the system now been deleted (or removed or hidden) from the search box and developers profile?
Because it is bad PR for both the vendor and C2. That system was the best for 6 months and then it died a sudden death, not to mention the C2 algo allowed it to go deeply negative and come back from it. So it is just better to forget it except this thread, where it lives as a cautionary tale…
