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Does scaling really work?

I’m new to C2. I want to know if people have the following problem with efficient utilization of capital under C2 or am I just wrong about this.
As I understand it, if you put the “Suggested Minimum Cap” in a strategy and set scaling to 100%. All of your money aught to become invested as the Strategy leader deems correct. So I think that if the account amount grows then future trades will not utilize the increased value thus funds remain un-invested. Likewise (actually worse) if the account decreases in value you might miss out on the trade entirely because it will try to buy more shares than you have money for.
Does this happen?

When equity grows the Trade Leader can simply increase the size of his positions.

Scaling 100% means that size of the positions open on your account will be equal to size of the positions open on the trade leaders account. Say trade leader open position on 10k$. It will be half of your account if you have 20k$, or twice more your account if you have 10k$.

The easiest way to think about “Scaling %” is that it applies to the number of shares / contracts / options that are traded.

So, for example, if a strategy buys 500 shares of AAPL, and your AutoTrade Scaling is set to 100%, you too will trade 500 shares.

Collective2 really has no notion of how much capital is inside your account. So if you want to go ahead and buy 500 shares of AAPL, but your account size is only $10,000, you will effectively use a lot of leverage (i.e. the size of your trades compared to the size of your account will be quite high). On the other hand, if your account size is secretly $100,000,000,000 (or some sufficiently impressive number), then trading 500 shares of AAPL probably won’t move the needle very much.

The Strategy Manager essentially conveys to you the “proper” (in his mind) balance between trade size and your account size, because he more or less specifies the size of his strategy’s “Model Account.” When a Strategy Manager runs a strategy with, for example, $22,123 in its Model Account, and then his strategy buys 1 ES futures contracts, he’s basically saying: “For every $22,000-ish in your account, go ahead and trade one contract.” (Or set up your AutoTrade Scaling % accordingly.)

But of course it’s your account, and it’s up to you.

In summary: Scaling % only directly controls the SIZE of your trades – the number of shares / contracts / options. It’s a multiplier. If the strategy trades X, and your scaling is 200%, you will trade 2X. Etc.

MK

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That’s clear but you are not really answering my question. Will sometimes money be left on the table, un-invested and will sometimes trades get rejected because of this system? I think you are confirming that I’m right, indirectly, but don’t want to say that.

You should fix this problem.

Its essential for IRAs. They have no margin.

I don’t know why C2 does not know the value of my account. They should, they have full access.
But I certainly have no idea what the Trader thinks he is scaling to when he submits his trades. There is the “Model Account Value” and the “Suggested Minimum Capital” and the Traders account value changes constantly. Where is the Model Account Value? is there really such a number that the Trader must make known?

I absolutely need to know what is his number to set the exact scaling factor.
And it would be problematic if I have to think about it every day!
Can you at least see that?

In an IRA you cannot go into margin so you will miss out on trades and that is a disaster.
Auto Trading Auto Scaling should not be difficult.

I think scaling can be a bit hairy too just because you have to trust the leader to not suddenly start trading with far more margin etc. For example, with the strategy I run I treat it like an IRA. So if the NAV of the strategy is $100,000 I never try to buy a combination of securities that has a combined value of the NAV - in other words no margin. Therefore, if my NAV is $100,000 and a sub with a $15,000 account scales at 15% they should have no problem. However, there is nothing to prevent me from using margin suddenly and buying $200,000 worth of securities in the strategy causing his $15,000 account and 15% scaling factor to only allow him to take some of the trades.

In regards to cash sitting out. I leave about 5-10% of the strategy in cash because I found that if I didn’t then if I tried to scale at 15% myself with a $15,000 IRA I would run into syncing troubles. Plus it is just nice to have some cash.

As a sub of other peoples strategies I would really like there to be an agreed limit of margin the leader can use without prior warning. I think that would help ensure the scaling factor is appropriate and prevent a leader with only $100,000 and no history of using margin from suddenly changing course etc.

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I think C2 is missing out because they don’t have IRA qualifications on IRA strategies such as no margining. I can imagine it difficult for a trader to to have the same strategy but one where he sometimes goes into margin and the other for IRA where he does not. Still there should be some sort of software so that if a trade is rejected because it would cause one to go into margin (where not available/IRA) that a trade of the right size would be generated.

David -

There’s an elegance to the way C2 works. Let’s say a Model Account has $100,000 and your own personal account has $200,000. Thus you set your Scaling to 200%, meaning, essentially: “Okay, I will ‘listen’ to the strategy manager, and trade the ‘right’ amount for my own account.”

As the strategy makes a profit, its Model Account grows. So too does your personal account, by the same percentage (more or less). When the strategy has reached a new level, the manager may choose to “up” the trade size. You will follow along, auto-magically, and the trade size will still track the same level of ‘correctness’ as when you set up trading.

Hope this helps!

MK

NO that is not elegance. Elegance is auto trading with auto scaling. Where the manager just says “a percentage of the account should be invested thusly” and that same percentage is duplicated to all subscribers. Elegance is true scaling to the account size without waste of unused capital, without worry. What you have here is crudity, the opposite of elegance. I think there is an addiction to trading in round numbers or something here. The whole Model Account business, doesn’t exist. Its just traders with some numbers in their heads. I don’t see in the stats “trades are based on an account of value X”. “You will not need margin if you base your scaling on X”. Maybe if you showed the amount of open position money invested in a strategy one could see how efficiently one’s capital is being used. You don’t see that until you purchase the strategy.

@DavidEdrich here on the C2 trade leader doesn’t manage subscriber’s account, but simply sells signals. Everything else is subscriber’s responsibility. Subscriber selects if he wants to invest whole capital into signle system, or only part of it, leaving other part for other systems,
or if he wants 10x more profit or 2x less risk. This is C2 model and it gives great flexibility for subscribers, but requires certain level of knowledge.

History of trades is easily accessible, and one can easily estimate what size of account is necessary to meet his risk and profit criteria.

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With regard to C2, scaling simply tells the system what portion of the recommended portfolio size you want to utilize; nothing more, nothing less. If you utilize 100% scaling, your trade sizes will mirror those of the system you’re following (and so will your return percentages and leverage used). You need to fully understand how scaling above 100% affects the amount of leverage applied to your account.

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