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I’d like to see an account type on C2 where the account value is capped and every day excess value above the cap is removed from the system into some sort of “cash accumulated” statistic. This might have advantages and be a better way to manage certain systems than exists on C2 today:
Futures systems that don’t scale (or rescale) well and whose returns currently diminish over time as the account grows would be better tracked this way.
It would be easier for subscribers to deal with as accounts would remain at an optimal size for following.
Risky high return systems would be better managed this way. Such systems would use the feature to pull out value as it’s created rather than try to compound gains so future drawdowns are a smaller fixed loss affair rather than an ever growing catastrophe for the system and subscribers. Quick growing systems would eventually accumulate more money in “cash accumulated” than the system has in it, making drawdown statistics of that sort of system less important than the rate they can recover and continue accumulating.
Statistics could be tracked specifically for that type of account so that system developers wouldn’t have to over-leverage (and compound the over leveraging) to get and hold good statistics. Over-leveraging a futures system early would also not be rewarded as the account wouldn’t grow to later compensate for the leverage (which happens now quite often). I think it would even be a disincentive to martingale trading.
It would better protect subscribers with an arguably safer automated way to subscribe to a high return / high risk system than exists on C2 today.
David, interesting idea, but how would that work with TOS accounts? Would that mean if my account doubled in size over the next year or so, I would still only be able to trade on the original value? Wasn’t it Einstein that called Compound Interest the 8th wonder of the world? With an account value cap, don’t you lose that?
However, it will collidate with the current 500% scaling cap at some point. Investors would have to scale up overtime until they reach scaling cap.
Also it would have to be a one-or-the-other decision. If you keep both account types on the site it would confuse people and those shady developers who risk the whole account in the first trade to later live off the compounding effect would simply choose the account type which fits their plan.
@_J you could still use compounding. Just have a second broker account where you do the same strategy and transfer the overspilling profits of the first account on a regular basis.
If you want an account that grows, use an account that grows–C2 already does that. This would be for systems that want to remain constant size while throwing off cash.
What happens if the system starts out with a drawdown? Does the trade leader reduce the position sizes or keep the constant account size? The latter is usually what happens when a system crashes.
This is the old discussion of compounded returns vs. arithmetic returns. The industry standard is compounding returns. To maintain a constant account size, which makes sense for new subscribers, puts the trade leader at a big disadvantage to other successful systems compounding ROI.
The rescaling system used by Collective2 works poorly. About a year ago I suggested that C2 use a daily compounding system similar to the VAMI (Value Added Monthly Index) used for CTA results. Then the history is locked in and rescaling up or down does not change the prior results. My suggestion was rejected and we continue to get complaints about rescaling.
The idea is complicated and not straight forward and may cause alot of issues and confusion . Clearly its not for C2 herd .
Re-scaling : If a futures trader trades 1 lot in 25k account then wait until it reaches 50k and start trading 2 lots and so on . Because thats what happens in real life , you cant trade 1.2 lots and your returns are going to be diminished in real life as well until you double your account size and start trading in 2 lots . And its easier for stock systems just keep adapting your trades size with your account size . No need to re-scale down your system .
The ability to reinvest the profits, and the extent a system can scale up quantities is one metric that is used to evaluate a system. It’s not something which is separate from the system.
As mentioned by PropTrader, the problem of scaling up a futures system exists in real life. It isn’t a problem of presenting the data in one way or another but an inherent issue of granularity. If you want to trade futures, this is something you need to accept. This real difficulty should be reflected in systems’ results. Long term yield that is always calculated on a capped amount can be misleading in this case.
Trade Leaders with bad practices will try to get short-term impressive results regardless. There is no problem with scaling in Forex, and martingale or over leveraged systems are common there as well.
