Margin, "rolling" contracts

I think it would be very useful to include some kind of margin requirement measurement for systems, not just for the currently open positions. I imagine most people do not have account sizes matched to system account sizes, and some systems “use” their account, some don’t. For example, defiant uses the entire account to size positions. DeltaHedge trades the same sizes regardless. So it’s very helpful for potential subscribers to know how much margin a particular system requires, along with max DD, etc.

Possibly margin could be measured as another attribute of each trade, and subject to analysis, instead of just having a “max margin” figure. For example if the system only requires 10k margin 99% of the time, and very occasionally requires 20k, I might want to pencil in 10k of my account for this systems margin, and live with the odd margin call now and then.

Another idea, I don’t know if this makes sense, or if there are better ways; I trade with Openecry, and they’ve told me that contracts require the intra-day margin rate if they are closed the same day, but full margin if held overnight. Further, they still require full margin the following day. For some contracts, the difference is substantial (eg eMini S&P is $500 intra-day, $4000 overnight). For systems where positions are only held for a day or two, it seems like it would be a good idea to close, and re-open these positions the following morning, to get them back on the intra-day margin. Is this sensible? How would you do it in c2? I guess after you “reduce size” those positions to 0 from the c2 autotrade status screen, the position disappears, so you can’t then “increase size”. Could you setup your own system to do it? Or do the contracts have a unique ID of some kind tying them to a particular system?

In theory, the hypothetical account size of a trading system on C2 should be the maximum amount of margin the system can anticipate ever using. Ideally, if a system has a C2 account size of $15,000, then that should mean the system vendor never anticipates using more than $15,000 of margin.

Systems that have “excess” capital in their C2 accounts really should give back the excess by “rescaling” their system. (System owners: this option is available under the ADMIN menu on your system page.) This makes the system much easier to AutoTrade and subscribe to. It should, in theory, raise your subscriber numbers.

Rescaling and giving back excess capital avoids a lot of problems. Take the example of a futures trading system that trades 1 contract at a time, but sometimes adds a second or third contract to a position. Imagine that this system has $100,000 of available capital in its C2 account, but that it only uses a maximum of $20,000 of margin at a time.

Let’s imagine that someone subscribes to the system and wants to autotrade it. What should an autotrader who has $20,000 available in his real-life account do? An autotrader who wants to allocate $20,000 of his real account to this system will have some tough decisions to make. In theory, he can trade at 100% scaling, thus allowing him to follow the system’s trades exactly. But because the system has “extra” capital, and because C2 allows the system to use this available capital, this would not be a very safe thing to do. While the system hasn’t yet traded 10 contracts at a time, it could do so, given its untapped available margin. A $20,000-account autotrader who uses 100% scaling would then overmargin his account.

However, if the system gives up its extra capital, then a $20,000 autotrader could with good conscience select 100% scaling. This is why we always say systems should rescale their capital so that they only have in their account the maximum the system can ever anticipate using (including room for drawdowns).

Regarding intraday margin: C2 automatically applies intraday margin use for futures (half of overnight margin).

It might be an idea to document re-scaling in the trade history too - I think I looked at Trending Futures, and saw they were trading 0.25 contracts etc. Confusing, but at least in this case it was obvious that the trade had been rescaled. What if the original trade had been 4 contracts?

Any views on "rolling" positions to get them back on intra-day margin?

I disagree with the idea that the account size of a trading system should be the maximum amount of margin the system can ever anticipate using, especially if trading futures or forex.

Most reputable futures and forex trading strategies maintain exposure to less than 25 percent of available margin. The reason is that at levels above that drawdowns can be fast and severe.

The systems we’ve all seen implode on C2 invariably over-leveraged. Most kept “averaging down” until at the limit of margin, and when the underlying continued against them, they went debit.

It’s just not safe to trade anywhere near full margin, unless it’s a fully hedged psotion.

Sorry, I should have been more precise. I mean that the amount of capital in your C2 account should be the absolute minimum you can trade the system with (including maximum margin use plus whatever drawdown or safety reserve you feel necessary).

Can you explain what this means:

“Any views on ‘rolling’ positions to get them back on intra-day margin?”

Yes that makes perfect sense that the capital c2 capital should be the minimum margin/dd required. I can do my own money management, particularly if I have more than one system, and also other accounts. I don’t want my futures account having to be stuffed with capital which is unused most of the time.

“rolling” positions; As I said I don’t know if it makes sense. Openecry give you intra-day margin if you close same day, but then requires full margin overnight, and from then on, ie the following day (I guess because the contract is now registered with the exchange or something similar). My idea is to close the position, and immediately re-open it, thus allowing you to trade on intra-day margin again - for some contracts, eg emini S&P the difference is quite big ($500 vs $4500). This would potentially let you use more than one day-trading system simultaneously.