relative to my system re-scaling decision and to understand new C2 imposed trading/risk constraints:
A) how are the C2 imposed trading limits determined for equities, derivatives, futures, and fixed income?
B) are these limits applied to all system developers? how?
C) why are the limits to buy significantly less stringent than the limits to sell?
D) what impact, if any, will a 50% lower re-scaling have on the absolute number of contracts a system can buy and sell?
thank you in advance for your time and consideration regarding this matter.
Eli -
We impose arbitrary fat thumb size constraints for each instrument class. If you find yourself bumping up against fat-thumb size constraints for orders you want to place, that means you should rescale your system downward so that you can enter smaller numbers of contracts/shares while still using the desired amount of system equity. (To answer your other question: The size constraints I have imposed are completely arbitrary.)
When you rescale your system downward, you will be able to “use up” all your capital by entering a smaller number of units. Thus, it will be less likely that your trade quantity will bump up against the (arbitrary) trade size limits I have imposed.
Here is an example:
Imagine a world where your system has $500,000 in capital. Imagine you want to “use up” all your system’s capital on one trade. You thus start to enter an option trade to Buy 500 option contracts. However, you are informed that due to the limits C2 imposes, no trade above 200 contracts will be accepted.
First, you mutter how unfair and stupid this is. Then, you decide to follow my advice. You “rescale” your system so that it has only $100,000 in it, instead of $500,000. Now, after this, in order to “use up” your capital, you need to enter an order to Buy only 100 options instead of 500 (it’s still the same trade, on the basis of percentage-of-system-capital). But this time the trade is happily accepted by C2, because the fat-thumbs 200 contract limit is still the same, and has not changed.
Matthew,
Could you just enter multiple identical orders to achieve the same contract quantity goal (200 + 200 + 100)? While that’s a pain it would give the same result.
Dave
