I agree with this completely. Given the short lifetimes of most systems here, the only sensible approach in my view is to trade a “portfolio of systems.” But to do this means the subscription fees and C2 autotrading fees add up quickly to make the economics less attractive (for a subscriber). I have $250K and looked at 5 strategies (1 futures, 4 stock/options). For the strategies I chose, the total monthly subscription fees are $856 ($200, $90, $49, $169, $149, plus $199/month C2 autotrading fee). This is 4.1% of $250K compared to a typical money manager annual fee of 2%, but without the typical 20% of high water profits taken. Since I average only about 8% annual return investing my own money, I’d need a net return of 12.1% to break even, and considerably more than this to justify doing it at all. All of the systems I’ve earmarked do much better than this now, but their lifetimes are too short to make any assumptions on how they may do over the coming months/years if they don’t fail completely as so many do.
Take something like R Option which is a C2 account size of $1.9M. If someone were actually trading that at 100% scaling the monthly subscription fee is essentially nothing and that person is indeed getting the results for free while the developer also is not getting paid anywhere near enough. A 2% annual fee on $1.9M would be $3,167/month! And the developer is only getting about $200/month at C2, less whatever amount C2 take. It seems that, within existing C2 rules, vendors could work out a better arrangement for themselves, as well as for smaller allocations, if the developer could control the min/max scaling values.
For example, if the developer could limit the scaling percentages to smaller ranges (eg. 50% to 200%), then they could offer essentially the same strategy but at two different account sizes, with two different fees that are roughly proportional to the account size required to trade the strategy. As far as C2 is concerned they are two independent strategies, but the vendor could more closely simulate a conventional arrangement where the fee they get is proportional to account size, and it would be easier for smaller accounts (or medium sized accounts splitting the total available funds over several systems) to subsrcibe to several systems assuming the subscription fee was lower for the smaller account size than it is now. I’d think the vendors would make more money this way, as well as C2, as long as there are enough larger accounts that would be willing to pay the proportionally higher subscription fee (and I have no access to data like that of course). But for this to work the vendors would have to be able to control the scaling percentage ranges.
I’m not a system developer and never would be, so am speaking only from the standpoint of a subscriber who would like to trade multiple systems for diversity and risk management. It is not too bad of a situation with $250K split $50K across 5 systems, but 4.1% just in fees is also not negligible. It someone had only $100K to split across 5 systems it would make no sense at all unless they specifically chose cheaper systems and didn’t autotrade them, but this eliminates trading the best systems. Just seems there must be some way to allow developers with good systems to make more money from larger accounts, and a better way for medium or smaller accounts to trade multiple systems without the fees becoming so high that the returns necessary to just break even are not feasible.
