Something I’ve been wondering about…
Maybe I’ve got this wrong, but here’s a thought: As we all know, the monthly return percentages of a system shown on its page take into account subscription rates and fees.
Let’s take two model systems as an example: One with a starting equity of $50,000 , the other starts with $5,000. Both charge $100 per month.
Assuming they both made 10% a month, The profit of the larger system would show up as 9.8% (5000-100)/50000. The smaller one would have made only 8% (500-100)/5000. Let’s assume all other things being equal, and the only difference is that the larger system just trades 10 times the size of the smaller one.
If this is indeed the case, do you think it should show up this way? It is an advantage for the systems with significantly larger equity net of fees, just by having the larger starting equity. I know you can personalize the view of a system, but I think most stick to the default view when sizing up a system.
Ofer,
There is also the issue with commissions. Lets say you are trading stocks on a flat fee basis of $7 / trade. $7 makes a bigger impact on a 5K portfolio than a 50K portfolio. Especially with a system that trades alot.
True, my friend.
I think therefore that it would be better if the personalized view would be the default view.
Everyone trades different systems with a different starting capital anyway. The large starting capital of some systems - which is essentially just a virtual number that they chose to start with - takes less of a hit from commissions and subscription rates, and so these systems may appear to be better outperformers of the S&P benchmark used on C2, when in reality that may not be case…
I think the only place that this issue is noticeable is on the system page, and not when you compare systems on the grid, for example, but I could be wrong on that. But even if that is true, most people give their verdict on a system by seeing its personal performance page.
I wonder what’s Matthew’s take on this. He really does want to allow a fair and balanced playing field on C2 when he can, allowing prospective subscribers to shun risky systems.
Ofer,
I think your correct about the performance advantage of a larger starting capital.
However, stating with smaller starting capital may make it more attractive to potential customers with a small amout to invest. If I have 10K to invest, will I want a system that has 1M in equity or a system that has 10K in equity.
I think a vendor should have a starting equity that "works" with their system.
And a subscription fee that “works” with their system, as well.
In terms of “truth in advertising”, I think the best thing that has been done on C2 in a long time is the inclusion of commissions and subscription fees in the calculation of the system equity curves. It, clearly, demonstrates the “cost of doing business”, and how much impact frequent trading or a high subscription fee will have on the trading systemâs performance.
As a subscriber, I don’t care how much revenue a system produces; I care about how much profit a system produces. If the cost of doing business is significantly out of scale with the system’s equity, it’s going to be more difficult to make a decent profit with that system. System “performance” is not how much revenue it produces, it’s how much profit it produces.
If a particular vendor doesn’t like the way his system equity curve looks, or his systems displayed performance, because of all the commissions and subscription fees, there’s one way it can be improved - just lower the subscription fee so it’s more appropriate for the system’s equity size.
Jack,
No argument there at all. Inclusion of commissions and subscription fees in the calculation of performance should be in there, no one doubting that.
However, take two completely similar systems , with same risk thresholds, and have the only difference between them be that one just happened to start with a virtual starting capital that is higher than the other. Should the vendor of that system be able to afford having the margin room to charge higher subscription rates for that fact alone and have his results look better? I think that’s a little unfair, mostly towards the end user , not the vendor , because it somewhat distorts the “apples to apples” comparison that is the ideal situation for that user to have.
I think it’s very fair, since there’s more to the apple than simply the pulp and juice. There’s the stem and the seeds and the skin.
As a system vendor, it’s entirely up to you to decide what your starting equity should be, and what your subscription price should be. If you wish to cater to small investors, set your starting equity and your subscription price small. If your focus is the $100,000+ crowd, then scale appropriately for them.
What I think is unfair is starting with, say, $10,000 in equity and charging $200+ per month. The system needs to gain 24% in value just to cover the subscription price (and that doesn’t include broker commissions, AutoTrade fees, etc.)
Now, this is a free market, and anyone can charge whatever the market will bear, but no vendor should complain their equity curve looks bad due to subscription fees being included. That’s reality, and any potential subscriber should know how the system is going to perform in the real world.
Jack, are you talking about 12 months of performance? Some systems
on C2 make 20% in a month.
<<What I think is unfair is starting with, say, $10,000 in equity and charging $200+ per month. The system needs to gain 24% in value just to cover the subscription price (and that doesn’t include broker commissions, AutoTrade fees, etc.)>>
A lot of systems make more than 20% in one month. How many of those are still going strong after one year? Not many. Because those same systems often lose 20% in one month, too.
If you want to charge over 20% of your starting equity in subscriber fees, and manage to find buyers, then go for it.
Do you really believe that just because a developer picks an arbitrary starting equity of $100K, that the subs will do likewise in a real cash account? Take a good look at those systems and then compare the real autotrades and you’ll find most have rescaled that $100k to what they can afford which in many cases as low as $10K.
The fee as a percent of some hypothetical, make-believe starting equity is meaningless. Subs should pay for profit, period. And it’s up to each one to decide what constitutes a fair price for that profit. It’s not unlike the real estate business. Buyers (subs) set the price, not sellers (developers). If a developer’s fee is too expensive vis-a-vis the potential profit and isn’t generating subs, then the fee should come down to where the interest develops.
Conversely, if the fee is bringing in subs by the carload, then the developer is probably undercharging for the profit and should raise price.
Supply and demand, that’s the way I see it.
With a starting equity of $10,000, 24% can come quick and easy. The drawback is the possibility of a large drawdown before the 24% comes forward. And large draw downs will scare subscribers away and may also wipe out the trading equity. My new way of thinking about this is to start out with a larger then necessary amount of equity to make more numbers attractive. The percent gain may suffer but other numbers will be better and I think most subscribers will be happy with good consistent smaller gains. And of course anyone who wants to trade it with a smaller account would be free to do so at the risk of larger draw downs. For instance, Iâm considering starting a futures EOD system with something like $40,000 or $50,000 instead of the normal $20,000. This will keep draw downs low and costs also relatively low in relation to total equity. Lower % equity growth in futures, (commodities) can still be significant with a larger account traded like a smaller one. In reality a futures account should most likely be $100,000 or more unless the system is very strong, consistent and time proven but then subscriber numbers would most likely suffer.
All this aside, I think when most subscribers see an equity curve moving up at a rapid pace and making lots of money, little else means anything to them. But as most of you who have been at this for a while know there are far more important things to be considered. Perhaps the best system for bringing in revenue at C2 is a smaller account size and a good high flying start which jumps the equity up quickly attracts lots of attention and then lasts and maintains good numbers because the account size is now large but traded the same as it started out with a smaller account size.
Actually the best system for bringing in revenue is the system that performs strong year after year, time tested with numbers for all to see. But this is a slow process.
I think it’s interesting to note that C2 encourages developers to start with low opening equity and I quote: “In general, you’ll want to choose the smallest amount with which one can trade your system, while still leaving enough room for error and losing trades.”
Yes, with the lowest starting equity the systems that get a good start will look great but many others will have big draw downs or wipe out. This helps keep C2 with a continuous flow of high flyers as the smaller the account the easier it is to get big returns until the luck runs out. But this also seems to be what many subscribers want and there is nothing wrong with people wanting a little excitement Las Vegas style. Just so they understand what they are doing. And there are also good solid performing systems here for the more serious minded.
Timea,
"Just so they understand what they are doing." is the key point. Maybe understanding what they are getting into.
If they understand what they are getting into, otherwise feel compasion for them and hope they learn a valuble lesson.
If they understand what they are getting into, otherwise feel compasion for them and hope they learn a valuable lesson.
Iris hit it on the nail.
The small-time traders seem not to care much if a system started with $10K or $100K. If they like the way the results look, they just scale down to as much as 10% of what the vendor is trading. You can see that from the trading data available from auto traders on many of these large-starting- capital systems.
