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I notice in the so-called list of “Leading Trading Strategies,” the Starting Unit Size is $5,000 for Zakum. Can someone at C2 explain how that number came to be? For the record, I don’t recommend nor endorse that amount because it is too low given the posted realtime drawdown.
Although starting equity is matter of personal risk, one can see I chose an initial capitalization of $25K. That’s not a recommendation but simply an amount I was comfortable given my personal risk criteria.
Hi Guy -
C2 does some math to figure out a strategy’s “starting unit size.” But keep in mind that what it is really calculating is minimum starting unit size; and the answer to this questions depends on several factors: a strategy’s historical drawdowns, the instruments the strategy trades, and the size of the Model Account’s individual trades.
First, the obvious point: if you’re trading futures, it can be hard to “scale down” a C2 Model Account when a customer configures AutoTrading. For example, if your C2 Model Account trades 1 contract of the S&P EMini, well, then, that’s that – you can’t trade 1/3 of a futures contract. So, for futures and forex strategies, there’s a minimum starting amount, and it’s related to the strategy’s historical max drawdown, the maximum strategy-wide margin in use at any one time, etc.
Stock-trading strategies are more interesting. In theory, individual stocks trades are infinitely divisible. If your Model Account trades 100 shares of IBM and then 100 shares of AAPL, there’s no reason a smaller brokerage account can’t follow your strategy and AutoTrade at, say, a 1% Scaling Factor (in which case it would trade 1 IBM, or 1 AAPL…)
That is… except for the problem of day-trading margin minimums.
As you know, brokerage accounts can be flagged as day-traders if they engage in a “day-trading pattern.” So that’s one thing C2’s algorithm looks for in a strategy’s historical track record: if there’s a day-trading pattern, C2 recognizes it and bumps up the minimum starting size for the strategy to at least the Fed minimum of $25,000, plus anticipated drawdown.
On the other hand, if a stock-trading strategy does not trigger the day-trading flag, there is really no effective minimum size a strategy can be traded at, since the minimum trade size of stocks is 1 share per trade. (Of course minimum-ticket-charge commissions at some brokers make this uneconomical, but you get the idea.)
So, long story short: some stocks-only strategies can be traded for a minimum of $5,000, in cases where historical drawdowns have been low, and no day-trading pattern has been triggered.
You, as strategy developer, can certainly put a note on your strategy description, saying that C2’s “minimum starting unit size” is not recommended by you; and that you suggest a larger starting size. But you should keep in mind that AutoTraders can trade your strategy at any scaling percent they wish, down to as low as 1%. Remember, a 1% AutoTrade Scaling Factor means that when your Model Account places a trade for 1,000 shares, the AutoTrader’s brokerage account will buy 10 shares.
So generally, C2’s minimum starting-unit calculations work in most cases. But, as I said, it’s fine to tell potential subscribers you don’t agree with them.
