While this message addresses an issue related to the way my equity-trading system is being handled by your platform, I have decided to make this letter public on your forum instead of confining it to your Help Desk. I believe this problem to be widespread and structural. The goal here is to come to an agreeable community-based resolution of what has become a complete deal breaker for us conservative equity traders. And I am hereby encouraging anyone encountering the same issue to chime in.
I have been managing an equity trading system (Portfolio Trader PRO) for over 4 years now. As the name of the system says it, it is a portfolio of strategies. Meaning that I am routinely running up to 53 positions in it. Risk-management in this system was decided from the start to be institutional-grade. Meaning that capital preservation would be the top priority with a targeted budget of 15% maximum drawdown, low-volatility stocks, extensive use of decorrelation, and no leverage. My goal here was to offer affluent subscribers a maximum performance (i.e. RISK-ADJUSTED returns) alternative to regular equity mutual funds, while leaving the most aggressive among them totally free to leverage it up to the typical equity LTV of 70%-80% in case the realized return was too low for their taste.
This goal was achieved after 4 years and a statistically significant number of trades in the 1000’s. Yet, I am now forced OUT of realistically marketing my system to potential subscribers due to this absurd Suggested Minimum Capital (SMC) feature. Let me explain.
As mentioned above, from the get-go, my target audience was NOT the gambler looking to use $2,000 in mad money to make 20% a month risking 100% of their capital at every trade. I understand that this is what most may be looking for on Collective2. I understand that this is the type of investor who may be driving the most subscription revenue for your company. And I understand that Collective2 is certainly not the best platform for me to expect popularity with a system generating ‘only’ 8% a year when this bull run has obliterated the notion of risk out of the public psyche. I get all of this. And I am ready to take complete ownership of the financial consequences of running a reasonable system on your platform. Popularity is not the issue. Gathering only a handful of subscribers is perfectly fine since I am intending to charge a relatively high fee and to apply a low cap to their number anyway. Being mechanically locked out of the opportunity to market such strategy MY way is the issue, however.
For the record, I am currently trading a more aggressive version of Portfolio Trader PRO in a live account with equity in the hundreds of thousands. And I find this amount a bare minimum. What about Collective2’s assessment of their Suggested Minimum Capital? $15,000. For real. This is not a typo.
It appears that this feature is by design, with the disabled option to rescale the minimum upwards being completely intentional. According to the related page on your website, the purported reasons are 1/ to help current low equity subs scale to more accurate and appropriate position sizes, and 2/ to make the system more attractive (read: financially accessible). For an equity trading system, let alone a conservative one like mine, the actual implications are both irrelevant as to point 1/ and financially unrealistic as to point 2/. First, position sizing when using a large amount of stock positions, themselves being broken down into many shares, makes the system substantially more scalable and divisible than, say, a futures-based system whose position size relies on contracts that are both large in dollar value and non-fractional in quantity. Second, my contention is that the impossibility to scale up the minimum equity falsely portrays theoretical accessibility while practical implementation with such low equity level would enhance the impact of fees to unsustainable levels. Mind you, trading my system with $15,000 at, say, even a super-low fee brokerage such as IB would still hit each R/T trade by at least 0.70% on average! Who would recommend such a thing? Now imagine factoring in the system subscription fee on top of that. Do you see where I am getting at?
The ONLY systems for which this SMC still makes some sense are those high-leverage / high-risk systems. Conversely, it is readily excluding all those quality long-term, low-volatility contributors from surviving - let alone prospering - on your platform. Why then advertise ‘Old Timers’ as you did it in November? These very systems are the ones that will build your brand reputation as a credible alternative to conventional investments such as mutual funds once a protracted bear market kicks in. Yet, this SMC is killing the platform ecosystem for us, fighting for dimes per month, thereby making C2 nothing more than a paid platform to build a track-record. Meanwhile, to add insult to injury, systems with literally a fist full of trades and 3 months of existence get C2Star-certified. I mean… really, what is this?
My absolute SMC, if given the choice, would be at the very least $150,000, with a monthly subscription fee of $125. That is an all-in maximum annual management fee of 1.00% with zero performance fee. A very reasonable proposition for the value. At the $15,000 Collective2’s SMC, however, that would detract roughly 10% per year in subscription fees from my track-record. Cumulative return would become negative. Game over.
I am quoting your website: “Of course, you should make sure your Model Account accurately represents the true amount of capital you believe is required”. This is exactly what I am trying to achieve with this letter. And this is not just about me. I am not looking for a “Here, we adjusted your SMC to $150,000. Have a great day.” I am sincerely pushing for structural changes that will make this platform a thriving venue for those traders like myself who understand what ‘sustainable’ means. I do not see why you would not benefit from it either, both as a business and as a brand.
I hope that the above will not fall on deaf ears and that low-volatility strategies will be offered here the space that time-tested market events have proven they deserve.