Optimising
Returns on a
Private Trading Account ...
Traders can
be distinguished by how much money they have in their trading
account and how willing they are to risk it. Clearly in trying
to optimise returns for a client these two considerations become
very significant since traders at each end of the scale will naturally
employ different trading strategies.
The key as a client
advisor is to first understand the clients risk and return expectations
and then structure an appropriate strategy to best service these
requirements. The first step in the process is to know how much
money a client has in their trading account.
Due to the margin requirements
of the futures industry each account will have a finite maximum
number of contracts that can be traded at any one time. As such
larger accounts can actually be diversified to a greater extent
than smaller accounts.
The account size also
has significant bearing in selecting which markets to trade, depending
upon the account size some markets ought to be automatically excluded
from being traded as they create a disproportionate level of risk
exposure. Assuming an account is large enough to trade any market
a trader will still want to analyse which group of markets are
going to offer him the best return probability to margin requirement.
It is a common fault
of many traders to ignore the many overseas markets and trade
locally. Common sense dictates that a single market will not offer
outstanding trading opportunities all of the time yet if you are
watching many markets at any one time at least one ought to be
providing a suitable trading opportunity.
Having considered the
trading account it is then necessary to look at a client's acceptable
levels of risks for given returns. Obviously as speculators in
the futures markets traders are willing to accept higher levels
of risk for the opportunity to make higher returns. That said
there must be a suitable level of return for the level of risk
accepted.
It makes no sense to
risk a thousand dollars to make one hundred dollars, nor does
it make sense to bet the whole trading account to triple your
money on one trade with a one in fifty probability of success.
Instead the focus should be on capital preservation with consistent
positive returns.
Next it is necessary
to start trading and the best way is with a system. There are
simply too many systems to discuss and evaluate in this brief
article. Instead it is easier to point out that different systems
will have particular merits under different situations and a successful
system trader will match a system to a situation.
So from this point the
trader of a private account will know what his risk and return
expectations are, which group of markets he will be tracking,
which system(s) to use in each market and his probable returns
from this diversified risk minimisation and return optimisation
strategy.
To summarise,
the key to succeeding in generating optimal returns on a private
trading account is to do the following:
1.
Identify and trade only those markets that offer the best risk/return
profiles that match your account size.
2.
Identify and trade only those systems that have the best probability
of success in the markets you have selected to trade.
3.
Continually rank trading opportunities that occur by probability
of greatest returns for least risk.
4.
Starting with the best, trade as many of these opportunities as
your account size and risk exposure limitations allow so as to
diversify your risk.
By following these guidelines
a trader ought to experience an improvement in the returns on
their trading account. In some circumstances, however, private
traders may not have the time, knowledge or resources to fully
adopt this suggested strategy and as such must identify a broker
willing to provide the essential skills, experience and service
that they require.
Tricom would
like to wish all our present and future clients successful trading
now and in the new year.
Jason Perkins, International
Dealer, Client Advisor.
