margin in testing

Discussions about the testing and simulation of mechanical trading systems using historical data and other methods. Trading Blox Customers should post Trading Blox specific questions in the Customer Support forum.
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margin in testing

Post by dave3076 »

I would like to ask how the more experienced amongst you derive your margin figures that you use during testing. i.e. do you add maintenance margin to initial margin before you enter the margin figure into the futures dictionary? Do you merely enter the initial margin figure? This obviously has dramatic effects on results, so i thought id ask those more experienced than myself.

Ok further to this as i have had no response, i will add a little more to try and explain my thinking a little more. Trading blox derives a position size by adding up all margin commitments, and then uses the available excess equity to position size. So in reality, i cant understand how you can discount maintenance margin in your calculations to position size. i.e. Maint margin IS a financial commitment you need to meet, so as i understand it, that makes it unavailable equity to position size around. So my question is as above......should you add maint margin to initial margin and place the figure into the futures dictionary. I ask because a) ive never heard any reference to maintenance margin in testing and b) because trading blox original margin settings are that of initial margin only and c) most importantly are the dramatic effects it has on results. If you add up ALL margin commitments in terms of initial and maintenance and then place that figure into the futures dictionary it obviously has massif repercussions in terms of performance which is obviously disheartening.Im trying to ascertain whether i am missing something? cheers....
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Post by painless »

This was the sort of difficulty I was having. See my post "My performance is ? no idea". I don't use Blox so I wanted to be able to make a comparison. So far I have come to understand that most use a margin to equity ratio of varying degrees. Unfortunately margin changes with volatility so it is a little difficult to get the exact figure when backtesting. Also it seems there are a lot of people with buckets of cash trading across multiple markets. I assume the software enables them to set some of these parameters when doing so. Perhaps the software documentation may explain in further detail.

If you check the link to the IASG website you can see the variation between margin/equity and %drawdown. Perhaps you can set some acceptable (an amount of money that you can feel comfortable using/risking) figures for these and begin to get a feel for your own testing. I am by no means an authority on these industy standard stats, in fact it seems I would fall under the category of "lunatic fringe" given my meagre beginnings. But since no one else volunteered an answer to your post I hope this helps.
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Post by sunyata »

I have a similar question related to maintenance margin and margin calls. I think that dave's understanding of maintenance margin may be incorrect and I'd like to put forth my understanding before asking any question. Per my understanding, maintenance margin is a threshold that determines when a trader has to deposit more money into his/her account in order to continue controlling a contract. As you will see, my understanding may be incorrect as well, which is why I am writing!

For an example, the current initial margin for one gold contract is $5399 and its maintenance margin is $3999. Let's say I buy one gold contract and outlay $5399 for initial margin. The difference between the initial margin and maintenance margin is $1400. Now, if my contract shows a loss greater than $1400, I am required to bring my account back up to the initial margin level of $5399. So if my position shows a loss of $1600 (i.e. greater than $1400), I get a margin call and must deposit $1600 to bring my account back up to initial margin. If I do not have the funds to do this, then my contract is forcibly liquidated. Thus, maintenance determines when a trader has to deposit more money into his/her account in order to continue controlling a contract.

However, since contracts are marked-to-market each day after the close, do margin calls only occur if, in gold's case, a one-contract position during the day shows a loss of greater than $1400?

Also, if Trading Blox does not utilize maintenance margin user inputs, how does it determine margin calls during simulation?

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Post by Asamat »

Recently there was a discussion about margin levels. I think sluggo pointed out that most professionals trade at a 25% margin level or below. This was also my take from it: if you get your system right, margin-to-equity ratio will be way below 50%. In praxis probably it can't really be otherwise. A private trader will psychologically not be able to execute a system over many years, if every night he has to worry about a possible margin call.

I guess this is the reason TB has no need for a detailed simulation of margin calls. If in reality you get them, you are probably trading way above your account size.
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