Newbie asks: How to trade futures with only $100K?

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fab1usa1
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Newbie asks: How to trade futures with only $100K?

Post by fab1usa1 » Tue Aug 02, 2011 11:48 pm

Moderators note: split off from parent thread

I read with great interest the old thread entitled: How to begin trading futures with account < $100K ? and all of the great contributions by members of this forum. I certainly see the advantage of having a large portfolio of 100+ markets and $1,000,000 startup capital for LTTF.

It has been six years since that thread began. With your accumulated wisdom would you recommend to someone like myself having $100K, a small portfolio of 13 low-volatility, non-correlated markets as you mentioned in this other thread ?

There is indeed a lot of pain in that 45% Max DD but I am hoping that I will find that it smoothes out my equity curve when combined with my stock portfolio system.

Thank you.

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Post by rhc » Wed Aug 03, 2011 10:03 am

For the long term trend follower with a smallish account some of the full sized contacts might be out of reach due to the large risk associated with taking the trade.

However, there’s nothing to stop you from trading the more affordable smaller/mini-sized contracts such as the NY energy minis, the CME e-micro currencies, the NY-Liffe mini gold & mini silver contracts, mini indices such as nasdaq, Dow, S&P, hang seng, then we have mini jap gov bonds, mini agriculturals and so on

Check out IB’s product listing for futures and see for yourself what is on offer in the mini universe
http://www.interactivebrokers.com/en/p.php?f=products
(Be sure to check the tabs marked “North Americaâ€
Attachments
Commodity ETFs and ETNs.pdf
(1.24 MiB) Downloaded 340 times

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Post by fab1usa1 » Wed Aug 03, 2011 10:59 am

Thank you, rhc. Lot's of great information to chew on!

I so dislike being the "newbie". I try avoiding asking questions on the forum but sometimes I just need to. I've spent several hundred dollars on books at Amazon. With that added knowledge I feel confident with the theory behind futures markets but I haven't yet found a source that teaches me the "mechanics". I've visited the website of the CBOT but believe that they could do a much better job educating us newbies. Blech, it is frustrating but exciting.

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Post by fab1usa1 » Wed Aug 03, 2011 6:07 pm

Hi rhc,

As you suggested I navigated to my brokers website (IB) to see what they had to offer. I clicked through each of the US market centers and scanned for all contracts of the type 'mini' or 'micro'. The attached spreadsheet is the result of my effort. I haven't yet looked into the ETFs/ETNs as you suggested.

I found a total of 25 contract types but unfortunately there is considerable overlap (e.g. 3 contracts for Gold: 2 minis on different exchanges and 1 micro). If I were to omit the Equity Index and Volatility Index futures, I am left with these markets: CORN, SOYBEAN, WHEAT, EURO-DOLLAR, COPPER, GOLD, SILVER, GASOLINE, HEATING OIL, LIGHT SWEET CRUDE, and NATURAL GAS.

Would you trade those 12 markets? It doesn't seem very diversified. I was hoping to find mini or micro contracts for CATTLE, HOGS, COFFEE, SUGAR, etc. Perhaps I should look at the cost of trading the "full" contracts? I will also look into the ETFs/ETNs.

I sincerely appreciate any and all help. Just looking for hints.

Thanks,
Brian
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IB Mini Futures.xls
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Post by fab1usa1 » Wed Aug 03, 2011 6:24 pm

rhc,

Just reread your post where you mentioned the CME e-micro currencies. I unintentionally skipped them by since the name did not have 'mini' or 'micro' in it. I will update my spreadsheet.

What rule-of-thumb should I use to find "affordable" futures? Is it simply a function of Initial Margin?

Thanks again.

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Post by sluggo » Wed Aug 03, 2011 8:06 pm

Suppose you told your programming staff:
  • Simulate this certain trading system S on the historical price data of every market we've got. Trade 1-contract position sizes. From the list of trade outcomes, choose the 3 biggest losers (1-contract trades) in each market and calculate the average of the 3. Then make a list of markets, sorted by the average-of-3-biggest-losses.
When you've got this list, perhaps the markets at the very end of the list (whose biggest 1-contract losers are the smallest) might be interesting to small account traders?


Or suppose you told your contract programmer:
  • My trading system S calculates position sizes based on an initial risk of 2.5 ATRs. When ATR gets bigger, my stop is wider, my risk is larger, and my position size is smaller. I want you to take the historical price data of every market we've got, and calculate the average daily value of ATR (expressed in dollars). Then make a list of markets, sorted by the average daily value of ATR.
When you've got this second list, perhaps the markets at the very end of the list (whose daily ATR in dollars is smallest) might be interesting to small account traders? These are the ones whose ATR stops are, on average, the tightest; thus they are the ones with the largest position sizes; thus they are the ones whose position size is most likely to exceed 1.00 contracts even with a small account.

Or other ideas and other lists; I'm sure a motivated and clever person can think up quite a few.

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Post by fab1usa1 » Wed Aug 03, 2011 10:41 pm

Sluggo,

Those are superb ideas! Sounds to me like the basis of a new Portfolio Manager block. I am certain that I can code your second idea (i.e. ranking by average daily ATR). I am less certain how to approach the ranking by the average-of-3-biggest-losses. No worries, I'm resourceful, I'll figure it out.

Thank you!

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Post by babelproofreader » Thu Aug 04, 2011 6:35 am

I notice that you are in New York so this might not be possible for you, but you could investigate spread betting and CFDs.

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Post by fab1usa1 » Thu Aug 04, 2011 7:56 am

I will look into that, babelproofreader. I know that I can trade debit and credit spreads on equity options.

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Post by rhc » Thu Aug 04, 2011 9:43 am

fab1usa1 wrote:I was hoping to find mini or micro contracts for CATTLE, HOGS, COFFEE, SUGAR, etc.
Unless I’m mistaken I don’t believe there are minis for the above-mentioned contracts.
However all is not lost.
From the ETF/ETN pdf summary sheet attached in an earlier post. (see above), we find that;

The proxy for Coffee Futures is the ETN named ‘JO’
The proxy for Sugar Futures is the ETN named ‘SGG’
The proxy for Cattle & Hogs is the ETN named ‘COW’

These could be ideal for the smaller account size.
Even if your account is $100, you can still participate in the any of the above.
Of course you don’t have the leverage inherent in a futures position but what can we do. This is the way it is until your account grows

The question to ask is how well do these ETF's/ETN's track the futures ?
There’s been much debate about tracking errors in some of the energy ETF’s but from what I can see from comparisons of the above ETN’s and the Continuous futures contracts , the error is not that bad & the ETN’s track the futures quite nicely.
Since a picture is worth 1000 words, here are 2000 words for you w.r.t. Coffee (see below)
Note how the 50week SMA is penetrated on the upside & downside at the same time on both charts . . . this is nice tracking by the ETN)
Attachments
KC_Futures.jpg
KC_Futures.jpg (76.1 KiB) Viewed 7795 times
KC_ETN.jpg
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Post by rhc » Thu Aug 04, 2011 9:52 am

Oh, forgot to mention, here is a good bit of reading re: a practical guide to system trading ETF's
viewtopic.php?t=7065&postdays=0&postord ... ns&start=0

. . . . assuming you are interested of course.

Cheers,

fab1usa1
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Post by fab1usa1 » Thu Aug 04, 2011 10:03 am

Purchased and downloaded Mr. Garner's book to my Kindle this past weekend. Gave it a first read; going back for seconds and thirds!

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Post by Socrates » Wed Aug 17, 2011 3:10 pm

I have been thinking about the same issue in my testing...that is...am I at a disadvantage trying to test and potentially trade a $200K starting account with all full-size contracts ? So I like and will investigate adding minis where possible and then full-size contracts where no minis are available.

Should I be thinking about backtesting with full-size contracts because there is more historical data available, and then just substituting the minis for real life trading ? Is there enough mini data to backtest properly ?

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Post by fab1usa1 » Wed Aug 17, 2011 3:37 pm

Oh Great Socrates (dig your handle!):

Yes, definately backtest with the full-sized contracts since there is comparatively little history in the mini contracts. You will find however that there aren't enough minis out there to give you the diversification that you need. You may want to look into the ETN's (lookback to rhc's welcome input!)

Me, I'm a bit stubborn. I like the full-sized contracts. Had a long talk with the wifey and we upped our investment to $165K. As we speak that allows us to trade 6 contracts of EuroDollar, 1 contract of Corn, 1 contract of Soybean, and 1 contract of Canadian Dollar. BTW, at this moment I decided on a "universe" of 8 markets including: EuroDollar, Canadian Dollar, Corn, Soybean, Cotton, Copper, Gold, and Heating Oil. Am planning on expanding that universe as equity grows. (Please consider sluggo's excellent recommendation; I have not yet implemeted but will.)

One thing that I need to mention (and I know that this will create some flak)...
I modified the Portfolio Manager blox in order to round up the number of contracts. In other words I would normally get "filtered out" of Corn because the contract size is < 1. (When I put in PRINT statements I found that the contract size was for example 0.7937682.) By adding 0.5 I made that market available to order generation. Of course the downside is that the stop-loss is greater than my risk-per-trade, or so it seems. At this time however none of my order generated trades have triggered so I cannot speak with certainty as to the horrors of my decision.

Good luck!

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Post by Socrates » Wed Aug 17, 2011 3:43 pm

Thanks for the suggestions Fab1.

Ideally I was hoping to be able to trading about 80-100 futures markets and have been assembling a portfolio to do so...but my capital ($200K) is likely too low and risky for this size basket. I guess I should continue my testing on various size portfolios and see what sort of results I get.

Thanks again

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Post by fab1usa1 » Wed Aug 17, 2011 3:47 pm

Honestly I am new to futures trading so take this for what it is worth...

Even though you would "like" to trade 100 markets you may find that you are never in 100 markets concurrently. That is just my observation.

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Post by fab1usa1 » Wed Aug 17, 2011 4:16 pm

Socrates,

What is your Risk Per Trade? I searched high-and-low and discovered consensus around: 2/20. That is 2% risk-per-trade and 20% total portfolio risk. I found that I needed 2.5% risk-per-trade in order to be a "player" without welcoming total ruination. (Oh how I hate having so little equity!)

FAB1

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Post by Socrates » Wed Aug 17, 2011 4:24 pm

Fab1,

Parameters I have been experimenting/leaning towards are 0.5-1% risk per trade and about 20-30% heat in the portfolio.

Just as background:

I too am new to futures trading and systematic trading, and have never traded futures live myself. About 2 years ago I bought TB...spent 3-4 months intensely experimenting/learning, playing with systems, reading etc. I realized I had so much to learn and the more I played with TB the more I realized that there was so much I did not know. I started to learn that so many things that could go wrong in real-life systems trading...that I actually got put off of the idea. I then went out and invested a chunk with one of the well know "managed futures" (for lack of a better term) shops that focus on LTTF...and that investment is going ok. However, now my desire to build and test my own system and then trade one myself is back...and I really want to succeed at it...so I am BACK to TB : )

Socrates

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Post by fab1usa1 » Wed Aug 17, 2011 4:30 pm

Socrates,

We need to hang out together. We are riding the learning curve at the same rate.

The guys and gals on this forum are outstanding!

FAB1

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Post by fab1usa1 » Fri Aug 19, 2011 11:57 am

Socrates,

After a gut check I recognized how squeamish I was over two decisions I made: (1) running with 2.5% risk per trade, and (2) rounding up the number of contracts in the portfolio manager.

Reflecting on our conversation I decided to drop down to 1.5% risk per trade. Of course that necessitated a move to mini-sized contracts. Sleeping better now.

Fab1

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