Aug-Sept 2007 Trading Results, or The Effects of 1:20 Leverage
Below is a chart of my trading results for August and September as a percentage of the amount of money I have in my prop trading account.
As you can see, the first part of August was a little choppy (the first 100 trades). At one point I was down over 15%. But the month ended well and September started great. There was a nice run of about 70% in 30 trades.
Overall I made 105% after commission. The great thing about this is that I’ve taken the 100%+ out of my account and so even if I lose everything, I will still be up on the year. Even if I load up and go long a stock 2000% and it halts and opens at $0, I will still be up for the year.
This is one reason why I think it can make a lot of sense to use a prop firm. A lot of day traders got stuck in HAR this month when it was halted mid-day. Even though day traders don’t hold overnight, and although it is rare, there is still a chance of a large gap against you – which could completely wipe you out.
One way to manage the risk of this is to never take a large enough position so that even if this happened, it wouldn’t kill you. Another way is to put as much as you are willing to lose into a prop account and let them risk the rest.
Managing your risk with 1:20 leverage is the same as managing your risk with 1:4 leverage, or even no leverage – just limit your loss per trade to what you can handle. Some people might think that if you do this, you would never use all of the leverage. If that is true then you have no use for 1:20 leverage. But if you can find a way to take advantage of the extra leverage, without adding much risk, it can really be profitable.
That’s the key, right? Increasing profit without adding much risk.
