Hi Mike,
Thanks for your offer to answer my question this afternoon by email. I wondered why you said it takes $1M-$5M to make $1M in annual profits? One can certainly make more than $50K annually with a $50K account. Why isn’t the relationship more linear in scaling up?
I must convey my deep gratitude for the invaluable knowledge and encouragement that you continuously share through these Webinars and your blog. Your efforts go far beyond what could be justified as marketing for your firm. Such generosity and concern for others are a reflection of fine character within and are deeply appreciated.
DJ
Congratulations on your upcoming fatherhood, and hope that it brings new joy and meaning to every day of your life as it has to mine.
@mikebellafiore
The more active you are as a trader the more you can make as it relates to your buying power. The longer your time frame the more capital it takes to make significant P&L. I say this as a generality, with the understanding there are always exceptions.
DJ thxs so much for attending our Webinar last night; I appreciate the question and am grateful for your warm comments. I may have misunderstood the question last night as I was trying to talk, read questions, and then answer yours 🙂 . This can be a bit difficult to do, without thought and multi-tasking. It appears that I may not have explained myself that well. But back to your question of scalability for your trading. Is your trading scalable from 50k to 1m?
If you can trade 50k in capital into 50k in P$L then this is very efficient trading. It may not follow that you can then turn 1m in capital into 1m in P$L. It is possible, if not likely, that your strategy does not scale from 50k to 1m. You may trade bigger size and then expose your trading to slippage, worse entry prices, etc. It may be harder for you to cover more positions at this increased capital if this is an adjustment you make to trade with more money. For example, for many years I used 1k shares as my tier size. For whatever reason I started to notice that I could not use this tier size and see the same results when I added size. 700 shares became the right tier size for my trading when thinking of trading tiers. 1000 shares of tier1, 2000 of tier2, 3000 of tier3 just didn’t work as well as 700 shares of tier1, 1400 of tier2 and 2100 of tier3. Entry and slippage and the stocks I was trading determined this.
Further buying power is determined differently for the prop trader than the retail trading customer. In short, because of the way that buying is determined by a clearing firm, we can get much more buying power for our capital than a retail trader. I suppose this makes sense for many reasons, the first of which is we do much more volume, are pros, and have a relationship with the clearing firms. For example, Steve and I just sat down with Goldman recently to discuss our needs and how they could help. They are in the business to closely follow their risk parameters but also find ways to help their clients. So we are sorta talking apples and oranges here as it relates to buying power and capital between the retail trader and pro prop trading firm.
Gr8 question. I hope that helped. That was so much insider trader baseball that I hope I didn’t lose too many to get here.
Tomorrow you can be better than you are today.
Mike Bellafiore
no relevant positions
