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What does it take to blow an account?

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  • What does it take to blow an account?

    Earlier in a thread I use to track how much money Viper and Dayfox are making me I made a calculation to determine if having Day Fox on risk 0.4 and Viper on 3x risk would be safe. I was basing this however on the equity drawdown and not at all looking at free margin which is always a lot lower than the equity. It appears an account could be blown at 40% draw down based on what I've seen with the margin available in my forex account so I'd like to ask what amount of equity drawdown would it take to have a blown account on 1:500 leverage with an account size of 30K?

    Here is my old calculation when I wasn't thinking of margin, would I be safe or would the account be blown?

    "Viper at 3x risk per month means a return of 7.8% per month and 3x risk is what Viper recommends you have him at. Day Fox at 1x gives you about 7.38% however as much as I would like to put him at 3x he does have a bigger drawdown at 1x risk at -22.91% vs viper at -13.81%. So based on past performance you could have Day Fox at 3x risk and not blow the account and gain 20% per month but that's not a risk I'm willing to take as tempting as it is knowing that could turn $30,000 into $267,000 in just 1 year.

    So the moment I saw this I added Day Fox to my account at 0.4 risk (remember 0.69 is 1x risk). Overall I'm keeping him low because I really don't want to risk losing my entire account if they both go into drawdown at the same time. Based on past performance (which doesn't always predict the future) I would still be safe if both of them hit their worst draw down at the same time. Viper 3x would be 41.43% while Day Fox would be around 16% (based on my lower risk with him). So together that is about 56% drawdown. Yes that would be scary but overall the risk isn't too high on my account and I should be safe"


    Would 56% drawdown be a blown account?

  • #2
    Think about how much you can loose, and where that will put you and your plans. If you have made some decent profit, remove some of your initial deposit to minimize your risk. Both those guys are excellent traders, but as they say shit happens. Those are there worst draw down to date, and is a guide. There is no telling what could happen, plan for the worst. Maybe bringing in a third trader with a different style might give you the compounding affect you are looking for.

    Just remember if you go into 50% draw down on an account, you will need a 100% increase to cover the loss, and get back to where you started..

    Comment


    • #3
      As a copier, you should be provoked in asking yourself questions like:
      • How correlated are both these traders?
      • What types of strategies are they both saying they trade?
      • Is their trading negatively skewed? (fat tails on normal distribution - bell curve - i.e. random huge losers)
      • Do they trade the same pairs?
      • Do they often have open equity drawdown - if so, how frequently is your money tied up in open positions? How does this effect actually making any withdrawals down the line...
      • Do you have sufficient risk capital to allocate to the trader/s. Are you being prudent?
      • Are you copying both these traders from the same account?
      • What sort of slippage could you be prone to? How will that affect your accounts returns? This can be devastating to mimicking the traders returns.
      • Is your risk capital sufficient relative to what the monthly charge is? Are you likely to sustain returns that will over and exceed the monthly charges?
      • and many many more questions...


      This is just touching the surface of things to consider.

      "12padams"
      ...Based on past performance (which doesn't always predict the future) I would still be safe if both of them hit their worst draw down at the same time. Viper 3x would be 41.43% while Day Fox would be around 16% (based on my lower risk with him). So together that is about 56% drawdown. Yes that would be scary but overall the risk isn't too high on my account and I should be safe"

      Would 56% drawdown be a blown account?

      Adding Vipers worst historical drawdown toDay Fox's worst historical drawdown is NOT the correct way in calculating what it actually would have been (historically speaking) at the time.

      This could be in fact a lot larger than 56% depending on multiple factors. Some of which I have already outlined above.

      Just some food for thought as you have made some incorrect assumptions.
      Last edited by Dom; 10-28-2014, 10:28 PM.
      -"An economist is an expert who will know tomorrow why the things he predicted yesterday didn't happen today"-

      Follow me on Quora for Q&A on Forex: https://www.quora.com/profile/Dominic-Gilbert-2

      Comment


      • #4
        Originally posted by 12padams View Post
        Earlier in a thread I use to track how much money Viper and Dayfox are making me I made a calculation to determine if having Day Fox on risk 0.4 and Viper on 3x risk would be safe. I was basing this however on the equity drawdown and not at all looking at free margin which is always a lot lower than the equity. It appears an account could be blown at 40% draw down based on what I've seen with the margin available in my forex account so I'd like to ask what amount of equity drawdown would it take to have a blown account on 1:500 leverage with an account size of 30K?

        Here is my old calculation when I wasn't thinking of margin, would I be safe or would the account be blown?

        "Viper at 3x risk per month means a return of 7.8% per month and 3x risk is what Viper recommends you have him at. Day Fox at 1x gives you about 7.38% however as much as I would like to put him at 3x he does have a bigger drawdown at 1x risk at -22.91% vs viper at -13.81%. So based on past performance you could have Day Fox at 3x risk and not blow the account and gain 20% per month but that's not a risk I'm willing to take as tempting as it is knowing that could turn $30,000 into $267,000 in just 1 year.

        So the moment I saw this I added Day Fox to my account at 0.4 risk (remember 0.69 is 1x risk). Overall I'm keeping him low because I really don't want to risk losing my entire account if they both go into drawdown at the same time. Based on past performance (which doesn't always predict the future) I would still be safe if both of them hit their worst draw down at the same time. Viper 3x would be 41.43% while Day Fox would be around 16% (based on my lower risk with him). So together that is about 56% drawdown. Yes that would be scary but overall the risk isn't too high on my account and I should be safe"


        Would 56% drawdown be a blown account?
        12padams,

        Seems like you don't understand what is margin and how leverage works. You can run account with 1:10 leverage and hit 99% DD with just a one open trade - that would require a big market movement in opposite direction of your trade (lot of pips), but you can.

        Free margin is what enables you to trade. For example if you are running on leverage 1:500 you need about 25 USD of free margin to open EUR/USD trade @ 0.1 lots (10,000 units). Free margin is also depended on your current DD. So bigger the DD, the less you have free margin to trade and 'survive'.

        Imagine yourself this situation: Viper hits 15% DD on your leverage risk x3 with many open trades + DayFox with only 10% DD but also with many open trades + hedges so you are low on your free margin. Next day there is big news event, sharp market movements and boom... you MC'ed with 'only' 30% DD just because you didn't have enough free margin available to survive. Next week there a is market correction, Viper and DayFox starting to close their trades one by one and they are in nice profit after that. And you? You MC'ed your account with ~30% DD and now you need would need about 8 months to fully recover with 5% monthly gain just to get to the point before that event.

        You can very easily hit MC (Margin Call) on single account using multiple signals (that is why I always recommend having one account per one signal), because the more open trades you got (open basket of trades), the less free margin is available for you. You have to be very careful about that.

        Comment


        • #5
          What does it take to blow an account? DayFox.

          Comment


          • #6
            Originally posted by Keith Williams
            I understand that most of trader loses throughout trading without proper management of their money so when I wanna request that within how many month your history was inflated? And just before blowing your bank account are an individual in income or decline?

            Without proper money management, nobody can trade with ease of mind and can not control on risk factor, it will also cause emotional circumstances, if your account comes into negative. So, proper money management is important.
            Go on Keith, tell us about your explosive forex robot, indicator thingamabob.

            It's pretty clear you're posting here to try and get some attention to the link on your signature. I'm not against it, but let's be real here and give us the scoop on exactly what you're selling.
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            Comment


            • #7
              if you follow proper money management then your acc will not be blown. you need to be careful about your account. make sure to save your account first.
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