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Author Topic: Account Size vs Cost of Trading  (Read 714 times)

Online donnaforex

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Account Size vs Cost of Trading
« on: March 18, 2017, 02:50:56 PM »
I will touch on this topic a little in my email newsletter which goes out on Monday, but feel it is an extremely important point which needs to be noted in more depth.

Over the years, i have been contacted many times by people trading $100 accounts with $500+ EA's. Now, a $500 EA is all fine if you intend to then trade with a larger bank later, but often this isn't the case.

Now, even if your $500 EA is so good that it doubles your account each year, your results would look like this:

Year 1: $100 account becomes $200
Year 2: $200 account becomes $400
Year 3: $400 account becomes $800

Assuming a one off cost of $500, it will take you 3 years to start making any money. In those 3 years, you are also risking your account on each and every trade that is made (and you really are risking your full account balance, regardless of what the EA tells you, things can go wrong at any time).

Yes, after those 3 years you are all free and clear and will probably go on doubling your account up until you hit 1 million after 14 years. Or not. But that's a topic for another day.

The point is, we need to consider the here and now when we are getting into trading and not dream about the future returns. You need to know what your EA is costing you this year.

In my newsletter, i'll give an example of a recent addition to my live testing line-up. I won't name it here, but needless to say this product costs $129/month and has returned at worst 5.95% a month, and at best 18.25%. I'm ignoring all other characteristics of how it trades just for illustration here.

It's hard to predict a 'worst' return in any given month - we only have past data to go on, but i'll assume for this it is around 6%.

So the question is:

"Is 6% of your account more than the monthly cost of the EA?"

If no then you are seriously over-committing yourself to a product too expensive for you.

In this instance, the 'break even' point is an account size of $2150. Take this figure and at least double it and you will leave yourself some margin for making an actual profit!

Interestingly, the seller for this product recommends a $5k minimum, which is sensible and realistic given the above figures i've calculated. Note that for many products, it may be near-impossible to figure out the expected monthly returns, many will even having a streak of losing months, all this has to be factored in.

Again, i will repeat myself: Plan for today; don't think about the millions you might make in 5 years time! Allow yourself plenty of spare bank to cope with a blown trade account, system failure, purchasing an EA or two, VPS costs, etc. Factor it all in and think about it, you don't need to put yourself underwater before you even begin.



« Last Edit: March 18, 2017, 03:36:25 PM by donnaforex »
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Online reinerh

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Re: Account Size vs Cost of Trading
« Reply #1 on: March 18, 2017, 03:55:36 PM »

yes donna you bring up a very good and valid point

but its really sad that you actually get asked that question, thats highschool first year kinda.

i noticed over the years that people by en large cant operate a standard calculator anymore.

some goes for analysing lot sizing to risk gain calculations. these people will undoubtedly learn the hard way eventually.

its still very nice of you pointing this out :)

Online donnaforex

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Re: Account Size vs Cost of Trading
« Reply #2 on: March 18, 2017, 04:18:21 PM »
Unfortunately had way too many of these via email. It's really hard because i want to help out but unless someone has around $1k+ absolute bare minimum, commercial EA's are not going to work out. I usually suggest a combination of taking advantage of freebies/promos on products (eg, Enhancer has a 30 day free trial which would give an idea of if you could afford the subscription or not vs your own account results, or, something like Dux is only $47 one off but it's unproven yet), and learning manual trading. Either that, or stalking the huge volumes of free EA's out there on the metatrader website, but it's not going to work for newbies who want to 'load and go'.

I think the other problem is that most people underestimate the amount of work that goes into trading. Putting the hours in is even more unavoidable if you cannot afford to buy ready made solutions. It is still do-able, but i believe a lot of people are not prepared to spend hundreds of hours working on something with potentially very little payoff.... most are here to make a fast buck (and of course even a huge trading bank isn't necessarily going to help with that!)
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Offline diyforexskills

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Re: Account Size vs Cost of Trading
« Reply #3 on: March 20, 2017, 12:49:07 AM »
Unfortunately had way too many of these via email. It's really hard because i want to help out but unless someone has around $1k+ absolute bare minimum, commercial EA's are not going to work out. I usually suggest a combination of taking advantage of freebies/promos on products (eg, Enhancer has a 30 day free trial which would give an idea of if you could afford the subscription or not vs your own account results, or, something like Dux is only $47 one off but it's unproven yet), and learning manual trading. Either that, or stalking the huge volumes of free EA's out there on the metatrader website, but it's not going to work for newbies who want to 'load and go'.

I think the other problem is that most people underestimate the amount of work that goes into trading. Putting the hours in is even more unavoidable if you cannot afford to buy ready made solutions. It is still do-able, but i believe a lot of people are not prepared to spend hundreds of hours working on something with potentially very little payoff.... most are here to make a fast buck (and of course even a huge trading bank isn't necessarily going to help with that!)

I have always been very cost conscious and looking for ways to make trading affordable on smaller accounts. And coming to the conclusion that many people just don't have enough spare time outside their day job to do all the things that trading demands - like optimising, back testing etc.  But I like your idea of using freebies to help small account holders who want to put their foot in the forex market.

So here is a proposal.

If members can nominate up to say 20 freebie EAs that would seem to be reasonable based on published back tests, and are ones for which we have access to the source code, then I can modify them with the EA Controller Signal code, and perhaps a time filter, so that they can be run with the EA Controller in Signal mode.
(Running 20 EAs in Copier mode would put too much strain on VPS RAM and CPU resources).

We then set up an EA Controller test with these EAs (which I would first optimise over 2016 data), on either two demos or a demo and a crowd funding sourced live account (say 20 people at $50 each of which I will be one).

After 6 months or so we will know which of these EAs has legs and if any of them do indeed have legs, we should have made some profit thanks to the EA Controller only allowing each EA to only trade during its profitable periods. The account can then be distributed back to the funders.
 
As an added bonus, I will donate a copy of the EA Controller to the person who submitted the best performing freebie EA under EA Controlled conditions..

And I will bundle the top four or more performers as a an additional bonus package (the Donna forex package?) for people who buy the EA Controller in future.

For information on the EA Controller please see this thread https://donnaforex.com/index.php?topic=19585.0

Online donnaforex

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Re: Account Size vs Cost of Trading
« Reply #4 on: March 20, 2017, 08:15:51 AM »
It's a good idea, Andrew, i'm sure a lot of traders who don't want to throw thousands into EA's would appreciate something like that. The main issue is in managing other people's funds and all the problems that it throws up, even pam/mam type setups are technically 'not allowed' in some countries without the proper paperwork, it's something that has put me off in the past... I like the idea of only doing it for 6 (or maybe 12?) months and then closing it down, to release the funds again on a set schedule.

Thinking about my explorations into free EA's, i do believe this could *only* work with something like EA controller, assuming we can find suitable strategies - there are very many terrible freebies out there.
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Offline diyforexskills

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Re: Account Size vs Cost of Trading
« Reply #5 on: March 20, 2017, 11:03:01 AM »
It's a good idea, Andrew, i'm sure a lot of traders who don't want to throw thousands into EA's would appreciate something like that. The main issue is in managing other people's funds and all the problems that it throws up, even pam/mam type setups are technically 'not allowed' in some countries without the proper paperwork, it's something that has put me off in the past... I like the idea of only doing it for 6 (or maybe 12?) months and then closing it down, to release the funds again on a set schedule.

Thinking about my explorations into free EA's, i do believe this could *only* work with something like EA controller, assuming we can find suitable strategies - there are very many terrible freebies out there.

Ok, maybe we can toss ideas around a bit to see if there is any interest in the first place. My first place for looking for freebies (and there are others) is https://www.mql5.com/en/code/mt5/experts but there are 18 pages of them, so close to 1000. That is a lot of checking! I have found one which has good back test results and a coder who seems to know what he is doing. Running it successfully on demo at the moment. That made me wonder as to how many others could well be half decent, waiting to be discovered and loved.  :)

 

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