Low capital vs. high capital account performance continued. Trade by trade analysis

January 14, 2019


We have been researching the performance variation between those accounts with <$80k capital at any point and those with >$80k and have discovered that the larger capital accounts can average about 25% greater profit per trade than the lower capital accounts. The reason for this is that at times of high trading activity, the smaller accounts miss a significant number of trades due to insufficient margin.  Margin is consumed BOTH by Open Positions (you can see this on the dashboard) AND by Open Orders (orders that are not yet filled, not visible on the dashboard). In addition, there is an order priority constraint used by CME and/or IB when accounts have low capital thereby reducing the number of orders that actually get placed. Following is the analysis:

 

Link to the CME order preference algo:

https://www.cmegroup.com/confluence/display/EPICSANDBOX/CME+Globex+Matching+Algorithm+Steps

Quote from that page: "If there is more quantity aggressing than available (resting), CME Globex uses FIFO as an exception to the algorithm in place."

 

Capital/contract = capital in account / number of contracts traded (also called "leverage value")

 

results shown are % of the highest performing account

 

Capital/contract > $80,000

Average Profit / contract (all trades) = 89%

Average overall trade profit of accounts over $80,000 / contract is 89% of the highest performing account. This calculation includes missed trades due to insufficient margin (if any).

Average Profit / contract (trades matched) = 97%

Average trade profit of accounts over $80,000 / contract is 97% of the highest performing account when each trade between the two is exactly matched

 

Capital/contract < $80,000

Average Profit / contract (all trades) = 60%

Average overall trade profit of accounts under $80,000 / contract is 60% of the highest performing account. This calculation includes missed trades due to insufficient margin. 

Average Profit / contract (trades matched) = 74%

Average trade profit of accounts under $80,000 / contract is 74% of the highest performing account when each trade between the two is exactly matched

 

Explanation: 

low capital/contract accounts of less than $80000 are handicapped for 2 reasons:

1. Restricted trade submissions due to insufficient margin

2. Subordinated priority on the CME (or IB) submitted trades ledger

 

1. When a low cap/con account has a number of positions, each position 'consumes' some available margin our of users capital. When AlgoLab submits new orders (which are not yet positions), these order also consume some portion of the available capital as margin required to have an order submitted. When the total margin consumed exceeds the capital in the account, then IB will reject the order. The result of this is that on average, low cap/con accounts have 20% fewer trades and this can result in around up to 30% less average profit per trade.

 

2. In addition to the trade restrictions, a low cap/con account also seems to have it's orders placed lower on the priority to be filled which can result in more slippage when the trailing market order stop is hit. This can result in reduced profit per trade due to additional slippage on the market order exit.

 

 

 

Possible remedy:

AlgoLab v 2.5.9 is currently running and has been running since January 7, 2019. This version spreads out the trailing stop exit prices over 10 ticks before and after the basic trailing stop value. This should help with the trade crowding issue, but the low cap/con accounts will still be subject to lower priority with the fill order.

 

 

 

 

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