Commodity Traders Club Trading Resources
Trading Strategy & Commissions - Ashley S.C. Howes
There are some simple facts about commissions that are often overlooked or ignored. If you are like me, when you see the published results from futures managers (in Future Magazine) and observe that for 1992: 76 funds were up, 141 were down, you wonder why the industry exists or think: "all the more reason to trade one's own account."
All you need is $20,000.00 per contract and a method that will make 4 points a year in the DM and you are way ahead of 90% of the pros. What are they up to anyway?
It's not that they cannot do it. It's that they make more money by trading for commissions. If a manager makes only $10 a trade - and many of them make many more - and manages a $100,000 account which trades 1 contract of the S&P, 3 wheat, 3 Euros, 2 DM and 2 Crude and each contract on average trades twice a week, he will execute about 100 trades a month=1200 per year=12% of your account equity is gone right there.
And we didn't mention fees to the FCM, the agent who introduced the fund to you etc. So most of these managers are actually making 30% or more just to break even.
That is why the managed futures performance tables are on the whole so lackluster. This is also why it is still true that it's reasonable to expect superior returns from disciplined futures trading. They are there, but they are being hidden in commission costs and management fees.
The reason I wanted to write about all of this is because I want to introduce an idea. I have been a private trader for years and like all of us have had to learn the ropes, develop a method that works for me etc. One aspect of what I came up with is simple. I do not follow the markets intra-day any more, and my partner executes the trades. We have been making about 10% a month trading a couple of very simple models using PBS software. (We have other software, but PBS is the main one I use. PBS is quick, easy, the break-out signals are all up there on the chart in no time, and it is easy to add in your own signals based on oscillators, bar patterns, etc. right up on the screen, without having to program anything.) The fact that my partner executes the trades and I have no input intra-day means that there is impeccable discipline and the strategy is implemented professionally.
We are currently entered in the National Investment Championship. For the first quarter, we were up about 25% and we are already up 50% in the second quarter as of the time of writing (April 25). As of January 31, I have been a licensed CTA.
My partner, Mr. Thomas Stroud, and I would like to offer our services to other traders. However, I want to offer a service that I would want for myself, i.e., use strategies that I can follow at home, has minimal fees.
At the same time, the reason I feel that it is good to offer this service from a potential client's point of view, is that I have found that having other people take care of the execution is extremely helpful for my discipline and the success in our account.)
There are three ways that this can work: One - we raise enough money so that even with low fees it is worth our while to administer this fund; Two - we charge higher fees in the beginning when the transactions are less in number, and then lower fees later on, going at some point to a minimal fee structure that covers basic expenses and overhead and only earning extra income on a profit-sharing basis; Three - and this is the ideal, I think, if the fund size permits, we could function simply as the employees of the partnership.
The commissions will be minimal ($12.00 or less). Each month the fund will pay out Ba fixed amount to cover expenses, salary, etc., but no additional management, commissions or profit-sharing fees.
In this way, we can cut through the inherently anti-client set-up that exists in the managed futures industry such as it is and thereby provide a service that will give you, the customer, excellent returns.
Another juicy bonus, since it is a partnership, the trading strategy and tactics can be shared and discussed. This will make the whole process informative and interesting, so that each partner can feel actively involved in the ongoing activity of the account. At the same time, since others are involved, nobody can arbitrarily start changing the system.
We are open to numerous forms of strategy. The partnership could solely trade the models developed by my company, Stroud & Howes, or it could trade some signals from Swing Catcher, PBS or follow a newsletter's recommendations. Or a combination, combining some day-trading with some trend-following with some counter-trend models, to smooth out our equity curve.
If any of you are interested in being involved in a partnership fund like this, please write and let us know, giving us an idea of what type of strategy and/or structure you would like to see and how much money you might be interested in placing with it.
Remember, this is your fund and you can help to design it. One idea I had for the planning, I got from talking to Dave Green a year or so ago when I first bought Swing Catcher. He was thinking of participating in seminar on a cruise ship for a week or so.
Maybe we should have a $20,000.00 cruise for one week, which pays for the cruise and the balance of the account goes in to start the partnership fund. With the lawyers on-board as part of the cruise, is essentially put together and most of the trading strategies introduced, picked and then agreed on during the course of the cruise. Guest managers can be invited, either to lecture or solicit our funds for their management service of our partnership. That was just one idea.
Alternatively, I live in Europe and know of a couple of private chateaus that are for rent. We could spend a week in the French countryside and take a trip to Luxembourg for members to open accounts there, so that the fund can be set-up offshore, this could be part of the program.
In addition, if anyone wants us to execute trades from Swing Catcher, PBS or a System Writer end-of-day model, we could do so on a simple fee basis depending on the number of trades per month, complexity of the model, etc. You might find that having someone do your execution, though you are still calling the shots is an excellent way to improve your discipline.
I look forward to hearing from you about this and wish you all success in your trading. Mr. Howes can be reached at 57604 Forbach Cedex France
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This Page was last revised on January 18, 1999
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Complete list of articles and contributions published by Commodity Futures Trading Club during 1993