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Listen to “Trading Scalability” on Spreaker.

Hi, guys. Andrea Unger here. Bill Gates, what a pushover. In 2008, I won the World Cup Trading Championships with 672%, okay? So, if I apply that multiplier every year, I’ll easily reach the money that Bill Gates earned throughout his career and I will get even more.

It’s easy. Imagine I multiplied by 7, just to ease down. And try yourselves, 7 multiplied by 7, by 7, by 7… You can easily arrive to an enormous amount of money. So, where is my money? Show me the money. What’s the problem? And actually, I got an email after that victory from a guy who wrote, “Hey, Andrea. If I give you $1 million, can you transform that into $4 million dollars after the first year and into 16 after the second year? I answered, “No, I can’t. And if somebody claims he can, please go to the first police department and tell them because that’s certainly a scam.”

The point is that apart from the fact that these numbers are unrealistic, that’s a championship—a contest. You go to the highest level of risk. In normal trading, you don’t dare that much.

But let us imagine we have a multiplier of 1.20, where I get a 20% return every year. And then, you go on year after year, you get to an incredible amount. Is this possible? Is that really possible to any extent with any kind of approach? No, it isn’t. Markets cannot accept, always, the number of contracts you need to do so. If you have a method that trades, for example, the DAX, with one contract you can easily trade it. With two, you still can. If you go and trade with 30 contracts, then you start to have real problems because you start being so important into that market with the 30 contracts that you have a certain influence, not on the overall direction, but in the specific moment you enter or exit, you cause some turbulence there.

So actually, you will never get the same fills you get with one contract when you enter with 30. And this applies to any market. Of course, there are markets which are very, very liquid. And you can trade very, very big—but never too big because there is still a limit. Everywhere, there is a limit. And I made some maths. And if I can easily trade a $1 million account with my systems, I could do it also with a $10 million account. But if I start thinking of trading a $100 million account with the same set of systems, I know I will get trouble. And what kind of trouble? If I aim at such performance or even less—let’s imagine the institutional word—they might be satisfied with a 12% return, okay? $100 million, you have to look at how much you have to make. And to make those numbers, most of the markets I’m trading will not be liquid enough. Or, let’s change it a bit, they will not offer the same conditions they offer today with a single contract or a double or a three-contract trade you are placing. And that’s a problem.

You can say you can scale entries. So, because you have to enter with 100 contracts, okay, you enter with 10 now, 10 a couple of minutes later, now 10 again a couple of minutes later and so on. If you go for a long-run, long-term trend following, you don’t mind entering a bit now and a bit in 10 minutes. But if you have a position that might last 2 hours, those 10 minutes are important in the 2 hours. In the time horizon of your trade, they are very important and they might change, heavily, the outcome of the trade. So actually, you can trade to infinite level with your methods, with your systems.

Imagine a scalper. A scalper knows that there is an immediate limit to what he’s doing. He needs a counterpart to fill, to send his contracts out and so on. If they don’t find it, if they’re too big, if I need two or three different levels to be filled, everything changes. Their small profits turn out to be losses. This is just an extreme example, but this applies to a different scale, to any, any kind of entry and exit.

So, the scalability of trading methods is very important to consider. They are not infinite. Some are scalable to a very high level, but there is always a limit. The hit-and-run methods obviously do experience problems because they are hit-and-run and they can be hit. So, guys, sorry about that. Bill is still there; I have to work a little bit, but I’m working on it.

Ciao, guys. See you next time.

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