With today’s digital technology, the notion of DIY (Do It Yourself) has become much more commonplace, as technology allows us to accomplish things that, in the past, required an expert or technician. Why use an intermediary when you can accomplish something yourself; at your convenience, via computer or mobile phone?
DIY automated investing has become largely popular.
The dawn of robo-investing has arrived. And although you can now build your portfolio yourself, and monitor and rebalance it at will, you still must be very careful with how you do it. Remember: you may have access to the same info that financial professionals use in their trade, but you probably don’t have their same level of expertise.
But instead relying on a financial professional, you can now do most of the heavy work using advanced technology, consulting a professional only when you need assistance.
A portfolio of automated futures trading systems – potential for large returns or large losses
Futures trading isn’t for everyone. Futures entail high degrees of leverage which is like a double-edged sword: you can experience outsized gains and outsized losses. But for those investors who adequate levels of “risk capital” (money you can afford to lose in a high-risk endeavor), futures may provide the kind of risk exposure and diversification to enhance your portfolio.
Making calculated risks versus reckless wagers
We highly recommend that you read the risk disclaimer below, as what we’re about to discuss entails risk. As you might know, buying or selling futures = assuming risk. Trading = assuming risk. And if you are seeking the opportunities that futures has to offer, you want to take calculated risks and avoid reckless wagering. Remember, no matter how thoroughly you calculate risks, always be aware of the possibility that accidents, errors, and random events can (and will) happen. That’s just the nature of speculation.
Let’s get to it.
Here are 5 tips to building your own portfolio consisting of automated futures systems.
- Determine how much risk capital you are willing to allocate into your portfolio.
Each automated trading system has a capital requirement. Determining how much capital you have for portfolio allocation will determine the number of systems to which you can subscribe.
- List the performance criteria and parameters that are most important to you.
This step is critical. When you enter a speculative situation, you need to set performance expectations. Ask yourself what constitutes good performance, or bad performance. What is good performance under bad economic conditions, and when is a good outcome just plain luck versus skillful strategy?
Here’s a brief list of criteria that many clients have considered important:
- Profit factor
- Live vs Hypothetical performance
- Total P/L
- Frequency of wins vs losses
- Capital requirement
- Markets traded
- Frequency of trades per day or per week
- Place your criteria in order from most important to least important.
The criterion that is most important to you will define how you organize and search for systems. Our Algo IQ page makes this easy for you, listing potential criteria as a tab which organizes systems numerically or alphabetically.
- Analyze each system according to your criteria
Once you are able to view prospective systems according to your main criterion, proceed to evaluate each system according to the other criteria. For example, you pulled up several systems that have low drawdown (your main criterion). Next, you may want to check which systems have a higher profit factor, or which systems have been traded live versus hypothetical, etc.
- Check the monthly system fees and commissions
Finally, check the monthly system fees and commissions. If you find a system that interests you, click on it and view the system details. Fees are listed on the top right-hand side. Remember that fees add up, so it’s important to also check how often a system trades on a monthly basis. This will help you set expectations with regard to frequency of trades and accumulation of fees.
If you have any questions, feel free to contact us at email@example.com. We can walk you through the process and answer any questions you might have.
Past performance is not necessarily indicative of future results.
The risk of loss in the trading of futures can be substantial and is not suitable for all investors. Trading on margin or the use of leverage is not suitable for all investors and losses exceeding your initial deposit is possible. Supporting documentation is available upon request. Carefully consider whether trading is suitable for you in light of your circumstances, knowledge, and financial resources. You may lose all or more of your initial investment and only risk capital should be used. Opinions, market data, and recommendations are subject to change at any time. The lower the margin used the higher the leverage and therefore increases your risk.
The statistics on this page are calculated via the combination of three hypothetical data sets:
1. Backtested, 2. Tracked, and where available 3. Live.
Backtested performance is calculated by running a trading system backwards in time, and seeing what trades would have been done in the past when applied to backadjusted data. Tracked performance is calculated by running the trading system forwards on data each and every day, and logging the trades as they happen in real time day after day. Live performance is calculated by running the trading system on live tick data for actual clients and tracking the actual buy and sell prices those clients trading the system receive in their account.
Our system provider uses Live results to calculate monthly returns for any month in which clients were trading for the entire month, Tracked fills for those months in which there are no client fills for the entire month, and computer generated fills for those months occurring before we loaded the system onto our trade servers. The results are hypothetical in that they represent returns in a model account. The model account rises or falls by the single contract profit and loss achieved by the system in whichever data set is available. The hypothetical model account begins with the Suggested Capital listed, and is reset to that amount each month. The percentage returns reflect inclusion of commissions, fees, slippage, and the cost of the system. The commission, slippage, fees, and monthly system costs are subtracted from the net profit/loss prior to calculating the percentage return.
Please note that the method of resetting the model account to the initial value at the start of each month creates a track record which is representative of the simple returns for each time period, but that it does not, by definition, show how returns would compound over time. Should an investor following said program trade a single contract indefinitely without also resetting their account to the initial capital amount each month, their performance will differ from the performance detailed herein.