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Would you lease an automated trading system?


Hi there :)

I am getting out of the Journals space to ask you, ladies & gentlemen, the following questions :

1. "Would you ever lease an automated trading system"?
2. "If yes, what would be the key aspects you would base your due-diligence & final decision on"?
3. "Would you rather lease a system running on NinjaTrader, or would a signal-service off Collective2 be a better alternative for you"?

I am asking these questions because I am seriously considering offering my trading system for lease ... but I want to gauge the level of interest for that type of offering, before getting into all of the necessary steps for such endeavor (forming a legal entity, getting a website up & running, webinars & other forms of advertisement, etc.).

I know a classic objection is "if this system makes money, why would you lease it instead of trading it" - at least I can answer that one right away: I am trading this system, to the max of my (limited) current financial capacity. And I see no reason not to offer it for lease - CL trades enough volume to have a few tens of contracts trading the same strategy (which, BTW, has currently 3 different configurations each with its own entry level).

Thanks in advance for your responses

Cheers
Dominique
Dom, answers to your questions:

1. probably not
2. if yes, audited p&l statements from your broker showing profitability and low draw down/risk.
3. Collective2

My thoughts are that the route you are trying to take is the more difficult one. If you have a profitable system that you can show audited results for then you should be able to find other people's money (OPM) to allow you to run a legitimate and legal hedge fund. I'd investigate that angle first.

Just my 2 cents.
DT,

Thank-you for your response & advice. I have yet to investigate seriously the OPM angle, just scratching the surface of it though it appears that I (or anyone for that matter) can "advise" up to 5 friends or family accounts before having to go through either a CTA or hedge-fund process (in the order of complexity & cost). 5 accounts at 20% profit sharing still makes 100% additional profits vs my account, so I won't disregard this option.

The audited p&l statements makes sense - I did organize my trading in separate accounts for separate systems, and will keep this practice in the future, that makes it pretty easy.

I am 1/2 committed to entering the 2013 World Cup championship of futures trading (I would be 100% already if it wasn't for the paperwork) - I hope this will bring some visibility & credibility to my trading system.

I am also going to take the C2 route - it is only $99 / 6-month (per system), not a big deal even if I never make one subscription.

Happy New-Year!
:)
Although I selected C2 as an option for delivery I'm not sure how good it is. I lost faith in it some years ago (there's a topic on here somewhere if you search hard enough) when I discovered that the signal owner can get errors removed from their record. The problem with allowing this is that the signal/system own is highly unlikely to request that profitable errors are removed from their record but will obviously want losing errors removed so that killed some of the credibility of C2 for me.
From the C2 website...

We charge a flat 30% fee for any subscriptions you collect through Collective2
Dom993,

Is your system based on closing price ..
If you don't want to answer
I understand ..
Not sure what you mean by Closing price ... it is an intraday trading system, with entries generated throughout the day, time from signal to entry from a couple seconds to several minutes ... I suspect that C2 would be too slow to work with the fastest ones, however on 6 years setups with a signal to entry < 15-sec represent about 3.5% of the P&L
Originally posted by dom993

Not sure what you mean by Closing price ... it is an intraday trading system, with entries generated throughout the day, time from signal to entry from a couple seconds to several minutes ... I suspect that C2 would be too slow to work with the fastest ones, however on 6 years setups with a signal to entry < 15-sec represent about 3.5% of the P&L

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Some indicators are setup by the closing price of a given session ..
Sounds pretty high frequency. In short the answer is a NO. The competition in this space is so immense, if you don't have access first of all to PHD programmers to update the algo, and second of all to all the ECN's and volume advantaged fee structures that the real algo guys do, you wont make any money, all you'll do is pay commissions most likely.

The bigger point here is the market constantly changes. I recently read an article about how even the algo guys were cannibalizing each other and finding it harder to make profits. If its not your system, and you don't understand what needs to happen to update it..I wouldn't bother.

Plus if it truly made money the owner of the system could easily have access to capital to trade it himself. That would be much more profitable than leasing it. As far as I'm concerned, don't do it.