How I Allocate My Capital And How Commissions Grab My Gross Profits

Last Updated on July 7, 2022

I have received some e-mails about how I allocate my capital. I admit that this is a problem and quite a difficult task. Sometimes I have no positions, suddenly all my signals trigger and the allocation becomes a problem.

My aim is to trade different stocks that correlate as little as possible. Of course, that is not easy, because in down markets most seem to correlate.

However, I think I have “solved” this by concentrating more on pairs trading. So what I do is simply use 100% of my equity on pairs. The rest of the directional trades I do is on margin.

I have a portfolio margin account at Interactive Brokers, so I can put on quite a margin.  I have done this for a few months and it has worked quite well so far. Actually, much better than I anticipated. I’m up about 7% since then with about 500 trades. Most of my pairs are only held 1-3 days. I’m very pleased with the result considering I’m about 40% short in a rising market. Short is actually profitable in this period, albeit not much.

By the way, here are some other “facts”:

  1. Live trading results are about 1/3 less than in theory.
  2. Commissions take away 1/3 compared with my gross profits. I pay the “real” costs at IB, not the fixed commission rate. I’m gonna deposit more money to trade more size and this will lower my commission rate.

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  • Hey Oddmund!

    i started trading a strategy involving a great number of shares and i wonder how can you keep a accurately report trading a strategy like this? im asking this because im having trouble to separate the results from different shares in excel, and im feeling its taking more time(costs) than the benefits it will provide to do so. what are your thoughts about it?