How big or small should I make my scaling?

We cannot advise on which settings are best for any trader. However, we CAN explain what each feature within the AutoTrade setup wizard does. Let's look at Scaling which defaults to 100% (and allows a maximum of 500%). Scaling lets you enter a percentage for how closely you want to follow the strategy. With scaling set at 100%, you will follow the exact quantity of the strategy.

Here are a few examples:

Example 1:

Strategy’s current Model Account equity is $50,000 (more simply: the chart on the strategy pages shows the strategy is “worth” about $50,000 currently).

You have $100,000 in your brokerage account, and you want to allocate half of your account to this one strategy (perhaps leaving room for a second strategy).

Since the strategy’s Model Account equity is $50,000, you would set your scaling to 100%.

In theory this means that up to $50,000 of your account will be “taken up” by the strategy.

Example 2:

Strategy’s current Model Account equity is $80,000. 

Your broker account has $40,000.

You might consider doing the following: set your AutoTrade Scaling to 50%. 

This means your broker account will trade half the size of the Strategy Model. (Note: this assumes the strategy trades things that can be divisible by 50%. In the world of stocks, this is generally no problem: an order that is 800 shares in the Model becomes 400 shares in your broker account. But it’s less simple to do things like this in the world of futures, where typically only 1, or 2, or 3 futures contracts is traded at a time. Why is it less simple? Well, if the Model trades 1 futures contract, and you want to trade 50% of that in your broker account, then the order to Buy 1 becomes …. yikes! — an order to Buy 0. (Notice that the software rounds down fractions. You can’t buy 0.5 of a futures contract. You can either buy 1 or 0.)

To summarize, it’s usually okay to set scaling at less than 100% for stock strategies, but it can be harder to do this for futures and options strategies. If you trade futures or options, you’ll probably want to keep your scaling at a multiple of 100% (i.e. either 100%, or 200%, or 300%…)

Example 3:

Strategy’s current Model Account equity is $15,000. 

Your broker account has $100,000. You want to “use up” 60% of your broker account to allocate to this strategy.

How to do it: Use 400% scaling. This means that every trade placed by the Model Account will be multiplied four times. Since the Model Account can only "use up" $15,000 of trading power, your account can “use up” up to $60,000.

 

Important warnings:

Each broker has slightly different margining rules. So a trade that C2 “thinks” will use up $10,000, might use up more in a real broker account. Further, although we try to have the most accurate and up-to-date margining calculations, there’s always a chance we will come up with different results than your broker. So, do not try to “use up” every dollar in your account. Leave room for losses, slippage, calculation differences, etc. Finally, there’s nothing preventing your losses from being more than the nominal amount you allocate to a strategy. So be smart, be safe, and use quantities that are comfortable for you. Assume you can and will lose money.

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