How Does Leverage Affect Trading Returns? The Kelly Criterion | Coffeezilla Follow-up
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- เผยแพร่เมื่อ 27 ส.ค. 2020
- Todays video is a follow-up to the video I did earlier this week with Steven from Coffeezilla, "The Truth About Trading Gurus". Let's look at some of the lessons that can be taken from the world of gambling that might help a trader with sizing their trades. We look at the Kelly criterion (also known as the Kelly system or Kelly formula), to see if it can provide any insights to investors. How does leverage affect trading returns? Let me know your thoughts in the comments section.
Patricks' Books:
Statistics for Traders: amzn.to/3eerLA0
Financial Derivatives: amzn.to/3kwsPSr
Corporate Finance: amzn.to/3fn3rvC
Visit our website: www.onfinance.org
Follow Patrick on Twitter Here: / patrickeboyle
Patreon Page: / patrickboyleonfinance
A reading list on this topic:
Ed Thorpe Books: amzn.to/3hG5gW4
Fortunes Formula by William Poundstone: amzn.to/2YZAr7N
When Genius Failed by Roger Lowenstein: amzn.to/3jhsUIW
Link to the coffeezilla video: • The Truth About "Tradi...
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finally a better microphone it helps so much
More about Options and wallstreet bets
There are gains on wallstreetbets like making 2 million in 3 month, how to do that?
And how much money do I need to setup a Hedge Fund?
I know you need 5 things to set up a Hedge Fund:
1) You need a seriously strong and FULLY AUDITED "Track Record" (3 years or more) -->fully audited = one of the top accounting firms has audited your Track Record.
2) An Offshore Registered Fund -->E.g. Cayman. They have "plug and play" set ups. Lawyers included.
3) An Onshore Management company -->Contracted by the Offshore Fund to manage the assets of the Fund.
4) A Third party Administrator -->He is the "Bodyguard" who ensures that the Investment Manager can only direct Assets Under Management (AUM)
to agreed investments as per the Funds mandate which are agreed by the investors.
5) A Prime Brokerage Agreement (with an Investment Bank)
-->who collateralize the offshore funds capital and allows the fund to borrow against those funds to go long
and short assets synthetically using Derivatives or physically.
No Investment Bank will enter a Prime Brokerage Agreement with a Hedge Fund unless they have
$25mln minimum in AUM and the Track Record.
Is this true?
This sounds about right, plus you need to register with a regulator in both the onshore and offshore jurisdictions. Most IB's require starting capital close to $100m nowadays, and they have to believe in your ability to raise more capital quickly in order to open a prime brokerage account. If you are going to Trade OTC derivatives you will need to negotiate an ISDA master agreement.
@@PBoyle Oh ISDA master agreement, thats the scene from the Big short.
Link: th-cam.com/video/Qo1OSqBQYmk/w-d-xo.html
Currently an Analyst in the Sales & Trading division at an investment bank. So hard to find straight shooters talking about finance on YT. Thanks so much Patrick and keep it up, you’ve got something here!
Thanks Jackson, glad you find it helpful!
That was a great interview on Coffeezilla, Patrick.
Thanks!
I second that!
It is a year later, and that is how I found you too a few days ago and subscribed. That video has legs and I really enjoy your teaching style.
Patrick is the hidden jewel of TH-cam. Thank you sir for educating us, Robinhood fools
Honestly I’m so happy to see someone doing this. I work as an investment analyst at one of the big 3 consultancy firms, used to help on the client teams for hundred million and billion pound pension schemes before transitioning to the responsible investment team. The work that goes into making a multi billion pound pot so that it can grow to meet it’s liabilities and reliably pay an income for members is truly staggering to me, and the thought that there are people who get you to believe that you can get 400% a year or 2% a day and live off the income like it’s nothing makes me sick beyond belief. Thank you for all that you’re doing.
2% per day compounded is a lot more than 400% per year. You are right though, this whole trading guru industry is a scam. It doesn't just exist in the trading industry, there are loads of 'property development' fake gurus as well. They prey on young people and people without the sense to realise they are con men.
"Excess leverage will definitely wipe you out"... Bill Hwang tried to prove otherwise, but...
What a time capsule. Almost 100x the subs you had when you released this video. Well done
Scientist: "Alright so the coin has a 90% chance to land on heads, and there's an equal reward for calling either side correctly."
Participant: *Puts everything on tails*
Scientist: o\_/o
Scientist : Can I place a negative bet?
Casino: ???
@@hypothalapotamus5293 The equivalent to YOLOing it all on a 0 day OTM option :D
It would be funny, if this wasn't how elections sometimes, or a lot of times goes
Place 10% on heads, 90% on tails.
We're equal now bthc
10% of the time it lands on tails, 100% of the time.
this channel needs to blow up. Extremely valuable knowledge to feed on here. Thanks Patrick! Cheers from a Norwegian follower
Can’t believe I just discovered your channel. Your videos are very well done. You have a beginning, a middle and a conclusion. Obviously well researched, intelligent, and interesting. Thank you!
Thanks and welcome
this channel is so underrated , so glad i found this channel
I'm here from Coffeezilla and I'm loving what I'm hearing. You sold me on not trading for money I care about, but the underlining concepts like probabilities, risk management, black swans, and statistical analysis is quite applicable outside of trading, so here's a sub.
Thanks for investing your time in these videos, they are wonderful!
I greatly enjoyed watching it!
I saw you on Coffeezilla. Came over and subscribed in the first minute. Finally got around to watching a video. Not disappointed.
Easily the best finance channel out there.
I met Patrick on coffeezilla and you deserve all the subscriber grow. Thank you for teachings and expertise 😀
Thanks! 😃
An interview on Coffeezilla was how I came across your channel. I can not thank you both enough!
This is so freaky. I've gotten into card counting this past month and have discovered Thorpe's work. Been a fan of Coffeezilla and enjoyed the interview he had with you. Now the two worlds collide? Keep up the great content.
thank you for appearing on Coffeezilla.
Amazing video on Coffeezilla Patrick...so much clarity, thank you!
Thanks you for an honest, straight talk content.
From the other side of the world, Your content is truly educating. THANKS A LOT
I'm already hooked on the channel. Keep the videos coming, Patrick!
Hello. I found you through that Coffeezilla video, which also happened to be the first time I had ever watched a Coffeezilla video. An excellent decision by the TH-cam Algorithm to send me to that particular video. I have only been through these two videos, but I am liking the content thus far. I am now a subscriber of both of your channels (as well as clicking the like button and all of that jazz). And I have a little time, so I think I’ll click on another video after I finish this reply. Cheers.
This is so great ! Thank you for sharing this patrick
That was a nice listen. Thank you
Hands down, this guy is a legend!
True, thanks to Coffeezilla we now know you. Your commentary is informative and hilarious at the same time. Loving it!!!
Very instructional video on this topic. Thanks.
Beautiful content and presentation, love your work, thank you.
Great channel thank you for your time making these
And look at you now! Fantastic!
Incredible channel regarding finance.From coffeezilla.
Just wanted you to know I have been watching your videos long before your interview with coffee and I think you do a great job of educating us on the real fundamentals of trading and not no guru crap. Many thanks 👍
I appreciate that!
Really good channel. I appreciate this.
Instant subscriber. Super insightful content! Love it.
My first comment ever on youtube. A very informative video, and just the sort of content one needs to get on with the learning process. I thank you , and yes I have subscribed.
Little late to the party, but making my way though your videos on my vacation lol. Happy I found your channel! Best of luck for 2021
From coffeezilla!
loved that colab with coffeezilla
I'm here because of the coffeezilla interview but new to both channels now.
You honestly scare me even more about my decision, but I'm still new to trading/investing. I am just looking for a career I can be passionate about and still be sustainable. It seems your channel should help me whether I decide to active trade or even become passive and pursue a new career. Pre-thank you for all the free content and amazing information.
Great content! Thanks a lot
I came from CoffeeZilla , subscribed , great content
Nice stuff! One complicating factor is that odds and the chance of winning are connected. You know the given odds on a bet, and you may know how often you're right. But chances are, the higher the odds, the lower the chances that you're right. Meaning you can't compute the actual Kelly Criterion, because one value is unknown and must be approached conservatively.
Patrick, keep doing what you are doing!
Patrick deserves a million subscribers!
Was thinking of incorporating the kelly criterion into what I do. You just gave me the impetus, thanks :)
wow, you have a gift for explaining complex things. Thanks so much.
Glad it was helpful!
Congrats, Patrick! This is really fantastic!
Thanks!
One of the interesting things about the kelly system is that if you could reliably predict the actual risks attached to an instrument, rather than having to make do with estimates that are definitely wrong but hopefully not by too much, there would be an objectively correct trading strategy, particularly in derivatives markets where the results are more binary, like options or swaps.
Glad to be a subscriber, hope to learn a lot from you .
I glad you collaborate with coffezila. I gona watch all of your videos 🤗
Great stuff. Very informative.
Well done. Which means, in this case, especially useful. Thanks for taking the time. More please...
Thanks!
The Plain Bagel comment section got me here but I'm glad you did a video with Coffeezilla too.
Patrick
I just subscribed because you impressed me on Coffeezilla and I trust Steven. I had not heard of you prior to the referred channel. Looking forward to enjoying real red meat.
"The Plain begal" interview was the best one I've seen you in. The host richard had great interview skills. The interview flowed well and was very informative. You both vibed off of each other.
This is Gold. Listen to it 10 times then 20% more
Wow time flies brother still doing some of the best work in finance entertainment 👏 👌 thank you sir you are OG now.
I like your style, so elite and full of information.
Great video , thank you for telling it as it is👍
Found you from coffeezilla keep up the great videos 👍
I have absolutely no intention to ever trade stocks but your content is amazing, you have a gift of explaining very complex stuff in a simple manner.
Have you considered dividend growth investing? Simply accumulate shares of quality dividend paying ETFs by dollar cost averaging. Enable Dividend Reinvestment Plan (DRIP). All you do is purchase and never sell and you will be owed and increasing amounts of money which will go toward making you ever increasing amounts of money.
You won't have to worry about complex trading. Only on trying to purchase shares of the ETFs as cheaply as possible while being paid ever increasing amounts of money by the ETFs the entire way until you are ready to retire. Never know, might be worth sinking your teeth into it.
Great stuff ma man. Thank you
Wonderful content!
first time hearing about the kelly formula - watched 3 videos on it, very interesting!
New favorite channel. Heard about you from the Coffeezilla vid. Thanks for your quality content!
Glad you enjoy it!
Love your vids. They’re free to watch but the information is priceless.
I appreciate that!
You should really do reviews of these trading "gurus" , you will spread so much awareness, potentially save peoples livelihoods and possibly lives (People have committed suicide losing money) and the concept of making money slowly over a decade or so and the power of compounding interest. Great content.
Hey Patrick its been a while between hello's, your vidoes as always are informative and excellent
Some great points. Definitely different way of looking at the market.
you post good content Pat, keep it posting please!
Wow. Every single sentence is packed with valuable information. Btw, I bought your new book after finishing your statistics playlist :)
Wow, thank you! Im glad you are finding it useful.
Watched your interview on Coffezilla , came here and sub because you're genuine :-)
Appreciate the videos!
Glad you like them!
Patrick: Thank you for your generosity in sharing your knowledge and Wisdom. You are a true master, and teaching is in your soul... I stumbled upon you by chance, but you have a new subscriber, happy to have found your valuable content. I sincerely commend your vocation to teach and share your knowledge. Thank you very much. Best regards
This is the exact dose that I desperately NEED.
That lesson on the Kelly principle changed my life! What a f*cking good video sir!
Hey Patrick, thanks for the great content you've been providing so far, I'm learning a lot. I was hoping that you could create a video explaining market makers and how they make money of payment for order flow.
Great suggestion!
Citadel and Two sigma are the 2 biggest players in payment for order flow
long journey from 7k to almost 500k! Good job!
hi Patrick..i am glad that I found your channel through coffeezilla. you have so much valuable content. i wonder how many more hidden gems TH-cam has which cannot be seen due to number of subscribers
Great content Patrick! These help a lot as a finance student
Great to hear!
Fantastic video. I learnt a lot in risk management from the Kelly approach. Thanks man. Look forward to more of your future videos.
Glad you enjoyed it!
@@PBoyle I actually have a question. I am a college student currently studying finance, investment and portfolio management. I understand the importance of diversification and how to diversify properly with calculating risks and returns with Maths. I also want to start investing and trading stocks. Personally I think I will not be doing day trading as it is going to be hard for me to keep trading daily with my school projects and all. So I will be doing swing trading over weeks or one or two months long hold periods. Plus, I do not have much starting investment capital to work with as I am only a student (Less than USD$5,000). Is there any advice you could give me in creating my portfolio. Like which are the industries you would recommend me to look into investing. My main goal right now is capital growth not really preservation. So equities makes sense, but I am not too sure which industries to focus into that will give me the highest returns in regards for risk.
Now I am going for the coin challenge. Thanks for the great story and awesome information statistics
Not from Coffeezilla but loving your content♥️
I was just thinking about it today about leverage in the Futures Market. Specifically the es futures. I'm definitely going to check out Edwards books and the Kelly criteria regarding the bet sizes. Thank you for the video
Glad to help. When you look at most financial disasters, excessive leverage is the culprit.
I've been trading options for about 6 months now and coming across your videos you mention stuff that took me months to learn and totally understand, like market correlation, trade allocation, etc. Great stuff!
Do you still trade options or did you wipe out?
@@luvon1114 Wiped out
@@bryceblankinship really? What happened?
@@luvon1114 Same day exp zoom calls and it was not a good day for zoom.
Hi, Patrick. Thanks for the video! I'm interested in digging into this Kelly criterion even further now. I just ordered your book on Statistics for the Trading Floor as a way to say thanks for the info. Cheers! 🍻
Discovered you from Coffezilla. Great interview.
Glad to have found you. You and SMB Capital seem to be the only ones out there teaching it right.
I bought your book when i was first getting into trading... Didnt realize you had a channel!
Yep I subscribed after watching that video...
Amazing explanation for beginners like me
Many thanks from San Francisco ca
As a math major, I can't help but blush when he explains stats and prob concepts using real-world examples! Good work and nice storytelling!
i saw you in cofezilla and your content seems super educational.
Thanks!
I really enjoyed your Coffeezilla interview.
I am now a subscriber 👍
Welcome aboard!
Great video Mr. Boyle...
Glad you enjoyed it!
More of that! Statistics and facts!
Coffeezilla lead me here !! Thanks for the content. New subscriber. Cheers !
Welcome aboard!
I like this vid. Good insight.