Adding profits back to trading capital

To all the successful traders here, when did you stop adding to your trading capital, or have you a plan in mind about when to stop adding capital, or you will just keep adding extra money to your trading capital?

i think about it in reverse. I am taking money out of trading capital when needed. Position size keeps increasing as system capital increases.

It grows when it does and ill let it keep growing and add more systems. More capital + diversified systems = comfort even if returns become lower or disappear for some time - and that will likely happen from time to time.

If trading is successful, its a self perpetuating process. No need to add funds.

Investing on the other hand may require further addition as existing funds might be already deployed or locked-in.

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I mean it’s only self perpetuating if you don’t need that money in life, but what if trading is your only source of income and you do want to enjoy the money made.

Trading has risks, no matter how successful - one should never get complacent.

There are number of ways to approach this as someone who is primarily an option seller.

  1. Add 50% of profits to capital/margin ie invest in MF to pledge. But use lesser % of margin than before. Increase your capital and the margin headroom.

  2. Some people have a number in mind. They may think “If I reach a consistent average of 2cr per year, I will slow/stop adding to my margin.”

  3. Another way to guage your number is by understanding how much risk you are willing to take. Some cannot take the MTM and DD swings.

Every year I have been investing my post tax profit to the capital and trading with proportionally higher position sizes.

I don’t plan to stop the process before I feel financially free.

Taking money out is always part of the equation.

Again there are 2 different types of traders

  1. Hedge fund managers who always prefers more money getting added to the pool. 99% of these funds go into equity (swing trading or breakout trading or multi bagger idea). It is similar to a mutual fund AMC.
  2. FnO traders who do not wish to take money from outside, rather trade with own capital + profits getting added on.

Category1: traders will take money out by charging their customers an expense ratio
Category2: will still need to take out money for expenses, so they trade with what’s left from the capital+profits.

I usually don’t take the money out. But I keep reducing my risk year after year. So return in terms of percentage keeps coming down.

For example, If I am making 30 percent on 10 lakhs, next year I would be making 28 percent on 13 lakhs.

Like do you invest your all profits back into your trading capital or you invest in other instruments separate from your trading as well?

I maintain a percentage of exposure to different instruments.
If my account value is 10lakhs, there is 50 percent of equity, 40 percent of debt and remaining cash. Now if I generate 2 lakhs profit, automatically my equity and debt exposure comes down and cash increases. It will then depend on market conditions as to where I will add. If market is down I will go for equity.