Calculate Profit Target - Portfolio Margin vs IRA Account

[omcnair]

 

 

What's the best practice for calculating a profit target? 

Since the costs or margin requirements of a particular trade are going to vary depending on the broker and type of account (etc), I'd like to know if the profit target should always be based on the "cost" of the trade. 

Two example below based on the ratio trade that @Yowster opened yesterday:

Example 1: Illustrates opening that trade in a Portfolio Margin account. The buying power effect of that trade is only ($1,001.40). So if the profit target was 25% (as an example), then the actual profit target in dollars would be $250.35.

Example 2: Shows the same trade in an IRA Account (nothing else changed). The buying power effect of that trade is a whopping ($8,700.00). So the same 25% profit target would be $2,175.

 

So, two identical trades, placed in two completely different types of accounts. The profit target based on the costs of trades $250.35 (portfolio margin)  vs $2,175 (IRA).

I will be trading in both accounts but seems like $250.35 on what is otherwise a successful trade doesn't necessarily maximize the benefits of a winning trade in the portfolio margin account. Is less reward for less risk the way to go?

 

Example 1: FDX Ratio - Portfolio Margin Account

 

Example 2: FDX Ratio - IRA Account

   
 

 

 

[Kim]

Your screenshot shows 10 contracts.

[omcnair]

Yes, selling 10 and buying 20 contracts in both examples. It's the same trade, the only difference is toggling between IRA and a PM account.  

So what are you thoughts on the profit target calculation is those two examples?

Thanks!

[NJ_KenRob]

@omcnair Returns are calculated based on risk, not purchasing power reductions.

Depending on the type of margin an account has, the purchasing power reduction will be different, but the risk is the same regardless of purchasing power indications.

[omcnair]

That makes sense in a number of ways, the risk i(max loss) s always the same regardless of the type account. 

Thank you for clarifying.