Child account management

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To manage a Child account

A resize event

Lets review our system logic. Weve instructed Mechanica to reduce the number of contracts by 10% any time the positions current risk is 20% greater than the positions initial risk:


~POSITION                      'declare resize Category

'If current risk is 20% greater than initial risk then 

'reduce position size by 10%



19Click on the Parent account, and move the Calendar forward one trading day to Sep-18-2001.
20Click the Process button to the left of the Parent account.
After downloading and processing data for Sep-18-2001 we see that this Resize condition (code above) has become true.  OM issues a Resize delta order (size adjustment) for the next trading day, Market on Open.

Since the position is held short, Buying (“covering”) 5 contracts reduces the open position size by 10%.


21Click on the Parent account, move the Calendar forward one trading day to Sep-19-2001, and click Process (button to the left of the Parent account).
22Click on Detail for the Child account.
Note that the Size of the AD position is reduced by five (5) contracts. In Default Positions, the original Entry size of 47 contracts is shown to the right of the current Size of 42 contracts.
Note also that the Default Orders tab has been updated to reflect the current Size of 42 contracts.

This change is also recorded in the position history
23Click the History button to the left of AD in the Default Positions grid


Rescaling to manage changes in account size

24This section discusses how to manage account additions and redemptions.
25As the Child account fluctuates (via manual updates by the manager each day to reflect balance fluctuations in the actual account the Child represents), the position size of new orders generated is scaled, based on the ratio between the Parent and the Child account Trade Levels. Scaling of new trades occurs automatically for the Child, every time the Parent account is processed.
26Order Manager will not generate delta orders for open positions though, unless the Child account is explicitly Rescaled to the parent.
27Rescaling brings the size of open positions held by a Child account back into alignment with the theoretically perfect Parent account.
28Due to your funds stellar one week performance, an investor has sent you an additional $5M to manage, thus doubling the current size of the Child account.
29Heres how to manage that event:
30Click on the Parent account, and move the Calendar forward one trading day to Sep-20-2001.
31Click the Process button to the left of the Parent account.
32Click in the Trade Level cell of the Child account, and backspace over the current amount of $5,000,000.
33Change the Child Trade Level to $10,000,000.
34Click the dropdown listbox associated with the Change Status cell of the Child account, and select Rescale (shown, right).

35Click on the Parent account, and click Run Sizing Rules.
Click on Detail, Default Orders (screen shown below).

Note that delta Resize orders have been issued, approximately doubling the size of each open position.

But if the program was profitable over its life, and the Child account size doubled (and it did), then why didnt the position sizes exactly double?


In essence, because while the Parent account has grown slightly (+1.83%), the Child account balance, or Trade Level, remained static until todays Rescale event. Thus, the magnitude of the difference between the Parent and Child increased (the accounts diverged).

Lets look at the Parent accounts balance and position sizes, and do the math for CD.

The Parent accounts Trade Level is $509,133,460, and it is holding short 11,240 contracts of CD. The Child accounts Trade Level is $10M.

How many contracts of CD should the Child account hold?

Simply set up the following proportion and solve:        

Here, X = 220.7673, which rounds to 221.

Note that the short exit order (SX) shown two screen shots back is already adjusted to reflect the new size (221 contracts), and the delta Market on Open order of 109 contracts reflects the new size of 221 contracts minus the 112 contracts previously held in the Child account.

Leave Rescale selected for the Child account, and lets move on to the next trading day.


Rescaling to realign Parent and Child

36Click on the Parent account, move the Calendar forward one trading day to Sep-21-2001, and click the Process button (to the left of the Parent account).
37Click on Detail for the Child account, and look at Default Orders.
Note that we now have two new delta Resize orders.

As you can see, OM has generated delta Resize orders for CD and JY, to reduce each position by a single contract.


Because (a) the child account Trade Level is not being updated every day as it would be in actual trading, (b) Sep-21-2001 was an up day (the Parent grew from $509,133,460 to $510,190,295), so the Parent and Child accounts continue to diverge, and (c) Rescale was active for the Child account during processing. Thus, the delta Resize orders in CD and JY, which serve to bring the Child account back into alignment with the Parent.

Owing to the highly granular nature of futures contracts, even when a Child account is updated daily with the balance of the actual account it represents, a Parent and its Child account will grow at slightly different rates due to the difference in position size resolution (the position sizing resolution of the Parent is quite fine in this regard, and for all practical purposes is theoretically perfect, whereas by comparison, resolution in a Child account is coarse). When Parent and Child drift apart, and Rescaling brings the errant Child back into alignment with the theoretically perfect Parent.

Of course, Parent and Child divergence can also occur with stocks, particularly if you are trading round lots. But it is a pronounced phenomenon with futures.

ThumbTack white

When Rescaling is active (always on), it is not uncommon to see delta Resize orders such as these, even in the absence of redemptions, additions, or conditional Resize events.

So if you turn Rescale on it will remain on until you turn it off.

Frequency of Rescaling

As mentioned in the first part of this document, frequency of rescaling is a matter of user preference and philosophy.

Some managers rescale Child accounts monthly or quarterly depending on the liquidity of their fund, and they may do so whether or not an addition or redemption was made, simply to bring the Child back into alignment with the Parent on a periodic basis.

Other managers rescale Child accounts daily, while some rescale only when a Child account experiences an addition or redemption.



38Disable Rescale in the Child account by selecting None under the Change Status column.
39Click on the Parent account, move the Calendar forward one trading day to Sep-24-2001, and click the Process button.
40Repeat this process for each trading day until the data for Oct-02-2001 is processed.
41Click on Detail for the Child account, and look at Default Positions.
Note the gray highlight across JY, the absence of a red check under the Active column, and Risk = 0. This alerts us that the LX stop was hit during the Oct-02-2001 session, and the position exited.

42Click on the Default Orders tab, and you will see prospective entry (LE, SE) and contingent exit orders (LX, SX), for JY, to be entered on the morning of Oct-03-2001.
43Continue to run the account forward day by day, through Oct-05-2001.
44Click on Detail for the Child account, and you will see that Short exit stops (SX) were hit during the Oct-02-2001 session for CD and AD.
45Click on History for AD (shown below), and you will see a full record of all critical statistics for the life of this position.

The portfolio is now flat, and this concludes the Tutorial for Order Manager.  Please be sure to check out the FAQ.