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Quantopian portfolio limit

Hey everybody, I'm new here and to automatic trading. I'm just a little curious if its possible to run out of money while backtesting? This sample algorithm just buys stocks, no logic. Does Quantopian convert stocks to cash when cash goes below 0?

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Backtest from to with initial capital
Total Returns
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Alpha
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Beta
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Sharpe
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Sortino
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Max Drawdown
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Benchmark Returns
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Volatility
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Returns 1 Month 3 Month 6 Month 12 Month
Alpha 1 Month 3 Month 6 Month 12 Month
Beta 1 Month 3 Month 6 Month 12 Month
Sharpe 1 Month 3 Month 6 Month 12 Month
Sortino 1 Month 3 Month 6 Month 12 Month
Volatility 1 Month 3 Month 6 Month 12 Month
Max Drawdown 1 Month 3 Month 6 Month 12 Month
# Backtest ID: 51edce45bcb77506dfc90e2a
This backtest was created using an older version of the backtester. Please re-run this backtest to see results using the latest backtester. Learn more about the recent changes.
There was a runtime error.
5 responses

Hello Timothy,

You need to impose constraints in your code to avoid excessive borrowing. Be aware that if you short a stock, the proceeds from the short sale show up in your cash balance as a positive amount. However, since you borrowed money to buy and immediately then sell the stock, the cash from the short sale is not fully available, since there are SEC/broker margin restrictions.

Grant

I agree with Grant 100%.

If you want a simpler method you can set per stock limits. That is the method suggested by the example source code.

  # In these two lines, we set the maximum and minimum we want our algorithm  
  # to go long or short our security.  You don't have to set limits like this  
  # when you write an algorithm, but it's good practice.  
  context.max_notional = 1000000.1  
  context.min_notional = -1000000.0  

The idea is that you would check the amount the stock is long (or short) against those limits and stop buying (shorting) once they are reached.

The problem with this "simple" approach is that you may still end up borrowing a large amount of cash if you are trading multiple stocks.

  # check cash position of stock  
  shares = context.portfolio.positions[context.aapl].amount  
  dollars = shares * context.portfolio.positions[context.aapl].cost_basis  
  if dollars < context.max_notional and dollars > context.min_notional:  
    order(context.aapl, 100)  

It is possible to extend this idea to multiple stocks. In this case I will make three changes:

1) instead of a fixed dollar limit, use cash limit specified in backtest

2) cycle over all stocks being traded

3) combine long and short limits into a single absolute (positive) number

  # get starting cash  
  start_cash = context.portfolio.starting_cash

  # cycle over all stocks  
  abs_dollars = 0.0  
  for stock in data.keys():  
    # get absolute (positive) dollars invested in stock  
    shares = context.portfolio.positions[stock].amount  
    abs_dollars += abs(shares * context.portfolio.positions[stock].cost_basis)

  # check position and price for AAPL  
  aapl_shares = context.portfolio.positions[context.aapl].amount  
  aapl_price = data[context.aapl].price

  # compare absolute (positive) dollars invested against cash limit and stock price  
  if abs_dollars < start_cash - aapl_price*100:  
    # make new investment  
    order(context.aapl, 100)  
  else:  
    # [optional] sell off part of position  
    if aapl_shares > 100:  
      order(context.aapl, -100)  

Thank you everyone for your answers. You have provided tons of information. Now only if we were aloud to go 200% below in the real market. 5000% returns doesn't sound too bad.

Hi All - Please see my most recent thread on limiting the leverage within a portfolio - https://www.quantopian.com/posts/template-limiting-leverage-by-brandon-ogle-and-dan-sandberg

This should solve the problems the OP is having.