About the Collective2 Realism Factor

The Collective2 Realism Factor is a mathematical algorithm that attempts to capture how likely you are to achieve the same trading results in real-life as shown in a hypothetical track record.

What the numbers mean

The Realism Factor is a number between 1 and 100. A Realism Factor of 100 means you are more likely to achieve the same results as those described on Collective2. A Realism Factor of 1 means you are less likely to achieve these results.

How is it calculated?

The Realism Factor is updated approximately every 7 days, once we have captured enough trading data to use in our analysis. The longer the Collective2 track record, the more statistically significant the Realism Factor.

The algorithm Collective2 uses to calculate the Realism Factor is complex. Some of the factors that go into our calculations include:

(1) Recommended trade size versus real-life trading volume. In real life, any order to buy or sell a security that is large enough to represent a significant part of trading volume will either affect prices (thereby making real-life fills less favorable) or will prevent complete execution of the order (thereby making profit and loss results less significant). Collective2 analyzes trading volume and uses a logarithmic scale to determine the likelihood of a negative "volume effect" on a trade.

(2) Likelihood of just-touched orders. If a limit order is filled in a hypothetical trading record on a "just-touched" basis, Collective2 determines how likely it would be for a real-life trader to receive the same fill. Further, if a real-life fill is unlikely (or impossible), then other, subsequent orders may be affected. This "cascading" effect is a major advance in trading system analysis.

(3) Stop-order slippage. While Collective2 does not include a generic "slippage" number in its results, it does analyze the likelihood of slippage affecting certain stop orders. This analysis is based on minute-by-minute analysis of price and volume during the execution of a stop order.

(4) Real-life AutoTrade Fills. Collective2 allows its customers to follow trading systems in real life and automatically place trades in a brokerage account. We measure how customers really fare in real-life versus hypothetical results, and use this data in our calculation of the Realism Factor.

Our Realism Factor is a new, and we will be tweaking our algorithm over time to make it more useful. For now, it should be taken lightly. We welcome all feedback and questions.

Finally, the Realism Factor in no way changes the fact that all trading results on Collective2 must be regarded as hypothetical.