Why does the Margin Factor affect Buy & Hold Performance (APR% and total gain) for a single equity in Portfolio Simulation mode? B&H buys once and starts with equity shown as equal to Starting Capital (same as Strategy). Since B&H only buys once, where is the supercharged performance coming from in backtest?

Also, why isn't B&H exposure always 100%?

1 - Why shouldn't the Margin Factor be affecting the B&H performance?

2 - Because partial shares are not allowed. If the amount of shares is would take to enter a B&H trade was 172.4, for example, then it would be rounded down to 172 and so is B&H exposure e.g. 99.4%.

2 - User Guide: Preferences > Performance Visualizers > Performance > Buy & Hold: Portfolio Simulation Mode, B&H Calculation Notes

Eugene,

QUOTE:
1 - Why shouldn't the Margin Factor be affecting the B&H performance?

- Using margin distorts returns because of leverage; it is unclear what the actual starting capital is (including margin)
- . Also the equity curve graph shows the starting point for B&H = Starting Capital x Allocation, where it is actually Starting Capital x Margin x Allocation. This is clearly an incorrect presentation of what is going on.
- What is the formula for using margin for B&H? If I am using 1:2.5 and I have $500,000 starting capital with one position in Portfolio Mode, it the simulation purchasing $1,250,000.00 worth of that position on day 1? How is that illustrated on the Equity Curve?
- If above is correct, is the system also purchasing 2.5x on buy signal?

The practical point is that I am only using margin so that trades will execute. Doing so creates this new distortion of results.

QUOTE:
2 - Because partial shares are not allowed. If the amount of shares is would take to enter a B&H trade was 172.4, for example, then it would be rounded down to 172 and so is B&H exposure e.g. 99.4%.

- The actual effect is much greater than that; reduces exposure to 91.06%. Cannot be due to your partial share explanation since there is $500,000.00 starting capital and the equity is never over $100 in the simulation.

In the real world, margin is only available as a % of held equities. Since B&H starts with cash, there is no margin available on initial purchase. Since the B&H strategy only buys once initially (with cash), it cannot use any margin - ever. So what is the simulation doing exactly? (I have read all documentation Cone referenced above but it does not satisfactorily answer this question.)

QUOTE:
- Using margin distorts returns because of leverage; it is unclear what the actual starting capital is (including margin)

On the contrary, it's very clear. You enter the Starting Capital value in the Position Sizing control, and, the equity curve starts out at this value. What might be confusing you is Wealth-Lab's use of the term "equity". In Wealth-Lab, the value of the [closed] equity curve is the value of the Portfolio (i.e., Net Liquidation Value) at the end of a given day, including cash. It's doesn't represent the amount of "equity in stock" owned.

Let's also point out that Wealth-Lab's representation of margin is rudimentary. There are no margin calls, although you can see where one would have occurred by inspecting the equity curve.

QUOTE:
What is the formula for using margin for B&H? If I am using 1:2.5 and I have $500,000 starting capital with one position in Portfolio Mode, it the simulation purchasing $1,250,000.00 worth of that position on day 1? How is that illustrated on the Equity Curve?

Already explained above, but for more detail please re-read this in the User Guide: Preferences > Performance Visualizers > Performance > Buy & Hold: Portfolio Simulation Mode, B&H Calculation Notes

QUOTE:
- If above is correct, is the system also purchasing 2.5x on buy signal?

Not exactly. Sizing is controlled by the sizing setting. In your example, using 10% of equity sizing, a buy signal would purchase a $50K position because your "equity" (i.e., account value) is only $500K. However, instead of only being able to buy 10 Positions, you'd be able to purchase 25 due to leverage.

QUOTE:
Cannot be due to your partial share explanation

Truncating to an integer number of shares and basis price sizing is the reason. Really. For an explanation of basis price, see User Guide > Strategy Window > Backtesting Strategies > 100% of Equity Sizing > Basis Price
(Note: "Benchmark Buy & Hold" in Preferences > Backtest Settings does in fact use fractional shares.)

QUOTE:
In the real world, margin is only available as a % of held equities...

Don't get lost in the details. As soon as you have use 100% of your cash, at 2:1 margin you have another 100% of buying power. Buy & Hold is showing what the result could have been if you used your full amount of buying power on the first day of trade for an apples to apples comparison with the purchasing power of your trading account.

If you don't like the way Buy & Hold uses margin buying power, simply run a separate simulation without margin and use those Buy and Hold results instead.

QUOTE:
If you don't like the way Buy & Hold uses margin buying power, simply run a separate simulation without margin and use those Buy and Hold results instead.

Good suggestion. It might be helpful to have an option where B&H can ignore margin (which would then only be used by the strategy) since it appears that margin is often the prescription for skipped trades. In the real world we would just reduce the number of shares we are purchasing according to the amount of equity available.