Published 2026-10-14
Capital capacity
Capital capacity is how much money a strategy can absorb before its own trades move the price against it. A profitable backtest says nothing about capacity — and most backtests are, in effect, run at infinite liquidity.
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What it is
Capital capacity is how much money a strategy can absorb before its own trades move the price.
Every trade has market impact. Small trades have none worth mentioning. Large ones do — and the strategy starts working against itself.
Why backtests hide it
A backtest usually assumes infinite liquidity: any size, filled at the quoted price.
That assumption is invisible, and it is generous. It says nothing about what happens at scale — and a strategy that works at ¥1m can fail at ¥100m for exactly this reason.
How to check
Ask for the assumed position sizes relative to typical volume. A backtest with no capacity assumption has, in effect, assumed there is no limit.
The honest version states it: this works up to some size, and here is the size.