bobwest 

They also might take the opposite side against the traders who aren't as likely to succeed -- who aren't managing their trading or risks well, which is somewhat similar to 's suggestion that they would trade against them.

Just to clarify, I wasn't suggesting that they trade against us. My point was that they lose money when they pay us out, as our goals are not aligned. Which is why we see the numerous complicated rulesets these funded SIM firms seem to have. Scaling plans, minimum days to payout, consistency rules etc. They basically don't want us dumping max contracts onto the market and making a small fortune in the first day, then withdrawing it. It's designed to stop us having large winning days. Apex even has it between payout days, so you can't earn more than 30% in a single day between payouts, it basically resets each period.

Contrast this to a straightforward profit split on the live market. If you see an opportunity and make $30k on your first day, then you have just earned the firm $3k and yourself $27k with a 90/10 split. I think Tradeday is one of the few firms offering live accounts now, and they have no restrictions at all on payouts.

As for the other suggestions about them hedging, as you say none of us really know where their money comes from. Companies like Apex certainly collect a lot of fees with these wild sales, the huge influx of new accounts is readily apparent as they've has issues with both Rithmic and Tradovate in the past week. Apex charge an "activation fee" of over $100 for funded accounts, and it's a completely nonsensical amount considering they can afford to give an evaluation for $15, but this shows they're definitely making money from the fees.

My guess would be that they monitor their traders, look for the steady, consistent earners and copy trade them at a ratio more than 1:1. But the idea that they'd copy anyone and everyone who has a PA account seems absurd to me, due to the high number of people blowing their PA accounts within days. It seems way too risky and could lose them a lot of money.

bobwest 

That's all I mean. And pretty much pure speculation, except for the fact that they do say that they use the sim trading info to trade with. Bob.

Just to add, their trading platform TopstepX has this feature built in, allowing us to see sim trading info. It's called "tilt", and shows what other traders are doing at the moment. I.e it might be on 65% long 35% short, and shows what instruments they're trading.

VirtualMark 

Just to clarify, I wasn't suggesting that they trade against us.

Yeah, I may not have said that well. I don't mean they are literally trading against their customers (nor did I mean that you said that either.) I just meant that some will be better traders than others, and it makes more sense not to follow the bad ones.

VirtualMark 

My guess would be that they monitor their traders, look for the steady, consistent earners and copy trade them at a ratio more than 1:1. But the idea that they'd copy anyone and everyone who has a PA account seems absurd to me, due to the high number of people blowing their PA accounts within days. It seems way too risky and could lose them a lot of money.

I don't disagree. Sort of what I was saying, or trying to. I do not think it would be reasonable to copy all the PA accounts (sim accounts that they are paying on), which is why I emphasized treating the successful sim traders and the unsuccessful ones differently when hedging trades.

As a general case, I do think it is reasonable to think that an eval firm can manage its sim payouts well, and not get into trouble from them. I have only a limited knowledge of one (TST), as I said, and can't really say anything about any of Apex's issues. Just that the payout question in sim accounts can be handled well and is not intrinsically a red flag. I have no particular opinion of Apex outside of that.

Bob.

bobwest 

I think we can take it for granted that they are going to put the trading information they have to use, and that they are not fools. So it is not necessarily obvious that these firms are always going to be losing if they pay out to sim traders. They have some potentially very valuable information here, and they are going to have an incentive to use it.

This exactly.

Guys, order flow is valuable. Remember when you used to have to pay to trade stocks? All that stopped because order flow became so valuable that it was worth more than the actual commissions per trade. Think about that for a moment. They'd rather just see your orders than take your money.

So, my claim is that order flow is not just potentially valuable to the current funded trader model. It's everything, and without it, it's not even close to profitable. They need to see aggregate order flow so they can use it. Of course, the more restrictions they place on funded traders (like not allowing a trader to go from trading 2 contracts to 10 for a windfall profit), the less reliant they are on it, because they can simply deny paying. Which is one reason why one might think that a company with massive restrictions like Apex does not in fact seek to hedge customer funded profits as strictly. But, they have to do it to some degree. They're paying out tens of millions of dollars, I don't think that's all coming from fees.

josh 

This exactly. Guys, order flow is valuable. Remember when you used to have to pay to trade stocks? All that stopped because order flow became so valuable that it was worth more than the actual commissions per trade. Think about that for a moment. They'd rather just see your orders than take your money.

But surely if everyone is trading sim, there is no real orderflow? None of these orders are actually hitting the market, they're just seeing what their own traders are doing. And none of their orders affect the live market at all, there's no liquidity being added, it's all just simulated orders.

In the end we can't really know...
I suspect that it's difficult to truly determine if and how client data (order flow) from these funded trading platforms is exploitable or valuable. Also as suggested a large portion of their clients seems to be on SIM anyway. It's important to recognize that these matters are more complex than they might appear at first glance. Similarly, no one can "know better" about the operations of these platforms unless they are directly involved in the business and know the ins and outs.

There are different narratives out explaining, why selling client data is not doable in a practical sense. But what do I know, I'm no where near in the position to really know the answer on this subject.

But how much does it really matter? Perspective on opportunity, responsibility and risks...
But putting these considerations aside, I want to bring a general perspective on funding platforms to the conversation. In my opinion, it doesn't matter if the trades are SIM-only, fully, or partially replicated, as long as the client gets paid for their performance. If a trader has a real edge, this can be a great opportunity to boost funding resources, especially when under-capitalized. Yes, the trader has to follow rules and cope with restrictions, but once enough profits are accumulated, they can fund their own private account and have full control.

Traders need to have a certain skill level before joining funding programs. I think it's not a shame to admit that trading in general is not that easy on the first hand. If a trader is not solid in his trading, he likely struggles to adjust to the specific rules even more (I.E. real-time trailing thresholds that could conflict with trading styles involving large position swings).
The rule sets of the most popular funding firms are well explained and made clear beforehand. I think these are manageable.
Many do also overly focus on the short term of things, meaning qualification phase and the initial performance phase. But thinking a bit longer term, some of the restrictions do fall away after time (I.E. payout restrictions after n payout cycles, trailing draw down stops to move higher after the initial risk is covered).

Traditionally, there was no such cheap and quick way to access this kind of leverage.
If a trader concludes that the rules are clearly conflicting with his trading approach or skill level, it's his responsibility to recognize that and seek for other alternatives.

My personal perspective on it
Therefore, I think the most important aspect to focus on is more the feasibility to trade within the rule set while being profitable and the risk side of things not or no longer getting paid.
Meaning to compare reputation/reliability (which is a bit of a gamble anyway), leverage (in comparison to the price), and the rule-set enforced by the firm, which the trader should see if he can successfully cope with or not.

In this sense, my primary concern is the reliability of a funding program—specifically their ability to pay out clients, avoid bankruptcy, and regulatory issues. They better make a lot of money so they stay in Business. These factors can all change over time.
In the end, it's about understanding the risks and knowing how to cope with the rules, while making the most of the opportunities within the framework provided.

VirtualMark 

But surely if everyone is trading sim, there is no real orderflow? None of these orders are actually hitting the market, they're just seeing what their own traders are doing. And none of their orders affect the live market at all, there's no liquidity being added, it's all just simulated orders.

None of their orders affect the live market at all, but they affect the funding company because they are obligated to pay based on the performance of that flow in relation to the market. If you had a contract with someone to pay them based on their ability to guess how many cars pass by in the next hour, the guess means nothing to the cars passing by but certainly means something to you. These are traders with real intention, where real money is at stake to both parties. Imagine knowing the real time positions and orders for even a small group of sim traders, say, 50. Unless they are willfully being deceptive, that is valuable information. It's a window into the mind of a collective group of traders, and in the case of Apex/TST/etc, it's critical to their bottom line.

josh 

None of their orders affect the live market at all, but they affect the funding company because they are obligated to pay based on the performance of that flow in relation to the market. If you had a contract with someone to pay them based on their ability to guess how many cars pass by in the next hour, the guess means nothing to the cars passing by but certainly means something to you. These are traders with real intention, where real money is at stake to both parties. Imagine knowing the real time positions and orders for even a small group of sim traders, say, 50. Unless they are willfully being deceptive, that is valuable information. It's a window into the mind of a collective group of traders

The order flow of a small group of semi professional traders in a simulated market, vs the real order flow of the live market with smart money placing hundreds of contracts at a time. I'm just not entirely convinced that the data of a few people guessing would be of that much use.

It's even built into TopstepX, and the first thing he says on the video is that some traders like to go with what everyone else is doing, and some go against. I'd be interested to hear from anyone who's using this tilt function successfully.

josh 

and in the case of Apex/TST/etc, it's critical to their bottom line.

Well, this is pure speculation, yet you're sounding as if you know the inner workings of their business. The only thing we know for a fact is that they take a lot of money in subscription fees, and they claim to copy some traders. They do make their business model work, however the recent rule enforcements and updates show that everything might not be as well as they let on, as they could well be struggling to pay traders and need to find ways to cut the bill down.

josh 

in the case of Apex/TST/etc, it's critical to their bottom line.

How do you know this, Josh? I do not dispute the facts you stated, and I see that it is logical to raise the possibility that it may be of some relevance to their bottom line, depending on how they run their businesses, but how do you know that it is actually "critical"?

Please appreciate that I have much respect for your posts in the forum, and I am not asking to try to pick a fight, but because I am planning to become a customer of one of these businesses and I wish to understand clearly how they work. In other words, I am not asking "How do you know?" to imply that I think you do not really know, but because I wish to learn something that can be relevant to me! Thank you for understanding.

I have to say that I think we are at (or maybe somewhat beyond ) the point where we know anything at all solid.

It makes sense to me that the data the firms have on their paid-sim accounts could be useful to them. Part of the reason I think that is that one of them, Topstep, just out and out says they use it to trade. That really raised my curiosity the first time I saw it (and at subsequent times) and I was very taken by 's surmise, which I see as quite reasonable, that they use it to offset some of their risk of paying out on sim trades. Maybe they don't. Maybe they meant something completely different. They have not opened their books to me, and I don't imagine that they will.

So that's essentially where I'm coming from in this. And maybe I'm wrong.

I would add two related small points, also without any more support than that it just seems "reasonable" to me (which doesn't mean much):

1. The question has been raised of how a firm can survive financially if they pay people for simulated profits. This is a good point, because one way would be to deny a lot of payments in order to keep their outlay down, or find ways to get their fees very high, or both. Either of these imply that things are pretty shaky. There's a lot of criticism of the entire industry on just these points, and of course, this thread is about Apex so there's been a lot said about Apex in that regard.

But the explanation that the firms make use of the trade data they have to hedge their payment liability is another answer, and it applies across the board, so it's not pro or anti Apex. If in fact it works, then of course any business would do it.

2. The question has also been raised about how useful this sim data is, in terms of providing an opportunity in the real market. Again, I don't know, but my guess is that it provides a reasonable proxy for the live market, or some section of the market. (What "section"? Well, if taken in the aggregate, how about the majority of small traders? And since the firms can differentiate between the traders with successful records and the less successful ones, also about the trades of the good traders vs. the bad ones?) Do they really track any important segment of the trading population? Is the sample large enough? Does it matter? All of this is also just my guess.

I have written all this stuff simply because I was puzzled when I looked at the question of "How can they do this (pay these sim accounts) and not go broke?" This is a very good question. I liked 's idea of hedging their risk because it attributes a very trading-oriented business strategy to at least some of the firms (TST), and assumes that the traders who run it can see a hedging opportunity and will use it.

I don't have more than that. I wouldn't even have made these guesses, if TST had not said they do use it. But they did.

Bob.