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Funded Trader platforms

  #21 (permalink)
 
SMCJB's Avatar
 SMCJB 
Houston TX
Legendary Market Wizard
 
Experience: Advanced
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Thanks @Dmonz, @dredmond19800, @josh, @processing, @sevensa and everybody else contributing to this conversation. Very interesting, especially how you have as many as 20 accounts going at the same time. As @sevensa said, if your only going to make a single trade per day, and your looking to make just 2 ticks on the trade, is there a setup you can find that gives you an extremely high probability of doing that?

Question that hasn't been asked, and seems to be not included in anybody’s calculation. Trading a funded account is trading other people’s money. As such this makes you a professional in the eyes of the exchanges (or importantly in CME’s eye’s). As such you are now subject to professional data fees on all of your trading, not just these accounts. Are you factoring that in/paying those fees?

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  #22 (permalink)
dredmond19800
Dublin, Ireland
 
Posts: 11 since Apr 2021
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SMCJB View Post
Thanks @Dmonz, @dredmond19800, @josh, @processing, @sevensa and everybody else contributing to this conversation. Very interesting, especially how you have as many as 20 accounts going at the same time. As @sevensa said, if your only going to make a single trade per day, and your looking to make just 2 ticks on the trade, is there a setup you can find that gives you an extremely high probability of doing that?

Question that hasn't been asked, and seems to be not included in anybody’s calculation. Trading a funded account is trading other people’s money. As such this makes you a professional in the eyes of the exchanges (or importantly in CME’s eye’s). As such you are now subject to professional data fees on all of your trading, not just these accounts. Are you factoring that in/paying those fees?

AFAIK, with Apex you're trading sim so you're not a professional trader and they pay you as a contractor. They don't pay you from your "earnings" from your account, since it's all made up anyway.

With TopStep when they move you from their XFA (funded account) to a live account then you are trading as a professional trader and do have to pay the data fees.

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  #23 (permalink)
mariafp
Annecy, France
 
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SMCJB View Post
Trading a funded account is trading other people’s money. As such this makes you a professional in the eyes of the exchanges (or importantly in CME’s eye’s). As such you are now subject to professional data fees on all of your trading, not just these accounts. Are you factoring that in/paying those fees?

I believe this arises only after being funded, so one need not factor it in during the "qualifying period" - that is only on demo, anyway?


dredmond19800 View Post
AFAIK, with Apex you're trading sim so you're not a professional trader and they pay you as a contractor.

This is maybe a questionable business model, anyway. Regulators seem to think so, at the moment? (I would not, myself, use Apex anyway, for many other reasons.)

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  #24 (permalink)
 Binkius 
Taipei/Taiwan
 
Experience: Beginner
Platform: IRT/Bookmap
Broker: S5
Trading: FESX, NQ
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US Securities Exchange Commission does not allow CFD's. The broker/prop-shop must trade your order. It must transact on the market.

If the evaluation/online prop company is NOT actually trading your order, but acting like a "bucket shop" (where they throw your order slip into a bucket and settle up with you later), then you are not trading someone else's money (you are actually trading against the prop-shop) and are not a professional trader. But the online prop shop is operating in a very, very grey legal area (if they're in the USA, although it's legal almost everywhere else).

If the evaluation/online prop company IS actually trading your order, you are trading their money and you are a professional trader.

I think the easiest way to figure out what your online-prop shop is doing is to fund with them. If they require you to register as a professional trader, they are probably trading your orders. If they let you coast along as a non-professional, they're probably bucket-shopping your orders.

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  #25 (permalink)
 Binkius 
Taipei/Taiwan
 
Experience: Beginner
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I think a lot of the funded-trader / online prop-shops are operating like CFD brokers. They're basically bucket shops.

The business model is very simple. Give the client a huge amount of leverage on a tiny amount of capital and he'll blow himself up very quickly. Since no actual trades (on an actual exchange) ever occurred, all the client capital is just taken by the CFD broker.

For CFD brokers to operate in Europe, they must disclose the loss rate of their clients.

IG.com says on their own website, "70% of retail client accounts lose money when trading CFDs, with this investment provider."
https://www.ig.com/en/cfd-trading

eToro.com says on their own website, "74% of retail investor accounts lose money when trading CFDs with this provider."
https://www.etoro.com/customer-service/general-risk-disclosure/

Those numbers have improved dramatically, so I'm wondering if there's been a change in reporting methodology. It used to be monthly, but I'm not sure what they're doing now. But basically, clients don't last very long if 70+% of their reporting periods are losers.

In the USA, we can't trade CFD's, so we have funded-trader / online prop-shops. Some of these are actually trading the actual instrument. Others are just bucket-shopping the orders.

They seem to have two main rule-sets. One with intra-day drawdown and one with end-of-day drawdown.

The intra-day drawdown shops tend to be cheaper, allow massive trade copying and are better suited for traders looking for fast, scalpy-type trading (because you have to get out fast before it starts drawing down on your intra-day drawdown).

The end-of-day drawdown shops to be more expensive, limit trade copying and are better suited for traders looking to catch larger moves in the market (because drawdown is calculated at end-of-day).

For learning how to trade, both are much, much, much cheaper than opening a traditional brokerage account.

Find the rule-set you like. You want to trade for a few ticks? Get 10-20 trade-copier accounts. You want to trade for longer moves? Get an end-of-day drawdown account.

Because the drawdown limits are so severe, you can only reasonably trade with smaller size on one account or larger size spread over many (trade-copier) accounts.

The business model is to give you a lot of rope to hang yourself with. If you don't use all the rope, it's a cheaper learning path than blowing up real accounts.

These are training accounts. If you get successful, you'll dump these companies because taxes on a 1099 will destroy your profits. These provide a cheap way for you to learn how to trade. To figure out the technicals and emotionals of trading.

Because if you're successful, you'll ditch them in a flash to get into a better tax bracket.

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  #26 (permalink)
 
processing's Avatar
 processing 
Sydney, NSW
 
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Binkius View Post
I think a lot of the funded-trader / online prop-shops are operating like CFD brokers. They're basically bucket shops.

The business model is very simple. Give the client a huge amount of leverage on a tiny amount of capital and he'll blow himself up very quickly. Since no actual trades (on an actual exchange) ever occurred, all the client capital is just taken by the CFD broker.

For CFD brokers to operate in Europe, they must disclose the loss rate of their clients.

IG.com says on their own website, "70% of retail client accounts lose money when trading CFDs, with this investment provider."
https://www.ig.com/en/cfd-trading

eToro.com says on their own website, "74% of retail investor accounts lose money when trading CFDs with this provider."
https://www.etoro.com/customer-service/general-risk-disclosure/

Those numbers have improved dramatically, so I'm wondering if there's been a change in reporting methodology. It used to be monthly, but I'm not sure what they're doing now. But basically, clients don't last very long if 70+% of their reporting periods are losers.

In the USA, we can't trade CFD's, so we have funded-trader / online prop-shops. Some of these are actually trading the actual instrument. Others are just bucket-shopping the orders.

They seem to have two main rule-sets. One with intra-day drawdown and one with end-of-day drawdown.

The intra-day drawdown shops tend to be cheaper, allow massive trade copying and are better suited for traders looking for fast, scalpy-type trading (because you have to get out fast before it starts drawing down on your intra-day drawdown).

The end-of-day drawdown shops to be more expensive, limit trade copying and are better suited for traders looking to catch larger moves in the market (because drawdown is calculated at end-of-day).

For learning how to trade, both are much, much, much cheaper than opening a traditional brokerage account.

Find the rule-set you like. You want to trade for a few ticks? Get 10-20 trade-copier accounts. You want to trade for longer moves? Get an end-of-day drawdown account.

Because the drawdown limits are so severe, you can only reasonably trade with smaller size on one account or larger size spread over many (trade-copier) accounts.

The business model is to give you a lot of rope to hang yourself with. If you don't use all the rope, it's a cheaper learning path than blowing up real accounts.

These are training accounts. If you get successful, you'll dump these companies because taxes on a 1099 will destroy your profits. These provide a cheap way for you to learn how to trade. To figure out the technicals and emotionals of trading.

Because if you're successful, you'll ditch them in a flash to get into a better tax bracket.

Thank you for the explanation, I highly enjoyed reading it!

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  #27 (permalink)
 Timstrikezone 
Australia Qld
 
Experience: Intermediate
Platform: Ninja trader
Trading: Es , nq, Rty, Ym, Cl, Gold
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Dmonz View Post
I was looking up the concept of these firms lately and I do not seem to understand why anyone wants to deal with them.

Sure, on the surface it looks like that concept can help make you money if you do not have much capital on hand but after I checked I don't see how that can work out.

For example, I just use TopStep because they are mentioned in this thread already, but this is the same with other funded firms:

Let's take a look at the 100K account. This account gives you a maximum loss limit of $3000 and they want you to reach a profit of $6000.

If we look at the $3000 as the account size, because that is what we do not want (and can't) lose, and using the 2% risk mantra, and let's say we make 100% in a year on the account (being very generous), then we need around 1.5 years to pass to get to their profit target. That comes down to around $300 per month, BUT we have to pay $99 per month to them for being allowed to trade with them. So what is the point? I saw that there is another fee of $149 that will make these results even worse, but I stopped there already, maybe there are even more fees? And this is a really optimistic scenario.

Okay, so using only the 2% on the $3000 as the account size doesn't make sense to me.



Then the next step is to take on more risk. Let's say we risk $200 per trade. That gives us a big cushion of back to back losing trades before hitting the maximum loss limit. But that gives us a 6.67% risk on the account. I do not like that.

These firms are claiming that they do not want gamblers, but without taking a high risk, it's hard to make money with them in the first place. For me it feels like they are teaching you to trade poorly.

Keep in mind that they on top of that, are trailing the maximum loss limit. So until we are over $103.000 account size we are never allowed to lose more than $3000. Even if you started with a few winning trades, you can not use these profits as a cushion. So you are still limited in your trading and you are rather having a $3000 account instead of a 100.000 account while you are paying them $99 monthly...

This basically means you need to double your $3000 account before you even start to have more than a $3000 account.

All the while you are paying them for your troubles...

People tend to trade big size and pass the account in one week. How people pass to how they trade when funded isn't the same. When you are looking at 3000 you are not tho you are looking at losing 99 dollars not 3 grand. So when you risk 10 or 25 percent of the capital you put up we are talking about 10 and 25 dollars. Nobody really cares about losing 10 dollars on a trade but once you pass you turn 99 dollars into how many thousand dollars of draw down. If you take your own 3 grand . You have to cover the margins and draw down. If you take that 3 grand and buy how many 50k accounts shit even 490 usd would give you 20 grand to lose. Will you learn more from losing 20k or 490. If we place our failures dollar for dollar I'll lose 490 over 20k. Not to mention you can be classed as a contractor and not trigger the professional market data that would cost you 120usd per exchange per platform.

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  #28 (permalink)
 bdom2369 
norman oklahoma
 
Experience: Advanced
Platform: IB
Broker: IB
Trading: Options
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Dmonz View Post
I was looking up the concept of these firms lately and I do not seem to understand why anyone wants to deal with them.

Sure, on the surface it looks like that concept can help make you money if you do not have much capital on hand but after I checked I don't see how that can work out.

For example, I just use TopStep because they are mentioned in this thread already, but this is the same with other funded firms:

Let's take a look at the 100K account. This account gives you a maximum loss limit of $3000 and they want you to reach a profit of $6000.

If we look at the $3000 as the account size, because that is what we do not want (and can't) lose, and using the 2% risk mantra, and let's say we make 100% in a year on the account (being very generous), then we need around 1.5 years to pass to get to their profit target. That comes down to around $300 per month, BUT we have to pay $99 per month to them for being allowed to trade with them. So what is the point? I saw that there is another fee of $149 that will make these results even worse, but I stopped there already, maybe there are even more fees? And this is a really optimistic scenario.

Okay, so using only the 2% on the $3000 as the account size doesn't make sense to me.



Then the next step is to take on more risk. Let's say we risk $200 per trade. That gives us a big cushion of back to back losing trades before hitting the maximum loss limit. But that gives us a 6.67% risk on the account. I do not like that.

These firms are claiming that they do not want gamblers, but without taking a high risk, it's hard to make money with them in the first place. For me it feels like they are teaching you to trade poorly.

Keep in mind that they on top of that, are trailing the maximum loss limit. So until we are over $103.000 account size we are never allowed to lose more than $3000. Even if you started with a few winning trades, you can not use these profits as a cushion. So you are still limited in your trading and you are rather having a $3000 account instead of a 100.000 account while you are paying them $99 monthly...

This basically means you need to double your $3000 account before you even start to have more than a $3000 account.

All the while you are paying them for your troubles...

Yeah these companies are really just marketing companies. They get you in the door and make a cashflow positive business off users trying and failing. If they get a golden goose trader that they can actually fund thats just icing on the cake.

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  #29 (permalink)
mariafp
Annecy, France
 
Posts: 51 since Jan 2024
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Binkius View Post
For CFD brokers to operate in Europe, they must disclose the loss rate of their clients.

In EU countries, yes. And they are allowed to do this in a very misleading way, telling you only the proportions of accounts that lost money to them over the last quarter of a year (usually about 75% or 80%).

It is very misleading because they are typically not the same people from quarter to quarter, for many reasons, and the proportion of retail traders profitable over a year is much closer to 0% than it is to the 20% one might wrongly expect from reading the information they must publish, according to the FCA (UK regulator, maybe the best one in Europe).

In forums sometimes people discuss Europe as if it is one country for broker and regulation purposes. It is not. A few rules are the same among EU states but overall there are well regulated countries (UK, Switzerland) and light touch regulated countries (Cyprus, Malta, Bulgaria) and they vary greatly.


Binkius View Post
In the USA, we can't trade CFD's

But you can trade spot forex in the USA through CFTC regulated spot brokers like Oanda and Forex.com which are bucketshops anyway?

For myself I will not use a funding company with a drawdown that trails open equity. All the ones I consider now use end of day. Some always did.

The tax considerations and documents you mention above are US specific. In the rest of the world it is rather different.

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  #30 (permalink)
Northernlimit
Toronto Canada
 
Posts: 53 since Jan 2017
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I'm currently in the Top-step program and here are the reasons I find it useful.

1. I use their parameters as a success benchmark, so I can evaluate various strategies for appropriate outcomes. Before Top-Step I was playing the dark.
2. I have been able to test a wide range of strategy ideas without the cost of losing real capital and the real $cost would have been far greater.
3. I use the live feed to monitor my other investment portfolios in real time.
4. I don't consider the cost of the platform significant, or even relevant, because if I was actually trading I'd have to pay for that feed anyway.
5. Most posters seem focused on scalping ES around the opening and announcements. IMO, scalpers don't need a funding program, but I'm not fast enough to play that game.
6. There is a tax advantage in offshore funding. Top-Step is just an evaluation feeder for a London hedge fund, it's not a bucket shop as some claim here. Top-Step is a separate entity and make their money honestly by buying a feed wholesale and selling it as a retail service. Since the hedge fund is off-shore, and owns the account, it means that any earnings held by the hedge fund is "earned-interest", so there is no tax effect to me until I withdraw funds. This means capital earnings can compound tax-free.

I could write a book on what I have learned on my own thanks to this program, and I finally have a strategy that works for me, and by extension Top-Step, that is reasonably scalable and consistent. I entered the program with a focus on personal learning so for me funding was secondary to developing an appropriate strategy. My current constraint is the extensive time spent in front of a computer waiting for optimum scenarios [i.e. capturing missed opportunities], which can occur any time from 3am to 3pm, so even though I still don't have funding now I'm coding my strategy using SharkIndicators [Bloodhound/Blackbird].

After looking back at my journey, I have no problem paying a fee to Top-Step for their service and once everything is complete, with an 80% payout I'll earn the money back very quickly. If it wasn't for the tax advantage I'd probably just go out on my own anyway.

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