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Funded Trader platforms

  #1 (permalink)
 
Big Mike's Avatar
 Big Mike 
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What unexpected challenges have you encountered while trading on a "Funded Trader" platform?

 

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  #2 (permalink)
 
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 processing 
Sydney, NSW
 
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(deleted)

Reason:
I now realise I experienced a lot of good luck on the eval.
I have blown my PA account.

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  #3 (permalink)
 
SMCJB's Avatar
 SMCJB 
Houston TX
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Great question @Big Mike

I don't participate in funded trader platforms so maybe my vote doesn't count. But the reason I would never participate is "Unrealistic rules and requirements". They are all trying to force you to trade the way they want you to trade. They automatically eliminate so many styles of trading.

edit: It's designed around 'their risk management ideals' and not 'best trading ideals'

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  #4 (permalink)
Dmonz
Málaga
 
Posts: 32 since Nov 2021
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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...

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  #5 (permalink)
 
josh's Avatar
 josh 
Georgia, US
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Dmonz View Post
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.

Let's consider a more optimized scenario, because $99 a month is too much, and $3000 LL with a $6000 PT is not optimum at all.

Consider instead a $50k evaluation account with a $2500 loss limit and a $3000 profit goal. As you mentioned, this is really a $2500 account, with a $3000 profit goal. Let's imagine you can get this configuration for $33 per month, because you can.

IMO, the only issue here is time.

Consider a strategy with only a 40% win rate, 2:1 R/R, and a whopping 4% risk per trade. If we call 90% drawdown "blown", then the risk of ruin calculation, even accounting for a trailing drawdown, is about 0.1% (simulating with 1000 trades). So, your risk of blowing up is miniscule. The question is, can you really get paid 2:1 and do so 40% of the time?

How long will it take you reach the $3000 profit goal? Well, that's a function of the frequency of trade opportunities. Imagine your system has a more conservative profit factor of 1.6 and you win 50% of the time. If you risk 3% per trade ($75), your average win is $120, so your expected value on any given trade you take is $22.50 ($120 * 0.5 - $75 * 0.5). If you get 2 trade opportunities per day on average, then you can expect to make $3000 in 67 trading days, which is just over 3 months. The cost would be $133. These are not some crazy, unachievable goals.

Let's imagine instead that you blow several of these accounts, say, 50 of them, costing you $2000. Well, you would have lost that money more quickly had you opened a $2000 account, almost certainly.

Does their model encourage gambling behavior? I would say so, yes. But so does trading, period. It's a world of gamblers. People blow up every day. Success is rare. At least with funding companies, people can do what is effectively simulated trading, with what's quite a small fee relative to actual trading capital they'd have to put up otherwise, with an actual opportunity to get paid for it, compared with free simulated trading which has even less accountability. There is no real support, no accountability, and yes, you are free to blow as many sim accounts as you want. But you're also free to run down to the bank and wire another $5K in every time you blow up a real account. At some point, one's own personal responsibility must kick in. No one will stop you from your own behavior.

I was once very negative about funding companies but I've changed my tune. I see them as a win-win for everyone. Traders who can do well can get paid. Traders who don't will lose less than they would have in the market. The firm gets free order flow and can use that information to make real money for themselves.

The only real downside I see is the counterparty risk, which was my main issue previously. Your counterparty in a live trade is CME. Some people think it's the trader on the other side of your trade, but it's not. CME assumes counterparty risk and guarantees it with margin. So, when live trading, your counterparty risk is zero. You WILL get paid. With a funding company, they are your counterparty, and your risk is that they won't pay you. This to me is the only real risk here.

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  #6 (permalink)
Dmonz
Málaga
 
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josh View Post

Consider a strategy with only a 40% win rate, 2:1 R/R, and a whopping 4% risk per trade. If we call 90% drawdown "blown", then the risk of ruin calculation, even accounting for a trailing drawdown, is about 0.1% (simulating with 1000 trades). So, your risk of blowing up is miniscule. The question is, can you really get paid 2:1 and do so 40% of the time?

How long will it take you reach the $3000 profit goal? Well, that's a function of the frequency of trade opportunities. Imagine your system has a more conservative profit factor of 1.6 and you win 50% of the time. If you risk 3% per trade ($75), your average win is $120, so your expected value on any given trade you take is $22.50 ($120 * 0.5 - $75 * 0.5). If you get 2 trade opportunities per day on average, then you can expect to make $3000 in 67 trading days, which is just over 3 months. The cost would be $133. These are not some crazy, unachievable goals.

If my math isn't off, this trader would bring their $2500 starting balance to a whopping $66.764,16 at the end of the year. (3% risk per trade, 1.6 profit factor, 200 trading days, 2 trades per day). The trader would accumulate 8.5% on top of his account every week. To me that sounds crazy. If you can achieve that, there is no reason to use a funded firm.

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  #7 (permalink)
 
josh's Avatar
 josh 
Georgia, US
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Dmonz View Post
If my math isn't off, this trader would bring their $2500 starting balance to a whopping $66.764,16 at the end of the year. (3% risk per trade, 1.6 profit factor, 200 trading days, 2 trades per day). The trader would accumulate 8.5% on top of his account every week. To me that sounds crazy. If you can achieve that, there is no reason to use a funded firm.

Your math looks correct, but I was not implying a compounding approach and scaling. My calculations were done just on a fixed risk, so that in week 10 you're still risking $75 per trade as you were in week 1.

I think increasing size is best done in stair steps rather than on a per-day or even per-week basis. Maybe every 2-3 weeks, which is what some firms do. I was not trying to imply that you keep this going ad infinitum, because it takes a good bit of work to risk $75 in a trade in January and risk $500 on the same trade in December.

But, I don't think that jump sounds crazy, personally. As we have been discussing in the other thread, the notion of your capital base you're willing to risk is not necessarily "my account balance." It's not that impressive or difficult to return 100% on $200 because you can go out and make $200 in a day doing most anything. To return 100% on $200,000 is more impressive. Why? Well, because $200 is what a fine dining dinner for 2 will cost you and might be a day's salary, while $200,000 is what a used lambo will cost you and might be a year's salary. Same return in percent terms, different skill set to achieve that.

So for some people, turning $3K into $60K in a year would not be that crazy. To emphasize, it's because most of us know what it's like to net $57K in a year, which is what this would be. As mentioned in that other thread, Marty Schwartz returned 25% per month, and he was a BIG trader. This guy publicly went from $25K to $100K in less than 3 months (it's verified, he's not a scammer, etc.). So, we're not talking about doing the impossible here. I think that's because, again, making $75K is more "real" to most people. How about turning $1M into $4M, even with infinite liquidity? Well, if you have never made $3M in a year, it sounds a little more challenging doesn't it?

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  #8 (permalink)
 
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 blackgrey45 
Marco Island, FL
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I would rather use the fees for a funded trading account toward my own trading business in a live futures environment. Participating in a prop firm funded program seems like supporting somebody else's business.

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  #9 (permalink)
 
processing's Avatar
 processing 
Sydney, NSW
 
Experience: Beginner
Platform: Quantower
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blackgrey45 View Post
I would rather use the fees for a funded trading account toward my own trading business in a live futures environment. I treat trading as a business and participating in a prop firm funded program seems like supporting somebody else's business.

I am starting to think the same.

I first applied to Propex (Sydney) in 2011 and was invited to go in and do the entrance test, but didn't make it. This was when Guy Bower was the head of training.

I applied several more times, and eventually was offered a place, around 2015 (unsure of the exact year). This time round, it was Adam Rochaix who was the trainer.

When I got the email offering me a place, I considered it outside of my comfort zone.

I had a lot of mental roadblocks and my mindset wasn't in the right place.

Anyway, I eventually asked them to give my spot to someone else.

I much prefer trading from home, whenever I feel like it.

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  #10 (permalink)
 sevensa 
Singapore, Singapore
 
Experience: Intermediate
Platform: Sierra Chart/IB, NT
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josh View Post
Let's consider a more optimized scenario, because $99 a month is too much, and $3000 LL with a $6000 PT is not optimum at all.

Consider instead a $50k evaluation account with a $2500 loss limit and a $3000 profit goal. As you mentioned, this is really a $2500 account, with a $3000 profit goal. Let's imagine you can get this configuration for $33 per month, because you can.

IMO, the only issue here is time.

Consider a strategy with only a 40% win rate, 2:1 R/R, and a whopping 4% risk per trade. If we call 90% drawdown "blown", then the risk of ruin calculation, even accounting for a trailing drawdown, is about 0.1% (simulating with 1000 trades). So, your risk of blowing up is miniscule. The question is, can you really get paid 2:1 and do so 40% of the time?

How long will it take you reach the $3000 profit goal? Well, that's a function of the frequency of trade opportunities. Imagine your system has a more conservative profit factor of 1.6 and you win 50% of the time. If you risk 3% per trade ($75), your average win is $120, so your expected value on any given trade you take is $22.50 ($120 * 0.5 - $75 * 0.5). If you get 2 trade opportunities per day on average, then you can expect to make $3000 in 67 trading days, which is just over 3 months. The cost would be $133. These are not some crazy, unachievable goals.

Let's imagine instead that you blow several of these accounts, say, 50 of them, costing you $2000. Well, you would have lost that money more quickly had you opened a $2000 account, almost certainly.

Does their model encourage gambling behavior? I would say so, yes. But so does trading, period. It's a world of gamblers. People blow up every day. Success is rare. At least with funding companies, people can do what is effectively simulated trading, with what's quite a small fee relative to actual trading capital they'd have to put up otherwise, with an actual opportunity to get paid for it, compared with free simulated trading which has even less accountability. There is no real support, no accountability, and yes, you are free to blow as many sim accounts as you want. But you're also free to run down to the bank and wire another $5K in every time you blow up a real account. At some point, one's own personal responsibility must kick in. No one will stop you from your own behavior.

I was once very negative about funding companies but I've changed my tune. I see them as a win-win for everyone. Traders who can do well can get paid. Traders who don't will lose less than they would have in the market. The firm gets free order flow and can use that information to make real money for themselves.

The only real downside I see is the counterparty risk, which was my main issue previously. Your counterparty in a live trade is CME. Some people think it's the trader on the other side of your trade, but it's not. CME assumes counterparty risk and guarantees it with margin. So, when live trading, your counterparty risk is zero. You WILL get paid. With a funding company, they are your counterparty, and your risk is that they won't pay you. This to me is the only real risk here.

To add to this, I don't think these programs should be treated as a regular accounts. The goal is to play their game and get to multiple funded accounts as soon as possible and use copy trading. I use Apex and only picked up my eval accounts when they were on 90% discount. This is about $17/month. 20 accounts, which is the max Apex allow, cost $340. Pushing your luck a little with higher risk, $150 a day is achievable during the eval which get you to $3000 on a 50K account in a month. Really pushing your luck, you can do that in 1 - 3 days, but should be prepared to blow up a few accounts doing that.

Even if you pay for 40 accounts to blow up 20 to eventually get to the 20 funded ones, your cost will be $680. If you pick up the accounts at 80% discount which is almost all the time, your cost for 40 accounts will be $1360. After that, you have to pay the lifetime fee of $150 once you qualified for the funded account. That's 20 x 150 = $3000. So, you can be funded on 20 accounts for $4360 after a month. Then, you can go back to conservative trading with $50 average / day realistic and achievable, without hitting the $2500 drawdown. Also keep in mind that the trailing drawdown stop once your account go above $50,2600 on a 50K account. The trailing drawdown stop at $50,100 and you just need to keep your account above that. If you are more conservative, you can trade really small and only withdraw anything above $55K for example, leaving you a $5K drawdown buffer. Of course, this will take longer to get to the point where you can make withdrawals.

After 3 to 4 months, you can start making withdrawals and if you average $50 a day, this is about $1000 a month, but since you are doing it over 20 accounts, this is $20,000 a month. Heck, if you average $25 a day, this is $10K a month. You can spread your risk by using 4 account groups for example and trade 5 accounts at a time so that a couple of bad trades or copy trading fiasco don't wipe out all 20 accounts. If you rotate amongst them trade after trade and risk $100 per trade then after 4 losing trades in a row, you are down $100 per account, instead of $400 on one account which is a lot easier to recover from.

I don't think there are many other ways that you can use $4360 and turn it into $20K monthly returns in 4 - 6 months.

Of course, this only work if you already have an edge and can be relative consistent with small average gains per day without large down swings. The issue comes when people are not consistent, have no trading plan nor methodology and swing for the fences during the eval to get qualified and continue to do so and keep blowing up accounts. But then, this is better and cheaper than opening a $2,500 account with a broker and blow it up in a month because you are still learning, or really have no plan other than swinging for the fences. With an eval account, you will only be out ~$33 in this case.

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