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Anybody heard of topsteptrader (review)

  #534 (permalink)

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bobwest View Post
Yes.

You are basically thinking in retail account terms. If you have a 50K personal account, the advice to only put 2% at risk is good advice. The reason is that you will certainly have losses, perhaps large and sudden ones, and you will need to make sure that you still have capital left. So you keep your exposure small compared to what you have available.

It's not the same if you are trading a firm's capital, where they have risk control management in place and give you a certain amount of buying/selling power (meaning, the number of contracts you can trade.)

If you get funded by TsT, you are not getting an account with 50K in it -- that is, one where you can put 50K at risk. If you look at the examples on their web site, and listen to the many explanations they have given, you will notice that all the funded accounts start out with a zero ($0) balance. That is because your account will only ever show your current net profit or loss. It does not start at a number that represents an amount that you have available to put to use. This is not how the Combine works; it is how the funded account works. As to why the Combine is set up that way, I suppose that it is so people will have something that is familiar to them. (Reference: Futures Funded Trader Scaling Plan ? Help & Feedback Center -- "All funded accounts have a starting balance of $0." The number of contracts you can trade depends on the initial dollar balance of the Combine you passed, but the balance of your funded account is the net profit/loss that you have produced.)

Just as, in your personal account, you have to put up enough margin to support the contracts you trade, they have to have enough margin with their broker to support your positions (and everyone else's that trade with them.) The amount that they have at risk at any one time is a matter between them and their broker. You are never going to know what that is, and it is not something you will ever manage, anyway.

Also, the amount that they are comfortable having in reserve, above the margin requirement, is up to them. It does not appear as a balance in your account, and is also not something that you will ever know, or will ever manage.

Because you are trading under a risk manager, you will get pulled if you exceed the loss you are authorized to have. That is their part of risk management, as regards your account. Your part is not to hit the limits you are given. You have no responsibility beyond that.

The 2% rule, or any % rule, which certainly does apply to prudent risk management by an individual of his/her own capital, does not apply to you trading the firm's capital. They do have to have risk management in place, or they could go under due to the risk their traders expose them to, but that is for them to manage. It's not your capital, and not your risk, really. Any firm, in any market, operates this way. Traders have a certain risk allocation, and the firm regulates how far they can put the firm into the hole before getting pulled out of their positions.

The point is that this is not your own retail account, where you need to apply prudent risk management to avoid ruin. That is being done by the firm at a level above you. They decided that they would allow you to take a certain amount of risk with their capital, and they are managing any impact that arises from your trading that amount of risk.

(I noticed some discussion just now about trading 2K in an account. I think you can see that all that misses the mark, because the basis is wrong -- the idea that you are trading a 50K account. You're not. You have no idea what is backing your trades. Nor is it ever really a concern of yours. )

Now, as to whether it is worth your while to trade with them, that is your call. I look at it as free money; besides, they accept all the risk -- you don't stand to lose anything. If you're trading your own account also, you could just take the same trades in both yours and theirs, and increase your profits by 80%, but not increase your risk of loss. But that's also your call.

Finally, I do agree with @Big Mike's point, which he has made often, that the greatest value of the Combine is that it forces you to practice discipline and be accountable to another for producing results. In other words, it's valuable training. The prospect of trading with their money is a nice bonus.

I do believe that I got all that about the account balances and the rest right. However, if not, perhaps Mike Patak, @TopstepTrader, can step in and correct whatever I got wrong.

I also hope this helps to clear things up.

Bob.

Edit: I also saw some discussion about being under-capitalized. It is really important to understand that this is not like your own account at all, and you cannot have any notion how well or poorly capitalized the firm is. You do not have any way to know what margin they put up, and you do not know what their reserves are. Also, you are not trading anything that resembles your own money or your own account; it is the firm's capital that is at risk. And you don't have anything to do with how they are managing it, other than staying within the loss limits that the risk manager gives you.

And you can't figure it backwards from the "50K" number, which has very little (no) relation to the funded account, or at least to what is backing it.

I hope I'm not beating this horse too much....

Spot on Bob. Thank you for the reply.

Michael

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