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Anybody heard of topsteptrader (review)

  #839 (permalink)

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Pedro40 View Post
The controversy comes from TST's policies, not from the posters pointing that out, I thought I would mention that.

There was a thread about what the minimum account size should be for a starting out trader. Most everybody (including Big Mike) agreed that it should be well over 5 digits. (20-25K as minimum) Yet TST starts you out practically with 3K, even if it is advertised as a 30K account.

So if the average trader can't make it unless they are capitalized over 20K, how would they succeed with TST's 3K? Simply put, they can't and they won't. Sure, there are a few very good traders who could grow a 5K account, but guess what, they don't need TST, they can do that on their own, if they are that good.

So all in all, TST can be good for practice and getting your feet wet for cheap, but not as a long term backing solution for under capitalized traders.

This is not a bad analysis by Pedro, which anyone looking at TST ought to think about. For that matter, anyone looking at futures ought to think about the issues of leverage, which is the important point here.

I would disagree only with the "starts you out practically with 3K" estimate. The 30K Combine allows you to use a maximum of 3 contracts. That translates to an equivalent personal retail account balance of 3K only if we assume the trader is using a margin of $1,000 per contract, which is very, very little (at least it's not as risky as the $500/contract levels that some brokers promote, and that naive traders seem to like so much and that they believe is normal and reasonable, which it is not.)

If a trader puts up only $1,000 per contract in margin, and trades 3 contracts, what kind of adverse move can the $3,000 account withstand? Well, a 1-point move on ES is worth $50/contract, so with 3 contracts the move is worth $150. A 10-point move is worth $1,500, half the account. If the "trader" is using only $500 margin, 10 points is $3,000, and it's game over. Yes, you shouldn't sit like a stump and take a 10-point loss (although some will), but what if you take five 2-point losses? No one should have this insanely low level of capitalization in the first place.

When people like Mike say you should have 20-25K in the account (or more), they do not think you should then use 20 to 25 contracts, which would have the same effect. They think you should use 1 or 2 contracts -- around $10,000 per contract in margin, not anything like $1,000.

@aquarian1 did a pretty reasonable analysis just a few posts ago in this thread, assuming a more realistic margin ($4,000, which I think is a little light) and a cash reserve (which I think is good), and came to a more complex and nuanced conclusion about how realistic the TST model might be, under his set of assumptions. His conclusion shows that you would have to be damn good. I think it's a reasonable take on the issue of risk and margin, and not only for a TST account or a TST type of rule set. A trader should have thought through all of this before looking either for TST funding, or self-funding: trading futures using high leverage is hard.

This kind of thing is not what I meant by "controversies" -- questions like the above are just factual matters and can be addressed with arithmetic. Some people will then be willing a accept the risk level, some will not. Hopefully, their decisions will be made on an informed and rational basis. (Getting rich quick with an account that can only afford $500 or $1,000 margin per contract is not going to happen, which is not a popular idea, just a true one.)

If no one ever had any problems with TST other than the simple "here are the numbers, do you want this or not?," then I would have had no issues at all. But I've gone on too long, and I don't want to revive what's dead and buried. And hopefully all this is enough of a dead horse now that no one will read this anyway.

I think people should just make up their minds and do what seems right to them, recognizing that it's their decision alone, and, once they have considered all the factors involved, accept their own responsibility for their outcomes.


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