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Patak Trading Partners

  #6 (permalink)

Fullerton, CA
Posts: 201 since Dec 2010
Thanks: 33 given, 98 received

A poor deal

Patak is a member of the CME and has a wholly owned sister company, TopstepTrader is basically a vendor that sells prospective prop traders the right to earn a position trading Patak's capital. The businesses are structured as separate entities to not run afoul of the NFA regulations for member firms.

The only way a trader can become a prop trader for Patak is to pay $80 for a four week trial, in which one is evaluated on his success trading in Sim mode on the T4 trading platform (which has several limitations compared to other well known retail providers). If one is selected to join Patak, the fee is refunded; otherwise it is non-refundable. A trader can sign up for the trial, known as "Combine" as often as he wishes in the event he fails to get accepted as a Patak prop trader.

During Combine, if one losses $1000 in any given day trading a max of 5 contracts with a hypothetical $50K account, he will not be selected to become a prop trader. Anyone who has traded futures knows this is unreasonably restrictive and unrealistic. In effect, this is a 2% drawdown--a hurdle that easily is broken by even the very best of traders. In other words, the odds are stacked against the Combine subscriber from the starting line.

Since the program was launched in June, the new recruit manager at Patak has stated that only 7 persons have been selected to join Patak as a prop trader among a very large number of Combine subscribers, the number of which wasn't disclosed, but I would not be surprised if it were in the mid-high hundreds.

In my opinion, this program is terrible for the would be prop trader for a variety of reasons.

First, the Combine scheme is a vendor service charging one $80 to earn the right to prove he can make money trading futures. Considering Patak has the most to gain from the arrangement, based on the fee split, this seems like a way to simply extract $80 from the applicant with nothing of value given in return. If that were the only issue, the deal wouldn't be bad, but the profit sharing split after marked up commissions make this a non-starter.

The new prop trader starts out with $50K of Patak's money with his hands tied behind his back, insuring his failure. All one has to do is examine the attached split an fee structure to see that it is near impossible to be profitable with the guidelines. THE DAILY LOSS LIMIT ON A $50K ACCOUNT IS $500 trading up to 5 contracts. When that happens, you are done for the day. No chance to recover. Should your account drop to $48K, you are demoted and have to go back to Combine to earn the right to become a prop trader again and pay an additional $80.

In addition, the prop trader is charged $2.40 r/t plus exchange fees. Ask yourself why Patak won't simply charge a token commission and pass along the same fees it pays as an exchange member rather than retail charges?

The bottom line here is this: Patak is only risking $2K less the profit on commissions on the prop trader. In return for that, they will take 40% of your profits. If your a profitable trader, you'd be better off borrowing money from your relatives, take out a home equity loan, or even use a credit card cash advance to fund your trading account and keep most of the profit for yourself. If a trader generates $5K of profit, Patak--after taking 40%--is now in a no loss, no risk position. They can either break even (by cutting off the trader at $48K) or continue to rape the profitable trader for 40%.

This is a marketing scheme to separate aspiring traders from their earned profits. If you can't afford to risk and lose $2K of your own money than you shouldn't be trading--you are under capitalized. And if you can, you don't need Patak to skim 40% of your hard earned money and pay them retail commissions to boot.

I do have to hand it to Patak for coming up with this brilliant business model. It makes loansharking look like legitimate.

Recommendation: Pass. Don't think twice.

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Last edited by Tundi; December 20th, 2010 at 11:58 PM.
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