Hi guys, I wanted to get some feedback to help me try to understand something a little bit better.
I debated whether I should just ask this question directly on the "topsteptrader ask me anything" thread but I was more interested in unbiased feedback and a little bit of debate, so please bear with me.
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Background info
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TopStepTrader funds traders between 10,000 to 150,000 to trade. They receive 20% of the profits and the trader receives 80% of the profits.
In order to become eligible for funding, the trader has to pass a "Combine", which is essentially boils down to reaching a profit target whilst mainting some logical parameters like risk-reward.
If you fail to maintain the objectives (like the RiskReward), you lose a deposit, you will need to pay-up to restart the combine.
I'm not here to argue about whether or not its a "scam". I dont believe it is. The business model is a win-win for everyone involved.
Trader -- He gets access to large trading account.
TopstepTrader --- Earns some revenue from the 'combines'.
Equity partner who provides the Cashs --- has potential to get paired with talented trader and make money.
Now, a funded account has a maximum draw down limit. If you hit that draw down, you lose the account.
10,000 account, maximum drawdown is $1,000
30,000 account, maximum drawdown is $1,500
50,000 account, maximum drawdown is $2,000
100,000 account, maximum drawdown is $3,000
150,000 account, maximum drawdown is $4,500
( Combine Account Parameters ? Help & Feedback Center ()
It uses a trailing stop style feature where if you build up your account, you can create some cushion. In otherwords, if you generate $10,000 in the account, you can lose that $10,000 and still stay funded. You just cannot bring under the certain amount (example, 50k account has 2k draw-down limit. If you ever get under $48,000, you will lose the account)
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The Rub
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Ok, so now lets discuss something. We all know the rule that we should risk a maximum of 1-2% of our equity on any trade idea. Futurestrader71 did a full video discussing this topic and i'd advice people to watch it if they havent.
Lets take the $50,000 account provided by topsteptrader for example.
1% of $50,000 = $500.
But TopStep only allows you a maximum draw down of $2,000. So if you risk 1% of 50,000 you will lose the account if you make 4 wrong trades. So its like you are risking 25% of your account. To avoid this, one would want to reduce this risk back down to the 1%-2% level.
So logically what this actually means, is that the 1% rule should be applied not to the total account size, but to the maximum draw-down that they allow you.
So 1% of $2000 = $20
One contract on the ES is ($12.50). Add another $4-5 for the transaction fees and your looking at $16.50-17.50 lost every trade you put on. Add a little bit more because of slippage and you can basically round it off to $20 per round turn. So you cannot even trade 1% of your max drawdown, because you lose 1% every trade you take with 1 contract. So you have to trade at least 2%.
So my question boils down to this. What is the point of working so hard to get "funded" with places like topsteptrader or any propshops that let you trade their money, when in reality you don't have access to the full capital. You only have access to your maximum drawdown.
Granted one can argue that the maximum drawdown is a trailing one. But that doesn't really change much in the grand scheme of things.
If you make $25,000 on your $50,000 account, you have made 50% (which might seem achievable)
However to make that $25,000 using good money management (ie risking 1-2% of your max-drawdown because that is the size of your account in reality), reality you would need to make 1150% ($2000 + 1050% = 25,000)
When you look at it like that, it no longer seems realistic.
So my question is what is the point of even trying to get a "funded account" with topsteptrader? …