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I think the article quite accurately reflects the business model. I am not sure it should come as a particular surprise. In most other contexts, a genuine search for talent isn't predicated on the applicant first putting up fees. If a candidate turns up for a job interview at JP Morgan they aren't asked to first deposit $200 dollars at the reception before they are permitted to go to the meeting room.
I think it is a puff piece to scare people who haven’t done their research yet, while at the same time promoting their Fractal Alerts Indicator.
The funding companies I am aware of trade futures markets. Any futures trading platform I have seen has a Depth of Market screen to allow order entry. All a trader has to do is place an order a decent way off the market during quiet out of market hours and they will clearly be able to see whether the number of pending orders increases decreases when the order is added or removed. If it is a real money account then the orders will go to the exchange and the order book depth will change. If the account is sim the book won't change. It is a check that can be done by any trader in a few seconds.
Spot forex funding companies are quite possibly different, but that market isn't rigorously regulated like futures so you take your risk trading it anyway. (I know of at least one funding company though that added spot forex funding as another product option after years of providing futures funding so I can't imagine they would be legitimate in one product type and behave dubiously in another).
Also it's not a "dirty little secret. (Whispering)" as a number of the futures company's make a point of promoting the fact that they start you off once funded in a sim account. One company for example that I am aware of now gives the option of a standard funded account where if the maximum drawdown is say $3,000, then you could potentially lose all that money of theirs. Or they offer the "Pro account" option which they state is simulated. The clear advantages of that though is that it is ready to start trading the next day instead of having to wait ten days for the funded account to be set up; there are no CME professional data fees required to be paid up front as you are still on sim, not trading somebody else's money; and there are no platform fees required, such as for Ninjatrader or Jigsaw because again, it is still sim. Therefore there is almost no reason to choose to start on real money unless you trade a product that has much lower funded round turn fees to trade it (such as Treasury Bonds or Notes), than those charged in the Test program.
I imagine that the vast majority choose the Pro/sim account to start and when they do badly, as most will, they lose sim money rather than the company money. If the trader reaches $5,000 in profit then the sim account must be closed at that point as you can't trade sim for ever, and a funded account is opened and that full profit can be withdrawn if somebody wants to take it all and close the account straight away, or they could withdraw say half and then trade the rest.
It is a win win. The trader pays less in fees and wasted time, the company cuts out the risk of people who can't trade and have just fluked their way through the test.
A person who has done any research knows the vast majority of traders lose. The business provides this option because even for those traders that are successful and the company in effect has to give them $5,000 in profit out of their own pocket due to the trader having earned it on sim rather than with real money, it must still be less than the "money" that would have been lost by the traders who start their sim funded accounts and blow up straight away.
Therefore the company can remove pretty much any initial risk as it is taken on sim, and the accounts have a trailling maximum drawdown that trails from negative at the start up to zero. Once a successful trader reaches $5,000 in sim profit and transfers it to the real money account the maximum drawdown is zero so it can't go negative again and is basically no risk for the company at that point.
Regarding this paragraph from the article:
"Additionally, if you are successful at trading and you do show an ability to generate a profit long term, that is actually costing the firm money. Your monthly fees are no longer covering the profit share they are having to shell out… and you are asked to leave. These traders are told “you are not doing well enough to continue” or “we have enough profitable traders and you are near the bottom of that range.” These traders are dismissed simply because they cost the firm money."
Just sounds like scare mongering. Why get rid of a trader who is potentially profitable and will earn you a 20% cut, especially if they aren't costing you anything and are risking their own money, not the company’s, because they are protected by the drawdown limit.
A funding company doesn't" involve paying funded trading platforms to “keep trying” when you lose and “go away” when you win."
A trader should sim trade till they think they can pass the test, and only then try to pass it. If successful they get to start trading an account risk free to them with the potential to profit, without the chance of losing their own money or blowing out their own account.
If or once they are comfortable and trading consistently they can close the account and open their own at any time.
You do not win as a trader, you just get to play again the next day. If that game doesn’t appeal to you then you should not trade. Gary Norden
Agreed. But JP Morgan will have had hundreds, maybe thousands of applicants and they will have narrowed it down to the few they are interested in and who they think will make the company money.
On the other hand the funded trading company's can't interview everybody in the world who believes they can sit at home and turn a profit trading so they have provided a test and people can choose to pay to take the test if they want to.
An article suggesting these remote trading firms are all part of a "dirty little secret" scam is just misleading.
You do not win as a trader, you just get to play again the next day. If that game doesn’t appeal to you then you should not trade. Gary Norden
I think key aspect is their objective, its to find a profit even if they do not find any profitable traders, however if they do find some its cherry on the top.
Nothing really wrong with it, you can argue against it on some grounds like "they are asking money upfront", but lets be honest here, no body will fund a noob who just watched couple of YT videos on some fancy indicator or method and now believes he is going to be a trader good enough to get funded by some deep pocket. Unless, they are able to prove it and do it with enough confidence to be willing to pay upfront fee to join the process. Its not like an interview at the company, its more like an exam, like graduation, you have to pay the fees to have right to appear for exam and then if you pass with top grades you have good chance of campus placement, if not you are just not part of the process.
I do however think there is lot of gray area there and lot of shady companies may take advantage of the system. That's also like how some shady uni's corp up from nowhere and put majority of students in student debt with useless degrees in their hands.
Hint, trick is to find the good Uni also not everyone is required to have the degree, or for that matter needs it to be successful. Choice is yours.
It depends on the firm but for serious firms (like topstep) it's not true at all. The journalist just "suppose that thing are like that but brings no evidence about what eh says".
You can easily prove that the article is wrong because with topstep the trades go to the market, you can see them in the ladder. If you use another broker to compare, you will see the trades that you put on topstep with the ladder of your broker. This is not true for all funding programs, I asked this to OneUP and others and they answer that they "manage trades internally".
In any case wether the trades actually go to market or are managed internally by the broker/funding firm, traders lose money for other reasons. Moreover what the article describes is actually the business model of any CFD broker.
I took the trouble to read the linked piece, which, as @matthew28 says, is partly an advertisement for their own product, and how it will make you profitable.
One of the common criticisms you oftern hear about these companies focuses on the fees, and obviously most of the traders trying out will not succeed (most traders using their own funds will not succeed either), so it is legitimate to point out that the business model involves collecting a lot of fees. Whether this is bad or not depends on whether a person thinks it is unfair, which I will not go into.
But the piece alleges that, once funded, the "funded" accounts are not really accounts that trade live in the markets, that these firms are basically bucket-shop operations where the trades don't go to an exchange:
This is simply an allegation of fraud and violation of laws regulating trading. It is easy to make accusations, but harder to prove them. In this instance, no proof or evidence is offered.
In addition, in the one such firm I know anything about (TopStep), there is an involvement of brokers (NinjaTrader Brokerage, TradeStation, Cunningham and Tradovate) who have the accounts and collect fees, plus the data firms CQG, Rithmic and CTS, plus the CME collects a monthly professional fee ($105) directly from the trader's credit card. That would make a lot of firms party to an illegitimate operation that doesn't send trades to the exchange.... including the CME exchange itself. This is simply not happening, sorry.
If you email NinjaTrader, for example, about a TopStep account, they don't tell you "We don't have any such accounts, what are you talking about?"
One can have opinions about whether it's a good idea or a bad idea for a beginner to try these companies, especially when the micros now exist that let a beginning trader get started with trading with very limited risk. But I think this piece has no credibility.
As to the purpose of it all, they want you to fill out a form so "a member of our team would be happy to give you a call or engage via email" with how you can make money in the markets, using their newsletter. On their home page they claim "we predict pricing behavior in the above markets with near certainty." You have to email them to get a price, though.
I wonder what they charge you for near certainty. I'm sure they would tell you that it's a bargain.
This is a vendor selling you something, cutting down others to make themselves sound good.
Bob.
When one door closes, another opens.
-- Cervantes, Don Quixote
Trading: Mini and micro US Indexes/ DAX/ FX/VIX/GOLD
Posts: 180 since Apr 2010
Thanks Given: 53
Thanks Received: 164
What we've all suspected. Better to trade for yourself, using your own funds and start small. Probably better with trading stocks initially. Avoid huge leverage.
Well, I traded my own money in the past and lost 85.000 USD. In total I traded for 6 months and learnt nothing because nothing and nobody imposed me any rule.
With topstep I have been constantly improving because everytime I break a rule I pay 100 USD. I have traded for 2 full years and improved constantly.
I am not profitable but in total I paid less than 6.000 USD for trading for 2 years. If I add up all the "fake" money that I lost in the combines it would have cost me 93.000 USD. Look at my journal, I worked out all the numbers.
Forget trading your own money if you don't have experience.
Trading: Mini and micro US Indexes/ DAX/ FX/VIX/GOLD
Posts: 180 since Apr 2010
Thanks Given: 53
Thanks Received: 164
With topstep I have been constantly improving because everytime I break a rule I pay 100 USD
Another way to make money off you? Well, I agree that you can learn alot from others and I think losing 85k just supports my idea that futures are a bad idea for a rookie.
