Theres about 80 of them up, and its great info for getting a feel for what other traders are thinking in terms of trading strategy and psychology.
On many occasions youll listen to some traders who have taken the combine dozens and dozens of times.
Many of those traders talk as if getting funded was a golden ticket. Some of them even quit jobs to focus on trading so they could get funded by TST.
One trader who throught the combine would be easy, commented that "I should have known it wouldn't be easy, I mean who would give you $150,000 to trade just off P&L alone" (hes alluding to the fact that he did not read the instructions like risk-reward more carefully).
But what he doesnt realize is that no one has given him $150,000. The rest of his account might as well be papermoney. All that matters in terms of money management is what his max drawdown is.
All the interviewed traders say "I need to build up the account and create some cushion". Well if it was that easy, why not just build up your own tiny trading account?
TopStep sounds attractive because we think we are finally getting the opportunity to be properly capitalized so we can trade successfully. But if you think about it a bit more, you realize you are just as under-capitalized as the guy who throws two or three grand into an account and hopes to build it up and live on it.
Last edited by Sufyan; January 31st, 2015 at 06:04 PM.
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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.
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....
Last edited by bobwest; January 31st, 2015 at 07:47 PM.
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If you read their rule about the trailing max drawdown i understand that at the beginning it is capped at $2000 but when your account grows above the initial account balance then your max trailing drawdown increases accordingly. Ex. you start with $50000 and your account grows up to $55000 then your MTD becomes equal to $5000. I think the benefit of the combine is that your risk of ruin is practically null. I know you want to be profitable but beeing profitable is the result of good risk management skills. Getting assured of never beeing ruined is a huge benefit, no?
I really can't understand your logic at all. You're not profitable. In an earlier post you say that your largest account was a $5K account that after a few months was down to $200. So you have lost thousands of Dollars of your own money and seem to be complaining that TST provide a notional account value of $50K but only allow you to lose $2k, and not run it down to practically zero like you did with your own money. For most people even hitting a 50% loss is game over or at least requires a serious reassessment of what they are doing wrong. Or when you were down to 4% did you think, great I only need a 2500% return and I am back to breakeven.
Futures accounts (and forex accounts) are traded on margin. A professional trader in a propshop, daytrading like TST requires, isn't given an account of money, they are told the maximum number of contracts they can trade each day and what their maximum loss is that day and then they get on with it. Professionals are looking for risk free trades. TST is a risk free trade. If things go badly you lose a small amount of the equity partners money that they have accepted the risk of losing after you have passed their combine test, and if you win you keep the money. TST now only take 20%, whereas I believe in propshops the trader only got about half. Propshops would have reduced fees though with exchange membership and bulk commission rates but TST have reduced their live commission rate down from the extortionate to $1.06 on Ninja which is near enough as good as some of the $1 RT deep discount brokers. Only my feeling but looking at the caliber and background of some of the people doing newly funded trader interviews recently they are now attracting people with professional trading experience who see them as a viable company to trade through.
Just my biased two cents from somebody working on a combine but I don't see much wrong with my argument.
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You have a valid point. Many recruits I know who are in combines have other incomes or means of living. I am trying to reach a funded account so I can use the capital as a compounding base account. I use my own live account to live on each month. I also have a part time job that is very flexible for me (I telecommute to my office deskop via Citrix 3 days a week). So I personally am very glad to be able to use TST and compound the account. I am in no hurry and am learning to trade small within the account parameters and with an eye on the TST Scaling Plan. That's what I'm focusing on. Building the account equity and the profits will come.
I have to add one more comment. Trading is a business. And there is none better. There is no overhead. No vendors, employees, manufacturing, distribution, call center, nothing. None of the downside of starting up a new venture. And you already know there are great tax advantages for trading futures. There are also relatively low costs, even as a professional. TST has packaged these costs together in a plan that I like.
There is plenty of upside to getting a funded account to compound, and very low downside risk. And once you learn how to manage risk and can trade within context, the market gives you a lot of opportunities to build the account up. Knowing when to grab those opportunities and how to scale up.
Last edited by jlwade123; February 1st, 2015 at 09:35 AM.
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When I talk about the 1-2% rule it is not just about risk of ruin. It is also about risk of nullifying your edge (which can also cause risk of ruin). The two are mutually exclusive. Sure TopStep has risk managers who will shut you down if you are reaching a danger zone (for example they have a daily loss limit)
But the issue of 1-2% is more critical than that. The ideal situation for a trader would be to find an edge around 52-60%. If you are really good maybe somewhere in the high 60%'s. But even with that kind of edge, if you don't trade 1-2%, you will Nullify the edge. The 1-2% rule is not simply to prevent compulsive or risky trading, its there to give you a statistical chance of letting whatever edge you may have actually have a chance of working.
If you trade 5-10% per trade, even with a 65% edge, you will shrink your account progressively instead of increase it. In other words the edge becomes useless simply by increasing size.
But thats the crux of it bobwest. It's not hard to work out what prudent risk management is for ourselves. Its fairly straightforward. Problem is that no matter how you look at it, at the end of the day you have two options.
(1) Trade the largest size allowed by topstep, in which case you will blow up.
(2) Trade the smart size for any trading account (whether its 1000, or 1 billion) ie small enough so that your edge can produce profits over a long distrubution of trades.
Most of us would choose option 2, in which case the only conclusion is that the account size isn't really in the five and six figure ranges advertised. Its the tiny amount allowed by the maximum drawdown.
At which point, my advise for someone interested in getting funded, is only choose the 100k or the 150k combine. Anything smaller is too small to trade with proper risk management.
Only the 100k or 150k (3000 drawdown, and 4500 drawdown) actually allow you to trade with 1% risk.
$3,000 / 100% = $30
$4,500 / 100% = $45
1 E-mini S&P contract works out to about $18-20 in terms of cost over 1 tick.
Even then your room for error would be 1 or two ticks at the most.
If your stop is larger than that, then by default you are risking 2% or more now.
If your stop is 5 ticks or so (which is the amount most people would use, then you are risking almost 10% per trade. Even if your edge is 65%, you will blow up.
I guess the best way to explain it is to do walk through an imaginary scenario.
Imagine you pass the 100K combine and you get funded. You open your platform and your account balance says "$0" as bobwest pointed out. You know that if you lose $3,000 the account gets pulled.
In other words, if your account says, $-3,000, you lose funded status.
So you say to yourself, Okay ... I will build up my equity slowly so I can create some cushion between me and that -$3,000 point. You look over at the TopStepTrader scaling plan to get an idea of what sizes you are allowed to trade
You passed the $100k combine, so you look at the scaling rules for that account, and see the following.
$0 - $1,500 profit (you can trade up to 3 lots)
$1,500 - $2,000 profit (you can trade up to 4 lots)
$2,000 - $3,000 profit (you can trade up to 5 lots)
$3,000 - $4,500 profit (you can trade up to 10 lots)
$4,500 - $7,000 profit (you can trade up to 13 lots)
$7,000 - $10,000 profit (you can trade up to 17 lots)
Now, lets take something like the E-Mini S&P again (nice and liquid with little slippage and small tick value).
The margin requirements vary from broker to broker, but it works out to roughly 5K to 7K margin required to trade 5 contracts (during daytime hours).
Well, according to the TopStep scaling plan, in order to trade 5 lots (on the 100k account) you would need to be $2,000-$3,000 in profit first.
If you add the maximum drawdown for the 100k ($3,000) plus the profit requirement ($2,000-$3,000), you get $5,000 - $6,500. In other words, exactly like if you had built up your own $3,000 account by $2000-3000 in profits.
So the question then becomes ... how would you even know the difference as to whether your account is funded with $100,000 or simply funded with $3,000 ? Because after all, in order to trade larger, you had to build up your equity.
And that equity build up happens to be roughly the buying power you would have gotten on your own if you had simply built up your own account in the first place.
So I dont understand the whole "people leaving careers" to try and get funded. They would be in the same position (minus the educational benefits) if they simply opened their own 5k account and traded that. After all, their access to greater lot sizes would be roughly the same anyway as they built up the account (nevermind the issue that those lot sizes would blow them up anyway if they tried to trade that big with such a small account).
The more I think about, it doesn't even make sense why TopStep would even need to fund you with $100k in the first place. Why would they even take that risk ? (Not the risk that youll lose money, because you are stopped after losing 3%), but rather risks such as the flash-crash of 2008? When the market goes haywire like that, peoples stops get blown through and ignored because there's no liquidity.
Why would TopStep risk loosing potentially millions of dollars in some black swan event, when they could simply fund their traders with a couple of thousand dollars (depending on which combine they completed) and simply let them trade that tiny account.
There is no benefit to having a $150,000 account exposed to potential unforeseen disaster, when a $4,500 account (the draw-down allowed) would function exactly the same. The trader would get the same buying power anyway.
If I funded you and gave you access to two accounts (both displaying $0 in the topstep fashion bob described) , and told you one account was sitting on $150,000 , and the other was sitting on $5,000, and then you traded both for a year, you would have no way of telling the difference ; Since in both cases you still have to scale up in order to get access to higher lots (not that you would want to, again .. you'll blow up.)
So maybe instead of "you need to earn the right to trade larger" one should think of it more as "you need to create more margin in your account so that the broker can let you trade larger"
Last edited by Sufyan; February 1st, 2015 at 10:01 AM.
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@sulyan , there is no $150,000 exposed. They have built in daily risk parameters that would only let a few thousand dollars be at risk, and that is only after funding a trader they have good history on. (such as always using stops)
Think of the reference to 50k or 150k accounts, as marketing in a language that most retail traders will understand. For us who are traders, it is about buying power and risk parameters that are given to us each day. We work within those parameters.
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Isn't that the same as saying "youll be funded with a few thousand dollars" ? I still dont understand what people mean when they keep emphasizing buying power as the perk.
TopStep's buying power (according to their scale up plan) is roughly the same buying power you would have access to yourself anyway if you built up your own tiny account to reach the levels required to achieve access to those funds. (for example, scale up plan requires you to generate 5k profits before you can trade 10 lots. If you increased your own tiny 5k account by another 5K, you could still trade 10 lots anyway.)
Its a big leap to say its only "marketing" even though that's the only conclusion that one can draw.
I guess I'm just a little disappointment because I was actually quite excited about the prospect of proving my trading chops and "earning" a large account to trade. Seems the reward is just another one of those tiny undercapitalized accounts i've been messing with for a long time and which are inherently doomed to fail. Except this time the tiny underfunded account is not my money. Its better than nothing but it aint no 100k.
I just wonder if those people taking many combines and leaving careers to join topstep actually understand the situation.
On the plus side, my interest in topstep finally forced me to learn about the futures market. Some of the products I've been testing trade far far far more beautifully with my strategies than they ever did in the forex market. Seems like futures are more of a "Traders market" than the wild west that is spot currency. (Some futures instruments are horrific though lol. The Emini Nasdaq might be the ugliest chart I have seen in my life)
Last edited by Sufyan; February 1st, 2015 at 11:21 AM.
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I've looked at these guys 2 or 3 times. mainly out of curiosity.
And each time I come up with a similar conclusion.
I've also posed questions to them, one I think is VERY important is how is the income to you classified, and they are always elusive or just flat out won't answer. (FYI, they claim it somes to you as ordinary income).
Basically if you can trade on the level where they want you to perform, there is absolutely no reason to be associated with them, as you'll make a LOT more money on your own.
As with any business, their focus isn't what they can do for you but what you can do to make them more money.
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