Patak, math and opportunity....

Discussion in 'Prop Firms' started by Jtrader342, Nov 1, 2012.

  1. OK guys, I watch this forum and have recently been reading on the Patak threads. I would love to find a genuine opportunity such as this. What I am seeing in many of the threads is arguments that TST is a scam based on opinions and assumptions. I am a skeptic myself...of everything, lol. I shot Hoag a PM with a brief inquiry and a phone # and he called me the next day. I came away with the impression of honest answers for my jumbled questions. I trade equities, not futures, so there are many basic things I am looking into and may not refer to or understand properly, yet.

    Many of the concerns I have seen in the threads are issues that I do not see as valid at this stage. The main points I am looking at are these:

    1) What is my personal liability and monetary exposure in the event of a large loss due to unseen/un-controlable events.

    2) How am I paid for my work?

    3) Does the math work out to a sum that is worth while to me.

    Those 3 things are the first step, to me at least, for determining whether or not I want to attempt the combine. According to TST, the trader has no liabilities or monetary exposure. The combine fee is insignificant as it is a cost for the opportunity, a one time charge and completely up to you whether or not it is spent well. When talking about the amounts involved when trading, $200 is cheap cost for the opportunity. If one is serious about trading this cost is relevant and understandable. The pay issue is fairly straightforward. You are paid a percentage (the split) of the NET profits you generate trading the capital they provide. Withdrawls can only be made after a cushion of profits is established in order to mitigate the risk. Understandable. Pay percentages are increased based on profit cushion levels. If you are a good trader, this works to your favor as it encourages you to increase your capital base which in turn increases your profit value based on percentages. Also, the scale tips largely in your favor the more profitable you are. This also makes sense as they are rewarding based on performance. Similar to working on commission. Providing they uphold their end of the bargain and facilitate the trading you provide, it seems to be pretty straightforward.

    Lastly the math. I read where it was mentioned how someone who had traded for TST and felt scammed or slighted. My question here is were they really scammed or did they have unrealistic expectations. Were they as good of a trader as they thought they were or are they merely upset because their performance did not achieve the results they expected. If they were a good trader and the math is done properly, they should come out net positive. It just depends on how much "net positive profits" you need to live the life you deem acceptable. Can you realistically generate enough income to live off of after all costs and taxes are deducted.

    TST does not appear to be charging anything other than the combine fee. Thats not a scam. They offer a product. You decide whether you want to participate or purchase that product the same way you do with any other purchase. Don't like, don't buy it. They may make money off of the transaction costs, but again that is a service they provide in order for you to benefit. They are a business, why shouldn't they profit as long as it is not excessive and detrimental to the trader. These transaction costs can also be controlled by the trader by managing his/her trades properly and preventing overtrading. They seem to offer several ancillery products (coaching, training, etc.), but again that is a product that you have a choice to purchase or not. You are not forced, at least not that I see, to spend or obligate any money to TST. They make money by facilitating your trades and providing the capital to people with ability, but no means. That's fair I think. I work, they fund. Simple, unless I am missing something.

    I built a spreadsheet to run the numbers and see how they came out in order to have a valid perspective rather than just an assumption or unfounded skeptisism. I based the numbers of off the funding amounts TST provides, risk/reward, splits and a 60/40 win to loss ratio. The trade amount is based on one trade per day (52 weeks x's 5 days per week = 260 trading days or merely 260 trades annual). I can change any of these metrics to adjust and see different outcomes. What I am finding is that while a living can be made, it again goes back to ones performance and how much they require or expect. The lower funding amounts will produce a lower level than most deem worthwile for income unless stellar results are achieved or one trades with a higher risk tolerance than generally acceptable for success. They have to swing harder to get the most out of each trade. The larger funding amounts allow the trader to reap worthwhile gains by taking smaller, safer swings. By being able to operate in this manner the capital is more protected and the profits more consistent. Therefore more income as you progress and the profit adds up. Win/Win!

    It seems worthwhile to me depending on what you are trying to achieve (supplemental income or main income). I personally like the idea and will most likely give it a try if I can get a firm grasp on the T4 platform (completely different order entry process). I would like to add this to my trading as supplemental at first and just see where it goes.

    No need to flame me. I posted this more for my decision making process than for anything else. I figured I would share what I have determined so far and see what you guys had to add. I personally think this is a decent deal with benefits for both parties. I would love to trade my own $100K+, but I do not have the means, yet. However, a year trading the $150K account with TST and there is a possibility I could earn enough to do so. Trade my contract time (1yr), save/compound my earnings and then go trade my own account if it is a better opportunity. Although, I'm not sure that would be a better opportunity if you are skilled enough to achieve their 80/20 split and trade without risking any of your own cash. I could "work" their cash and spend mine, lol.

    Just my two cents on it. Still thinking it all out. Now that I have the $ math down, I think I'll start working on a calculator to construct position sizes by contracts (foreign to me at this point) and determine stop values based on percentages. If I come up with a plan I am comfortable with I will probably try this out. Will be a new experience anyways....





  2. Maverick74


    Hey jtrader, kudos to you for ignoring the rants and dealing with the math. I think your numbers make sense to me. Keep in mind though, after 3 or so months of building capital, they are going to let you up your size significantly so your p&l will, or could, have a steeper slope vs the linear path you show there. But better to err on the side of conservatism.

    Look, guys on ET are very angry. It's not just on the TST threads but pretty much everywhere. You seem smart enough to be able to discount that. I've worked at a lot of prop firms and all the guys I know who failed or were fired or blew out have nothing but bad things to say about their old firms. The profitable guys never seem to have anything bad to say. It seems like you understand this too.

    I've spoken a lot about TST both the good and the bad on here and gave out what I thought was sincere and genuine advice. Not knowing anything about your background or where you are in life, it's hard to say if TST is right for you.

    I've always encouraged guys to get "real trading jobs" before going to the "Bright Trading" route or the "TST" route. Especially if you are right out of school. For a lot of guys, that is not possible. So remote prop or TST fills that void. Also I think you need to look at the big picture. Where do you want to be in your life 5, 10 or 20 years from now. Do you really want to trade out of your house? Do you aspire to do anything else with your life? Do you like being around other people? I think these are also big questions that often get ignored and are replaced by the "is TST a scam" circle.

    If one has NEVER traded futures at all in their life, I think TST is good for a plethora of reasons. It's better to lose $200 at TST then to drop the last 5k, 10, or even 50k to your name and realize maybe futures trading is not for you. Hell, I just bought $200 worth of books on Amazon and I may not even like the books I bought. But if you make money on the combine, your $200 will be refunded. That's a pretty fair deal.

    I think there are a lot of guys on ET that have blown their life savings in futures and wish they could have their money back. This type of combine would have been perfect for them. It gets annoying that so many people on ET are not satisfied enough with just saying, I don't like what they are offering and move on, they seem to want to put them out of business. Again, it's the scorned woman syndrome. If I can't have him, nobody will. It's very childish but at the same time, very common human behavior.

    If you have any specific questions, let me know. I went over their site forward and backwards. I think they have some room for improvements and I stated already what I thought they should do. But the company is only two years old and I'm sure it will look very different even two years from now. Good luck jtrader!
  3. Nice and sober analysis, Jtrader.

    I came to the same conclusions myself based on my own analysis. Respectfully, you did not calculcate compounded growth, so if you have a good strategy in a liquid market, you can pull home substantially more than your spreadsheets suggest.

    This is not written in fine print, but I was told by TST on the phone that further down the road, a successful trader can gain access to even more capital.

    Good luck if you move forward.
  4. euclid


    That's a good point. With TST, you can withdraw your profits (your 80% split) and still increase your size. Whereas, if you're trading your own capital, you have to choose between withdrawing or compounding.
  5. Speaking of math I'm curious if once you graduate to Patak Trading I wonder if they encourage you to trade other instruments since I read somewhere in all this info flying around that 90% of their trading takes place on CL, ES and 6E. I know their risk allowance is tiny but you would think they would want to spread the wealth if even to expand opportunities.
  6. Mav,
    I am not writing a reply to your words because I agree with them. Also, I have read many things you have written over the course of a few years and I value your input as knowledgeable.

    Laissez Faire,
    You are correct in the fact that I did not account for compounding. I was merely trying to run numbers from a base of 1 trade per day on a 60/40 split. Hit the target or hit the stop. I agree that with compounding the results would be much different. I also agree, not having heard them say so, that they would most likely further fund or encourage a successful trader as the profits would be mutually beneficial to both parties to a point. There comes a time when one surpasses what they can trade profitably due to size. That is actually why I figure a person goes out into the prop trading realm. If they have a million (or billion) dollars it becomes much more difficult to make a few percent, but if they break it up between several different traders that can make a few percent then it becomes possible. Its almost their own form of diversification. Just a different level.

    Even if I had several hundred thousand dollars to run in the markets, I would actually rather run someone else's money. I am ok with giving up 20% profit for no risk. The way I see it is a mutually beneficial situation. I have no risk and they have no work. I work and we both benefit as long as I produce. I had a similar situation with an Ebay business I had. My employer provided the material, I sold it and we split things down the middle after cost were deducted. He made some spending money and I paid my mortgage off of it for 2 years (on a very nice brand new house). That was out of the trash too. Sure, I split it with him 50/50 and he did well for nothing, but it was mutually beneficial. I couldn't have done it without his facilitating it and he couldn't have made the cash without my work. Win/Win! So yes, if a decent trader I can turn more profit with their backing than I can on my own with minimal funds. I agree with you that it would be better to run higher funds, withdrawl what you need and compound the rest for higher future profit potential.

    I would actually say that if they see you profitable on a certain product that it would not be in their best interest to encourage you to exand to other products and spread your focus thin. Don't fix it if it isn't broke. That said, I can see where it may be more profitable, but only if the trader could handle the extra focus. I would think many could not depending on their style. Personally, I would like to have access to a couple different products, but only focus on one at a time. ie: I would like to be able to watch several different markets, but only take opportunity in one at a time. No sense in spreading yourself to thin at one time. Be a master of one trade rather than a jack of all trades.

    The hardest thing I am encountering is the difference in the trading platforms and execution. I downloaded the T4 platform and am playing around with it during the 14 day trail, but it is much different than what I am used to. I will try to learn the execution on this platform with the "click to order" set up, but I would much rather just enter orders manually. However, I am still not familiar with futures markets and how quickly you have to get orders in. That said, if it is a situation of seconds to get orders in, I am not sure I want to play in that arena as that requires just shooting for the hip. I prefer to notice a trend, enter and take 60-80% out of it. I am not looking to get into something so exact that a cent here or a cent there makes or breaks you. Again, I am used to equities and this could be a major difference.

    I hope to learn something new and grasp it enough to enter the combine. I do not plan to enter the combine unless I feel confident that I understand enough of what I am doing that I have a reasonable chance of passing and being funded. Also, I do not plan on attempting the combine unless I feel I can pass for the $100-$150K account as I do not necessarily feel the lower amounts provide the return I look to generate without stepping outside my comfort zone. I look for percentages over a time frame, not huge gains to justify swinging for the fences.

    Anyways, I am going to try to figure out the contracts and how they value, then build a spreadsheet to help me calculate position sizes. This is what I have built with my equities trading. I enter on a half position and only scale up to double after I have mitigated the risk. That way I am only at risk when I have a minimal position, but at full size when something is going my way. Just not sure how that transfers to futures....

    Thanks guys and well see how it goes,
  7. Regarding your three points above:

    1) You are capped on daily losses in the live account, and cannot hold beyond one session, which reduces their liability. I'm not sure about what happens if there's a "flash crash" type of event, probably something to ask them.

    You have "monetary exposure" as you build the profit cushion, and then it's the amount of profits you choose to carry forward once you've met the cushion. For example, on a 100k account, the cushion is 10k. You can withdraw your cut once it's reached. If you decide to carry forward the profit, then it becomes your "at risk" capital, since your profits are subject to the firm's internal risk of remaining solvent, and the risk of their clearing firm. I recently posted on another thread that if a trader makes the cushion, then it's wise to take a withrawal, since you are capped on a max daily draw regardless if you have any excess cushion in the account or not.

    2) The type of payment was asked and answered on another thread, it's a 1099-MISC form, same as an independent contractor. When you state "paid for your work" if it's regarding how often they send checks, I'm not really sure.

    3) Regarding your math, there is one important aspect you did not include, and that is COMMISSION! Each contract traded costs $2.50 per side, or $5 r/t. It is not realistic to calculate the probablility of a profit schedule without considering the costs of commissions. Also, the daily risk $ value probably has to be adjusted based on the account size. For the 100k account, you set the same risk percentage as the 30k account. However, if you're trading 10 lots, then the dollar amount of $250 gives you very little room for error. Of course, you don't have to use the max lots. However, the purpose of taking a larger account combine is to get the larger buying power on the live account.

    Trading small lots on the 100k live account to conform to the $250 daily stop defeats the purpose of having the larger account.

    I think your other points are well stated. Given the 40% haircut, commissions and taxes, the only accounts that really makes sense if you're looking for "main income" are the 100k/150k accounts.

    The 30k account will only get you supplementary income, however it's a good starting point, and prevents one from having to "blow up" a retail account or pay thousands for some "educational seminar" at other firms.
  8. iankotze


    Well I don't want to be overly negative here but I think you are unrealistic about your win/loss amounts. I mean on the down side you expect to lose a very small amount in a losing day whereas you expect a decent profit on the upside. This can happen of course but I doubt you will have a 60% daily win ratio then.

    For example on your down side on the 50k account you reckon you can have a down day of $125 - this is unrealistic if you trade crude or bonds, gold or anything like that. I mean that is 12 ticks on one contract in crude or not even 4 ticks on the 30 year note. That means you will have one trade in the morning. IF it is a loser you are done for the day. This will most likely happen more than often than you think.

    Just my thoughts. I have come to realize that on the 50k account it is worth it to risk $500 per day as your stop for the day. That means you must try and shoot for $350 - $400 per day and once a week try and catch a nice run for $900+
    Assuming then you have one and a half down days in a week you will be making profit targets over the month.

  9. Thanks for the input guys! Many good points made. These are things that I have yet to discover about futures with regard to daily trends, swings and ranges. I am not necessarily worried about the excess profit being at risk. Don't get me wrong, I definately value it, but at a point where I can build up a profit of excess cash to compound I would consider myself competent enough to account for the risk accordingly. The risk I am worried about is the initial risk. The risk of "hey you passed the combine try this....oops, you now owe us $10K". I do not mind risking profits generated by the process. I do not what to expose myself to losses outside of said generated profits. If I could afford that, I wouldn't be looking at the program for backing.

    The commissions, fees and taxes are not included in the sheets I built. They are always accounted for, but not in this case as the sheets where built to show a general idea of the potential over a years time. Yes, they certainly add up, but if I am trading profits so small that commissions of $5 RT eat up most of it then I should probably find another way to make money. When I trade my equities it costs approximately $14.50 per RT. If I am making a few hundred dollars each RT, then I am not so worried about the fees. They are part of the cost of doing business. Taxes is a whole other animal. I like to keep a running total of what the taxes are likely to be, but do not withdraw them as I prefer to keep the money active and compound it in order to generate more income towards the current taxes owed. Vicious cycle there, lol.

    Also as you stated, one does not have to trade max size. Sizing the position with regard to your risk parameters is key IMO. The numbers I use in the sheets are just a generic value based on a 1:3 win loss ratio. For broader values with more breathing room to the downside you just multiply them up accordingly. You could use a 1% risk with a 3% gain or more if you like. Again, Im not sure what is realistic in the Futures arena. However, risking $500 as a stop and only shooting for $350-$400 per day seems backwards to me. That is risking more than the potential profit. Again, I have not run futures so this may be completely rational. I don't know. With my equities I risk 1/2% on intraday trades and only 1-2% on swings. This equates to about .10cents plus commission for daytrades usually. I may stop out several times, but when I catch a nice confirmed momentum it pays enough to absorb those losses as they are made up along the way with that run.

    Trading the small lots on a large account makes sense in this regard: scaling into the position. If I enter on a half position and only double up once a profit cushion has been established, I mitigate the risk for that particular trade. It would allow me to only have risk when I have the smallest position, yet have the largest position with virtually no risk when things are going my way. I do not scale down on a losing positions though. I cut that bad boy all at once. I have a calculator all set up for this in my other trading, but will have to adapt something for dealing with contracts instead of shares.

    I agree the 30K and 50K accounts may not be worth messing with. However, as was mentioned earlier, my examples only reflect one trade per day. Higher trade volume would of course generate exponential numbers. I would like to think the examples I used would be a minimum for a proficient trader.

    I wrote a response to the earlier guys last night, but I guess it dumped it. Thats frustrating.

    Good input so far, lets keep it rolling. This works better for me as it is not just raucous slamming of the company, but rather constructive thoughts in order to come to the best conclusion of whether the opportunity is real and worthwhile.

    BTW, I asked another trader I know (from another community) to check out the offer and let me know what he thought of it. His reply was "scam...ask yourself why would they take that chance or offer that to just anyone". Hence my math and these questions. I am "asking" myself that question. The more I dig, the more I like it though. I doubt he looked at the program actually as I described it in my message to him.

    Thanks guys,
  10. Pekelo


    This is the most important and final question to answer. If you think your answer is yes, then try it. Otherwise you are just wasting your time or practicing.

    As others mentioned before, to make a living, the 30/50K accounts are most likely too small, so you need to aim for the 100K at least. And here is my problem with TST:

    Why do they decide the amount of backing money on the willingness of the candidate to pay into the Combine? If the guy is cheap, he will pay the minimum amount and he will clear the lowest amount only. But TST is supposed to get paid by the profits, so that is rather counter productive.

    If I were them, all the Combines had the same buy in, and once it is passed, I would sit down with the candidate and have a chat. How much he is comfortable trading, can he handle pressure,etc? Then we would come up with a mutual agreement about the backing amount, and as he progresses in the future that could be adjusted both up or down.

    But just because one guy doesn't mind to pay $150 extra for the Combine I would automaticly trust him with 5 times as much backing money than the other trader (whose record maybe much superior)? That sounds backward to me... Trust should be based on performance, not on fees....

    Also, I don't like the idea of throwing the Live trader back to the Combine just because he had a weak month. Instead of that, they should sit down with him and look into what caused the loss. Most traders don't have a straight up equity curve, a few weaker months are pretty much expected...

    I am still holding back my opinion on them and waiting for more funded traders to come forward and share their experiences....If you try them, you certainly don't lose too much, it is mostly time...


    There are certain strategies that help one to pass the Combine:

    1. Not all 8 of them are equal. Check them out and some of them are easier to pass by a lot than the other. I won't tell you which one, do your own homework...

    2. Lots of players find the allowed max. loss too tight, and eventually fails the Combine because of it. One way to increase that is to use less of your maximum allowed contract numbers. Of course it also increases the needed profits per day (per contract), but at least you won't be taken out by the maximum loss....
    #10     Nov 2, 2012