Mav, If the trader is taking "3 monthly checks so far" then it reduces the overage on the starting equity balance, which was their whole point of having traders build their equity with the 5k/10k cushion. Also, not sure how the trader is "making back their losses" in your example, since they took their checks and now have a 6.5k max risk vs. 4k max risk, where the investor is giving up half of their gains and applying it to the delta on the risk. I don't believe the trader has any incentive to go from sim back to live if they have to make up for losses. Remember, if they are down 4k, they have to make up around 6700 at the 60% rate, otherwise they are making a 0% cut on the first 4,000. How would that build a trader's confidence back? I think most traders would agree that if they are carrying a net positive balance each month, they'd rather take a check of at least some amount. However, the firm obviously wants the 5k/10k cushion to get traders to see the long term view of the proposal, which is to scale up size over time without placing any "at risk" capital. As far as your comparsion of "getting paid vs. getting laid" in your other post, I won't even go there, lol!
Let's look at some examples here. Let's use the 100k baseline account. Say the trader goes live and the first 3 months they make 4k each month for a total of 12k. Beginners luck. so they took home a total of 7200. that's cash in hand. The investor took home 4800. That is also cash in hand. Now on month 4, the drawdown allowance is 6k plus 2400 or 8400. So on month 4, their account starts at zero since everyone has been paid out. Let's say they lose 4k this month. At this point that loss is open. They haven't been pulled off live status yet. Month 5 they now have to make back the 4k before they get another check. Keep in mind, they already have 7200 in the bank. Should they walk away? they could if they wanted to, but then they have to fund their own account and risk 100% of their money. They are too scared to do that. They still have the long call option with TST. Now the investor at this point has not lost any money. He locked in 4800 and has a 4k open loss. So everyone is still ahead here. Month 6 comes and let's say the trader loses 2500 the first week of the month and is now down 6500 and is sent back to the combine. When he returns to live status half that loss will be wiped away. So he will start month 7 down 3250. He was down 6500 before. Remember, he is still sitting on 7200 in profits. And he is not obligated to pay back the 3250 if he walks away. But why would he walk away? He has no risk right now. Yes, he has to make back 3250 but he has a 100k account. He has a fresh new account where he can lose another 6k which he does NOT have to pay back. The investor meanwhile ate 3250 of that loss. So he is still up. He made 4800 minus the 3250 so he still has a 1550 profit. Both parties are still profitable. So month 7 comes and the trader makes 6k let's say. The first 3250 of that pays back the loss. Now he has 3750 in which he gets another check for 2250 in the mail. The investor gets 1500 added to his 2400 from earlier. Month 8 we start the account at zero. The trader now has a 6k plus 2k or 8k total drawdown allowance now. This makes sense to me because it protects the trader. Who knows, TST could blow up right? You need to take the money when it's there. The investor gets his money and it protects him from hits that will come later. And the traders drawdown allowance can increase with each passing month. The trader always has the incentive to come back because his loss gets cut in half each time. Let's pretend the trader takes the money and says screw ya and leaves after the loss in month 4. He takes his 7200 and goes to Dorman Trading and funds his own account. His first month at Dorman he drops 5k. He absorbs 100% of that 5k loss. Had he stayed at TST, he would still be at his cash high with an open loss he had to make back. See, he will always be better off at TST because he locks in his gains on the upside and his downside losses are never his. He has no incentive to ever leave this structure.
Correction: I see that I'm mixing the Mav model where I would make traders pay back half the losses and their model where they eat the losses. Mea culpa. Even if TST absorbs all the losses, that's even better for the trader. It's still good for TST as well because at least they can lock in p&l of their own to offset eating of the losses. For the trader this is a no brainer. They get to lock in p&l each month and come back after bad months 100% flat. This incentive structure works either way.
If the 100k account has a 2k/daily risk with 2x max risk, that's 4k total draw before being sent back to sim. Where are you getting the 6k number from? When the trader takes home 7200 and the investor takes home 4800 after 3 months, the account is reset each month, no overage, same account equity as day one (assuming the required 5k/10k cushion is lifted). Besides, the more popular account is the 50k (according to the Q&A thread). It also stated in the Q&A that live traders set their stops well below the daily max risk, and that their profits tend to be cut in half when they go live vs. the combine. If live traders all began to "blow up" with their max risk, then it defeats the entire purpose of the model. Having traders make up for their draws severely impacts the attractiveness of the model from a trader's perspective. Perhaps a solution to the 5k cushion requirement is to allow a trader with a 50k account who effectively uses the 5 lot buying power while showing proper risk management and discipline gets to take a check within one month of trading, regardless of total profit in the account. As you said, it's definitely a confidence builder.
Mea culpa on the 4k. I was using the 150k account with the 100k account. Anyway, the rest of your post I'm confused about. OK, let's try this again. TST is willing to wipe out your losses. We'll keep with their model vs mine. What specifically are you disagreeing with me on allowing traders to get paid at the end of each month. That is my "suggestion" to Patak. I think it works for both the trader and the investor to lock this in. I have been trading in the prop world for over a decade and I have never seen a trader handle accrued equity well. Michael himself even said that most guys when they get up to 10k or 15k give it all back. I think the trader needs to get that capital and the investor needs to get paid. I want you to shoot holes in why this is not better for both parties. It makes no sense to have to the trader make 10k then lose 10k, make 10k then lose 10k all while never seeing a penny of that in his hands. The stops and and the rules and the daily stops are totally irrelevant to this conversation. This is really the only thing I truly see wrong with this program and I'm not sure they have completely thought this through.
BTW, this is specifically why almost every futures prop firm in Chicago pays their traders a draw. So the trader can go home every month with 4k or 5k in their wallet. Then get paid a bonus either quarterly or annually based on actual p&l. This keeps a trader from trading for rent which is NOT a good idea for most people.
By forcing you to accrue 5k in profits at all times they always have their ass covered. Once you hit 1000 drawdown back to combine you go and they are sitting on 4k of your profit still. Even if they bring you back up you still get 4 more times before it becomes any risk to them. This model is brilliant for generating revenue to the owner while allowing one to parlay the profit into backing the few who pass.
No, that is incorrect. If you have 5k in profits, you have to lose 7k, to go back to the combine. I can't believe 700 posts on this and you still are getting this wrong. This is the whole problem. They are letting you give back all your p&l before they take any out. That was the whole thesis to my suggestion. I think they should take out their 2k and send the trader his 3k and re-set the account the next month. Their whole 5k rule was that you personally can't withdraw anything till you get above that. They don't send you back down till you go 2k into THEIR money. Come on man, this model is not rocket science. Michael has stated this now 5 times on these threads. The model is so brilliant you don't even understand it. LOL.
What kind of risk does patak take on a trader that starts off slow & builds up equity in there account & never goes negative .. No Risk It would be better to make allowances for low risk traders based on what they trade & there risk exposure with being able to withdraw profits Some traders are not high risk traders & should be treated accordingly If a trader has 5k plus in there account , they should have a profit payout of 80 % Your only being backed by the firm until you build up equity in your account at that point giving away 30 - 40 % of your profits does not make sense Probably most of these live traders are new & they don't realize what a fair deal should be Any trader getting less then a 80 % profit payout after they proved themselves in the first few months is Not a good deal , especially when you have equity in your account When somone says they are backing a trader , they have no risk capital at stake with the firm period. that is why they recieve a pofit split because the firm is taking risk on the trader & it's a partnership When your required to maintain a certain dollar amount in the account to protect your firm & still give away profits , That is a one sided deal that is the way it works usually , this would be considered a horrible deal if you were trading at equity prop firm with those high commisson rates
No, I don't think you understand how the "futures prop firms" work. I don't know a single trader in the city of Chicago that does not have what's called deferred compensation. I know you're an equity guy so let me explain to you how this works. Say you go to work for firm XYZ. The typical deal here is they give you some sort of a draw off your "future profits", no pun intended. Let's say that is 4k a month. Now you don't have to pay this back if you get fired or quit. But it does come off your p&l distribution and usually at the rate of your split. On top of that you usually have an office fee. This could be anywhere from 2k to 8k. Yes, I actually know one firm that charges 8k. Again, this only comes off your p&l, you don't actually write a check to pay for this. Some firms will pay every qtr, others at the end of the year. So here's the math. Let's keep this easy by making it annual. Let's say your office charge is 3k a month and you get a 50/50 split. Let's say you made 500k in "net" profits for the year. Now we have to go in and take your expenses off the top. So 96k comes off from your draw (4k a month times 12 months times 2 for your split). Another 36k comes off from the office charge. So that's 132k off the 500k leaving you with 368k. Now from that, the firm gets their 50% cut. That leaves you with 184k. Now, here is the kicker. All firms do this. They are going to hold back some % of that money for usually a 2 year lock up. This is how they keep traders from leaving and it keeps you from hurting the fund with futures losses after you get paid. Let's say they retain 30% of your p&l. That's about 55k. That becomes your equity. Your total bonus payout now at the end of the year is about 135k from the 500k net you made. That 55k is your equity balance. This means in year two, any losses you have will come out of this money. Now let's say in year two you do exactly the same as year one to keep this simple. You would now have another 55k locked up for a total of 110k in equity at the firm. Now at the end of next year (year 3), that first 55k becomes vested and you can take it out. But you will always have two years of deferred compensation. This is basically "your" money. Any losses you have come out of "your" money. And you are still on the 50/50 split and you still have to leave 30% of your annual p&l for a 2 year lock up. Now, are you ready for the real surprise? When you leave firm XYZ, most of them keep the deferred capital. In this example, you would lose that 110k. This is how firms retain talent. When guys make a lot of money their deferred compensation gets huge. In order for them to leave the firm, many of them have to forgo 500k to a million dollars. What most do in this case is they buy into the firm and become a partner to juice their deal better. I just wanted to explain this to you because I don't think you understand how things work on the futures side vs the equity. All firms keep money back. Which you view as trading your own capital. That is one way to look at it. The other is these firms took the "initial risk" on you and now to protect themselves they need to have some downside puts. You can't look at a deal and say, well I made money from day one so they never took any risk on me. That is not true. Anytime a backer commits capital to a guy on day one, they are taking risk. They have no idea nor do you how successful you will be. THAT is the risk. If there wasn't any risk in that then everyone would open their own account and trade their own money. The reason they don't is because they are scared of that risk. Most of these "true futures prop firms" have a much tighter leash and control over you then TST.