Topsteptrader

I only scalp and don't hold over news and my account has <0 protection, so atleast when Saudi gets nuked I won't owe them money

Hasn't happened in 10years and only been 3 or 4 black swan events I guess, wasn't even trading near any of them I don't think.

Being alive in 10years is the issue and enjoying it, not much point otherwise

 

(In continuation of our discussion about TST's unique black swan protection. Maybe this should become a distinct thread?)

I wonder if incorporating a trading company as a proxy for one's trading would suffice as protection from a negative balance at the broker. My intuition tells me no: the corporation I had here in Canada a while ago, I had to endorse (co-sign) to finalize its bank margin so I bet a broker wouldn't grant a margin trading account to a corporate entity without the same kind of personal guarantee from its owners.

Or more simply, it'd be interesting if "balance insurance" existed, for small traders. I'd consider buying it. (Obviously, judicious use of options on every leveraged position could serve this purpose, but that world is so damned complex that I haven't dared enter it yet. I have both McMillan books on my shelf, waiting...)

 

Unless I'm mistaken, Topstep doesn't allow holding overnight... is this correct? I bring this up because they know the risk of thinly traded markets, or the possible gap bewteen Friday and Sunday. But since they allow trading during the RTH session, they must have done their own cost/benefit analysis. I imagine that they would conclude that although there is a slight right of some major world event which could lead to huge slippage during even RTH, or even a trading halt while still in a position, its a risk they can assume because if even this is too much risk, then trading isn't the way to make money.

Likewise, for a retail trader, staying clear of holding overnight, and only trading a liquid market is I think sufficient enough to eliminate most of the risk. I suppose you can always just trade stocks and hence not get into margin, and also make sure to never be short, so the only money you could ever lose is just fully your account if all your stocks go to zero, but to dedicate so much time into learning to trade and then not be willing to take on any risk is I think counter intuitive.

Depending on your type of work (miner, fire fighter, etc), or perhaps even the act of travelling to work, this might be more risky than a black swan event that happens during RTH for a retail trader who uses stops and is trading a liquid market and never holds over night. Heck, trading is all about controlling risk. How as a truck driver do you control risk if you already have your seatbelt on but can't control other drivers or road conditions? How does a nurse who works with HIV patients control the risk of a needle prick if she is already wearing gloves and hence as protected as she can be? I think the trader has more control over his risk, and if something so drastic should happen that his trade causes catastrophic losses from a black swan event, we also need to consider that people die every day driving to work, earthquakes cause buildings to collapse and you can be trapped and die a slow crushing death, or a crippling virus such as bird flu could enter your body while on public transit, etc.

 

You can technically hold overnight, you just have to be flat during the 15-minute market close (and thus over the weekends).

(Emphasis mine.) Oh I agree there, but "most" isn't "all".

And while I somewhat agree with your analogy that we all have a one-in-a-million risk of getting hit lethally by lightning while walking to the grocery store, my point here is to see what options aside from TopStep exist to reduce risk to just 100% of one's capital without having to forego using leverage. If there are no such options, then it's either TopStep or live with the possibility of going bankrupt tomorrow, which could be acceptable to many people, but not me, not anymore. I don't mind losing an entire account on a mistake or a freak event, but a negative balance would be quite bad.

So! It sounds like hedging an outright position with options might be the cleanest way to go. Or just working at meeting TopStep's requirements. (I considered going for Oanda's CFDs as well, but the wildly fluctuating spread sizes and actually lower leverage aren't appealing for day trading, and for longer positions, there's always ETFs.)

 

Yes, this I do agree with. Finding out you're instantly heavily negative would be quite catastrophic, especially when you've done such a good job of controlling risk.

Maybe only ever go short then. Seriously... no good events happen that would cause the futures market to spike up hundreds of points in a second during RTH. Markets wouldn't close abruptly on exceptionally good news like they do on exceptionally bad news. So if you're already short, and the market halts from some catastrophe, when it re-opens hundreds of points lower, you're in the money.

As I type this out, I really cannot think of any event that would cause a huge gap up after a trading halt during RTH. I can think of many reasons why trading would halt during RTH and open drastically lower though. Even if at first the news is bad, and trading halts, and then its discovered that the news isn't actually accurate, or bad, or is even good, this wouldn't cause the type of jump that you would see from bad news. So this might actually be something to consider if a black swan event during RTH that prevents you from exiting a trade is a concern. Being only ever short might mitigate black swan risks.

 

Kind of ... it's not quite as simple as that: "all positions MUST be closed by 3:10 PM CT and can be reopened after market open at 5:00 PM CT". https://topsteptrader.desk.com/cust...bine-info#Permissible Products/Times to Trade

 

There are certainly retail forex "brokers" (actually counterparty market-makers) that offer negative balance protection, for a fee. And at least in the spreadbetting/CFD world, there are those who offer guaranteed stop-losses: for a "premium fee" in the form of wider spreads at the time of entering the trade, they guarantee to close out all your positions at your specified stop-loss level, whether they were able to close their own position in the underlying market at that price or not. It's a form of transferring the "fast market risk" from the client to the broker. Whether it's worth paying for, overall, is of course another question altogether.

Yes - as you say, that's a possible circumvention of the problem, but a really complicated one.

 

FXCM Spot which is what I use, has Negative balance protection and they don't seem to just pretend to take my trades and keep the losses to themself.

 

I think they're basically not counterparty market-makers, with their "no dealing-desk" service?

But they have a really huge history of very adverse regulatory findings and enormous fines relating directly to the ways they've treated their customers.

When a company continues, over the long term, to have adverse regulatory rulings/fines after adverse regulatory rulings/fines, one's perhaps entitled to look askance, given that in such an increasingly competitive marketplace there are plenty of other equivalent, long-established and well regulated brokers who don't have that kind of history at all?

FXCM often tries publicly to pass this off as having arisen just because they're regulated in so many different countries and therefore "subject to closer scrutiny than any other broker". That's endearing of them, isn't it?!

 

All this black swan talk. It is like a black jack player worrying about a casino fire. Do casinos burn down? Sure. How often and what are the chances? That is a different picture.

In the last 15 years I don't recall the market gapping down during RTH so much that one couldn't get out with a loss. And if a 50 pts ES gap whipes you out, your leverage was too high anyway...

And as it was already said, if you are skittish, take only shorts...

Oh yeah, and we are way offtopic....