Don’t waste money on prop or futures tryout nonsense!

Trader's Mindset

Aug 26

The only reason I am bothering to make this post is that my TopStepTrader and other tryout threads are some of the most popular on my blog– even though I did not think they were even that important.

Now, I am not even referring to how these firms do not really seek great traders. For example, about 1-2 years ago I completely surpassed the profit thresholds for one tryout firm, not TST, and then only after a dominating performance was I informed that I went over the daily loss limit by like $8. It was a technicality because my open loss never went over the loss limit. However, my closed stop loss with the costs put me over.

This one $8 violation had happened like 3 weeks before I passed the profit objectives. The platform never prevented me from trading, and so I assumed I was good. While I thought the right thing to do from a customer perspective was to fund me. The best this firm would do was to offer me the “opportunity” to pay another $125 fee to try again but they’d let me keep 1/2 my profits. I was told that I had to continue to trade aggressively. Within about a week, I surpassed the profit objective again. After I surpassed my profit objective, I made a big mistake because I decided I wanted to keep working on my performance. The performance mindset is another trap.

Do you know how easy it was for me to profitable trading the morning but performance mindset had me trading the evening just so I could get better at mastering my craft? Stupid!

Long story short, I decided to try to continue to impress and made some stupid mistakes in the evening. Of course, despite posting good numbers– I was never contacted or given any opportunity. That said, I knew I was trading beyond my ability and it would be a shot taking opportunity.

The real problem is that these firms do not give you any capital to work with and/or do not care to develop traders. Let me backup, there are only 4 to 5 reasons to seek out a prop firm:

  1. Firm capital. The only reason to give your trading profits to a firm is if they can scale you up beyond your own means. Based on my experience, one shouldn’t attempt to day trade the e-mini futures with less than 25k risk capital. TopStepTrader gives you between $2000-$4500 with a bunch of strings of attached. It is not a good deal in my opinion after paying all the fees.
  2. Trading floor. This was the reason I tried out at the other firm. I think trading on a virtual or actual floor could be very valuable but not valuable enough to pay to trade on a simulator.
  3. Trading technology. None of these firms have any technology. There is more technology right here on this blog or with my own trading software.
  4. Might be easier then trading own money.
  5. Might give meaning to some paper traders or encourage one to journal or be more disciplined.

While these deals were questionable before the e-micros, they might have been the only option for the trader not willing to bring in the bare minimum 5k-8k to trade futures.

However today, you are much better off to trade the e-micros like the MES 1/10th size e-mini S&P 500 instead. If you can trade well and prove yourself on it then there is no reason you cannot scale up to trading multiple MES contracts to trading e-minis to trading multiple e-minis.

For example, each point on the E-mini S&P 500 is worth $50 and the MES 1/10th size means it will be worth $5. A 1% move on the S&P 500 is worth about 28 points today or $1400. That same 1% would be a $140 move on the MES. If nothing else, I like the MES because when traders see big numbers its easy to get overly excited.

Now, I cannot, in good faith, recommend discretionary trading e-mini futures with less than about $25,000. Yes, technically it is possible to trade with 5k-7k or even less. And, if you have a systematic strategy then it might be possible to do that, and in fact I have offered systematic strategies with that starting capital. However, discretionary trading where you do not have hard numbers is a different game.

If you divide $25,000 by 10 then you get $2500 which would be a reasonable starting amount for trading the MES. With that account size, your 3% reasonable risk would be $75. $75/5 gives you around 15 points to play with at 1 contract which is very reasonable. And frankly, because we are dealing with a smaller account, you could start with like 1k which would still be comparable to an 10k E-mini futures account. Keep in mind, your 1k MES account is still over 2x as large, on an adjusted basis, as the largest account TST provides! Keep in mind 1k is only about 3 months of try out fees!

Finally, I hope you will find this post as encouraging as I do. It has never been easier to trade futures. While it pays to keep a broad mindset toward opportunity, it is a great time to be a futures trader too.

I am actually surprised some of these tryout firms still exist because the model no longer makes sense! Of course, if any real futures props can demonstrate they have a deal that makes more sense then trading the MES for the new trader then I’d be happy to help promote them.

About the Author

The author is passionate about markets. He has developed top ranked futures strategies. His core focus is (1) applying machine learning and developing systematic strategies, and (2) solving the toughest problems of discretionary trading by applying quantitative tools, machine learning, and performance discipline. You can contact the author at curtis@beyondbacktesting.com.

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