The bitter truth about Patak Trading

G

gmst

I had a quick look at Patak around a month ago, when one ET friend first mentioned it. I then thought performance criteria is way too strict. But then browsing the Patak Trading thread, I saw Maverick74 really siding with Patak. I respect Maverick a lot and so I thought maybe I have missed something since Maverick is obviously way too experienced (so he must be right) and I became neutral in my views about Patak.

Sometime this week, my ET friend mailed me saying he is going to join Patak and clearly there was conviction in his writing. That prompted me to think that I have really screwed up in my evaluation of Patak and I ought to take a relook with a fresh mind. After spending 2 hrs on its website and 2 hrs doing follow-up analysis to see if I should also join a combine and get funded, I have concluded that it is an 'elaborate' scheme to take money out of traders pockets. Obviously, Maverick is a very smart guy and the way he has been recommending Patak, now it is clear to me that he is getting paid by Patak for promotion as a tout or maybe he is a promoter of Patak himself.

It saddens me to see that Maverick is out there to fool people since following his ACD thread, I used to think Maverick is a very good trader and I had very high regards for him. Today also, I don't have anything personal against Maverick - as I think he is just trying to make a quick buck by fooling people (most sellers of trading services do this and buyer beware is an oft-repeated proverb). But, now I seriously wonder how much money Maverick makes from his trading alone?!! Because if he is making 7 figures from his trading, he will never allow himself to do such a dishonorable thing by being part of such a group which is out there to outright fool people.

Admittedly after this not so useful introductory post, in my next series of posts, I will write how I arrived at my conclusions about Patak.
 
After some deliberation, I have reached the conclusion that Patak trading as it stands now is a well-constructed elaborate scheme to make money off under-capitalized traders by showing them bright future which will not unfold. It is means to primarily accomplish two things:

A) Get more people go through combines, move a few to live trading and then move them back to combine, rinse and repeat. Patak earns money from each combine. Always keep around 40-50 people in live combines, thus supporters of Patak can come and show to doubters that people are getting funded.

B) Patak's goal is to "earn from commissions". For a numerical analysis, let us assume every Patak trader trades only ES. Patak commission is 1.25$ per side + exchange fees. If Patak has 50 live traders right now, and on average if everyone of them has a 50k account (so everyone trades 5 contract per clip) and everyone makes just 2 round-trip trades per day, then total number of contracts = 5*50*2*2 = 1000 contracts per day. Assuming 22 trading days a month, that is 1000*22 = 22,000 contracts per month. For this volume, Advantage future rate would be 0.18 cents + exchange fees per contract. CTS T4 at advantage costs 0.50$ per contract. So, total cost with Advantage is 0.68 cents + exchange fees. So, on average Patak is earning 1.25 - 0.68 = 57 cents per contract. So, total PL for Patak over a month from commissions alone = 0.57*22000 = $12,540 pm.

Now, if average trader at Patak has 100k account instead of a 50k account, then total contracts traded at Patak per month = 44000. Advantage cost = 12 cents. So, differnce = 1.25 - (0.12+0.5) = 1.25 - 0.62 = 63 cents per contract. So, total Commission PL = 0.63*44000 = $27,720 per month!!

Link to determine Advantagefutures costs
http://advantagefutures.com/open-an-account/commissions/

In the above calculations, I have ignored that traders could be doing way more than 2 round trips per day, they could be doing 4 or more round trips per day.

Consider for a minute that Patak was truly interested in identifying good prop futures traders. If they were to pass on the true commission costs to the guys trading live, the 50 live guys would have saved at a minimum $ 12,540 pm. That is 12540/50 = 250$ per live trader per month. If average trader has 100k account, savings for each trader = 27720/50 = $554.40 pm.
 
My guess is that above commission angle is way more attractive for Patak than what I have written above. I guess that average trader would be trading way more than 2 round-trips a day. That will double or triple the commission rip-off that is happening at Patak. So, Patak owners are making at least 28k or maybe even 50-70k per month from commissions alone. An analysis of Patak's performance/risk rules clearly shows that rules at Patak have been devised with the sole aim to encourage scalping. Yes, they have been packaged in a NEAT way so that it seems like they are practicing good risk management and keeping a tight leash on their traders. LOL.

Alright, lets establish that Patak is encouraging scalping.
Let us run some numbers again assuming an average trade has a 50k account with maximum lotsize 5 and maximum daily loss 1000. Again, let us assume the average trader will trade only ES.

1) With 5 contracts and 1k loss limit, maximum stop size has to be 1.75 ES points, because if max stop size is 2 points, your loss is 1k = daily loss limit and according to rules, you would have failed the combine. If you consider a 1 tick slippage possibility, than your max. stop has to be 1.5 ES points. This stop rule is OBVIOUSLY designed to encourage scalping.

Now, if you don't want to potentially stop trading after 1st trade for the day, you have two choices. Either use 3 tick stop for the first trade or if you want to use the 1.5 point stop, then reduce the number of contracts to 2 or 3. Or as per the first option, get into a trade with a 3 tick stop! I want to ask traders. Do you think its easy to trade ES with a 3 tick stop!!! Does this make any sense? Won't you keep getting stopped again and again?! So, choices are either trade with 2/3 contracts (why do you need backing in this case, just trade in your own account) or if you want to trade 5 contracts with 1.5 point stop, dont trade for the day after 1st loss. Does it sound attractive!?

2) Now, lets look at the profit aspect. The last line on http://www.topsteptrader.com/fundedtrader

states that every trader has to complete this "trading plan". Click on the trading plan and it will open a PDF. In the PDF, point#4 says for a 50k account, once a trade moves 500$ in the money, a maximum retracement of 50% is allowed before the trade needs to be closed. 500$ on 5 contracts means 2 points in profit. So, say you buy ES at 1408 with a stop at 1406.5 (1.5pt stop as discussed above) and it goes to 1410, you must move your trailing stop to 1409. Even if your setup suggests that ES is going to go to 1422 by end of day and you want to give a 1.5 point stop room to your original position hoping that you will catch a big winner, the rule#4 of the live trading at Patak will force you to put a trailing stop at 1409. What will most of the guys do in this case, instead of putting in a stop at 1409, they will most likely close the position at 1410, because the chance of a 1 point retracement is just so huge. Again, this stupidly small trailing profit forces a trader to scalp.

3) In the same PDF, point # 8 states that you have to put in a breakeven order after the trade goes x ticks in the money. This x ticks has to be less than 8 ticks (as we demonstrated above). So, maybe as soon as your trade moves 1 point in profit, move your stop to b/e. This is recipe for disaster. The end result of all this would be small, extremely small profits (like 1-1.5 points). If nothing else, this rule again encourages scalping and more roundtrips.

So, both from the profit and stop point of view, rules have been designed that they appear to keep the trader under tight leash, when the real motive is to just encourage the trader to scalp and generate commissions for Patak.

4) Finally, with so many rules, its very much possible that live trader will screw somewhere and Patak will find an excuse to send him back to combine, so that they can again charge him 200 to 400$.

So, based on the way rules have been defined, they encourage scalping and my guess is average trader would be trading way more than 2 round trip trades per day, thus increasing commision income for Patak.

Always with a large number of traders with a L on the website (live trading) and touts like Maverick and all the other newly registered agents of Patak on ET and other trading websites pointing that so many guys have been funded, Patak will keep on finding new fodder to generate combine income and commission income.

I must admit, before I did the analysis, I never realized what an ingenious business model those guys who are behind Patak have come up with! But, so sad its so insidious in its design.
 
Finally, they allow their traders 5 contracts (for 50k) and want the traders to make 5k over 20 trading days. So, 250$ average for each trading day on 5 contracts, which means 50$ average per contract per day. It means the trader must average 1 point for each trading day on ES. The largest acceptable loss for a day is 1.75 ES points (with slippage).

Let us model above requirements. Assume a trader goes all-in, all-out with 5 contracts on each trade. His stop size on each contract is 1.5 points, so if his first trade for the day is -1.75 points (after slippage), he will cease trading for the day. He needs to average 1 point per day as we established in the paragraph above. So, what win% and what win amount the trader needs per trade? This problem can have a large number of solutions. I will write 4 different solutions below.

1) Win% = 50%, Loss % = 50%, Loss = 1.75 pts, Win = 3.75 pts, Av = 1 pt, PF = 2.14
2) Win% = 60%, Loss % = 40%, Loss = 1.75 pts, Win = 2.85 pts, Av = 1.01 pt, PF = 2.44
3) Win% = 70%, Loss % = 30%, Loss = 1.75 pts, Win = 2.2 pts, Av = 1.015 pt, PF = 2.93
4) Win% = 79%, Loss % = 21%, Loss = 1.75 pts, Win = 1.75 pts, Av = 1.015 pt, PF = 3.76

These ratios are very difficult to achieve. I would like to ask traders who are considering joining Patak - how much PF you have achieved historically? It has to be > 2.14 at the BARE MINIMUM, and this must hold true over "every 20 days of trading". Otherwise, they will not achieve their performance objectives and live traders will be sent back to combines. For such PF to hold over every 20 days of trading, your annual PL must be at least above 4 or so, otherwise you simply will not have the consistency to ensure that your PF > 2.14 over every 20 days. Does any 'poor' trader on this board has a strategy where annual PF > 4? I am sure there are trader on this board with annual PF > 4, but those guys don't need Patak to fund them.

From above examples, as number of win days (win% in above) reduces, required PF is reducing. However, there is another requirement of a minimum of 50% winning days. This means 2.14 is bare minimum required PF.

These performance measures which must be met every 20 days will ensure that almost every live trader would be sent back to the combines. To finish off, I found below condition the most ludicrous:

A trader must be profitable in every market a trader trades. WTF!!! If someone trades 5 different markets, and he is profitable in 4 markets but in 1 market he is negative, he will be sent back to the combine again!!!! What if trader has made USD 20k on his other 4 other markets and lost just 2k on that 1 market!!!! This is the most ridiculous of the conditions I personally found. The only aim is to make sure that they are able to send live traders back to combine!

So, both the aims are fullfiled: 1) Combine->Live->Combine->Live...rinse and repeat 2) Earn money from Combine and Earn money from Comissions

Also, strict loss limits will ensure that traders don't blow up, so keep selling them some educational courses so that they keep thinking they are improving and they keep coming back for more and more combines.

Enough Said!
 
I don't have a strong opinion regarding Patak but I do think you have misjudged Maverick74.

I've followed his posts for a few years and have read enough to develop an opinion about his character. He just isn't the kind of guy that would accept payment for being deceitful. He just isn't put together like that. I would say he is a stand-up guy and I would trust him in financial and personal matters. He has integrity.
 
Am I missing something? Checked out the site just now and all I could find that you could could lose is a mere $120 deposit. So if someone wanted to trade and had no capital, they could put up $120 and trade someone elses money and get a split of the profits. Yes you could get better commission prices if you traded your own account, but then you are risking your OWN capital. Say a trader did do well with the firm and made a lot of money, they could eventually open their own account and trade cheaper and keep all of the profits. Actually sounds like a great deal for someone who has no money and wants to give it a shot...unless I am missing a deposit requirement of some sort
 
Hey gmst, I have not read thoroughly through all yours posts but I will later this evening. I have stated before and I will state again, I have no relationship with Patak or TST. I have also never had any in the past. This means I do not get compensated in any way shape or form. My series 7 is currently held with Bright Trading. I've been registered with the NFA and my background is detailed on that registration as well as my 7. This means if if any firm is compensating me, I have to disclose it. If you want to PM me, I'll give you my full name and a link to my registrations. You can see for yourself.

I have no reason to tout TST except for the fact I get several PM's a month where guys are asking me where to go to get capital. I have referred many guys on ET to several prop firms in the Chicago area in the past. However now the landscape has changed and most of these firms want programmers or guys with solid track records. Rather then have guys fund small 2k to 5k accounts and trade futures and blow through that, I advise them to go to a program like TST. There are a few others exactly like them. You can try theirs too. It's a lot better wasting 200 dollars realizing you need to work on your trading some more vs blowing through the last 5k to 10k to your name trading futures. I still believe that.

Look gmst, I have been in this business awhile. I was a floor member of the CBOT and ran a prop office for 8 years in Chicago. If you live in the Chicago area, I'll be happy to buy you a beer and point you in the right direction trading wise. I have probably met over 30 guys on ET over the years. Some of them I was able to get them very good jobs. I know just about everyone in Chicago directly or indirectly.

There is really nothing to sell regarding TST. What you see is what you get. I love the idea of what they are doing and I wish I created something similar years ago. There is nothing wrong with what TST is doing. I personally know guys who have been backed. You can customize your own combine if you think theirs is too tough.

If you have any serious or legitimate questions about TST I can answer them for you. If you want to know about me, I'm an open book. We can talk over the phone or in person if you live in Chicago. This is a very regulated business gmst. I am licensed and that means I have to disclose everything I do. I can't hide anything.
 
I usually stay out of this kind of stuff, and frankly it saddens me as to how ET has evolved from professional traders to what it currently is. I'm only speaking up because of the fact that Mav is one of the few remaining professional independent traders that constantly contribute to the boards. It's been well documented that he trades for Bright, he's been in the biusiness for longer then most anyone I know, and he lives in Chicago, which makes the trading community even smaller.

The fact that you attack him is disrespectful, but what seems insane to me is how does this even affect you directly? If you think it's an elaborate scheme, then don't participate. I don't know how much a combine is, but I can't imagine it being that much, but again nobody is forcing you to do it.

Trading is extremely hard, very few make it. The fact this firm makes money I believe irritates some people. Yes I bet they make a good amount off people signing up for the competition, can you blame them? I'm sure a good percentage of people who make it past the combine to trading live don't last more then a few months, but again would you keep around a trader who you are backing that is consistently costing you money, they aren't running a charity.

If you don't like what they are doing, put your $100, or whatever it is they charge in your piggy bank for a rainy day. Just because a firm is making money of people trying to get backed to trade, and possibly you know you couldn't meet their criteria, you shouldn't blast them let along a member who has no affiliation to the firm just knowledge of them and the industry is disgraceful.

Ladies and gentlemen, this is what ET had become..
 
20-day combine - 20 trading days of your choice, not necessarily consecutive.

150K account.

Maximum position size is 15.

Profit objective for the 20 day combine is $16 000/800$ per day.

Loss limit $3000.

If you can average 3 ES points per day trading 6 contracts, that is $900 per day.

If you have an edge and a profitable system without excessive drawdown, I don`t see the problem. Or is my math off? I`m currently very tired.

Sure, the performance requirements are tough, but I totally understand that. And I do think it is realistic provided I`m not missing something.

Now, the good news is that after the combine is completed, there are NO profit objectives that you need to keep hitting. Your only concern is your risk and avoiding drawdown.

So, once you pass the combine, there is less (none?) pressure on performance, save risk management and drawdown.
 
Quote from Maverick74:

Hey gmst, I have not read thoroughly through all yours posts but I will later this evening. I have stated before and I will state again, I have no relationship with Patak or TST. I have also never had any in the past. This means I do not get compensated in any way shape or form. My series 7 is currently held with Bright Trading. I've been registered with the NFA and my background is detailed on that registration as well as my 7. This means if if any firm is compensating me, I have to disclose it. If you want to PM me, I'll give you my full name and a link to my registrations. You can see for yourself.

It's a lot better wasting 200 dollars realizing you need to work on your trading some more vs blowing through the last 5k to 10k to your name trading futures. I still believe that.

If you have any serious or legitimate questions about TST I can answer them for you. If you want to know about me, I'm an open book. We can talk over the phone or in person if you live in Chicago. This is a very regulated business gmst. I am licensed and that means I have to disclose everything I do. I can't hide anything.
More...

Mav, both trading wise and character wise, I have always held you in 'very' high esteem. Also, you are a very smart person - no doubts about that. This is precisely the reason that I refuse to believe that you can be as naive as your posts suggest regarding TST. It will be nice if you can refute the logic and the numbers that I have written in my above posts and prove me wrong. I would love to be proven wrong! But make no mistake - just because you have been in the industry for a while - doesn't mean that you can say things like - achieving consistently a PF of 2.14 on every 20 day basis is doable!

Also, kindly send me over your name and link for your NFA registration through PM. I would definitely like to check your NFA status as you claim and if I find you really are not affiliated to TST, I will write a post here and say that. Also, after hearing you refute my numbers and my logic, if I do have reasons to believe that my impression about you in the first post in this thread was not appropriate, I will offer you a public apology. Sure, when I am in Chicago, we can go and have a beer!

P.S. I do agree with the point however that wasting 200$ 10 times and thus losing 2k over a period of 10 months is better than losing 2k within a month, for a completely newbie trader. My refute however is that in that case TST should advertise themselves as trading educators instead of provider of trading capital.
 
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