Quote from Maverick74:
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.
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.
Quote from ScalperJoe:
Good info, but why would anyone take such a deal? Are we talking millions of buying power, 100 lot blocks of ES?
If a person can "net" 500k, you don't need a backer, and you certainly don't need to split 50% of your profits with anyone, especially if there is a "deferred compensation" clause or a 30% retainer of your p&l. It would be great to trade in an office, but those fees are absurd.
Quote from Maverick74:
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.
Quote from ScalperJoe:
Or they could send the trader the 3k (60% of 5k), and keep 2k in the account instead of the investor taking the distribution.
The investor at this point has not taken the distribution, yet is still owed the 2k,which can be taken from the NEXT profit traunch of 5k, thereby still allowing the 2k to remain in the trader's account.
If the trader quits, then the investor takes the 2k. If the trader continues and starts to lose money, then instead of the trader going BELOW the starting balance which makes PTP take a realized loss, he goes back to sim if the balance goes back to the starting balance.
There could be many names for this, perhaps call it "reverse deferred compensation" or "reverse retained p&l", lol.
Quote from Maverick74:
Yeah not so sure about that. All the deals I have seen where a trader takes out profits, the firm always wants their cut at the same time other wise you risk the trader walking away with his money and then losing the investors. If I'm the investor, I want to get paid. Either we both take it out or we both leave it in. I just think the model works better for both parties if they can lock in some p&l. Traders are too streaky.
Quote from ScalperJoe:
Yeah then there's really no way around the 5k build up, unless it's lowered to say "the equivalent amount of the profit objective of the combine." If a trader did the 2,500 combine, then that's the cushion, for the 3,500, that's the cushion, etc.
Given that Patak even stated that traders who pass the combine tend to have their profits "cut in half" when going live, perhaps the best solution is to lower the cushion and increase the probability for the trader to get a check.
Quote from MichaelPatak:
We also know that when someone goes from Combine to LIVE there is a drop off in performance.. So if you were to be taken live (aka financially backed) on a 30k account giving you 3 lot max buying power and a $500 daily loss limit.. You would have shown that you can produce a $250 trading average.. This drops a bit when you go live so we do have higher exceptions when you are not on real money accounts. We do NOT expect you to meet ANY profit target live. This is only during evaluation (aka the COMBINE).
mp
Quote from ScalperJoe:
Correction, he stated there was a "drop off in performance", not that it was "cut in half" when going from sim to live, my bad.
Quote from Maverick74:
Bet me! You are 100% wrong. Don't call me names. Just bet me. We'll have Don Bright hold the bet. How much do you want to wager? If I win the bet I'll give your money to charity. Michael has been very clear about this. Very clear. It's specifically why he mentioned that they had traders who were up 15k to 20k and gave back all their profits. How can you give back 20k in profits if they cut you off at 1k? Come on man, do the math. Get help if you have to. But let's put some money on this. If I have to listen to your shit I at least want to get paid for it.
Quote from volente_00:
Michael
Since inception why has the combine went from free, to $30, then $60 and now $160-400 if it is truly about finding talent and not generating combine revenue ?
Also are the numbers set in stone ?
Say a trader makes $2400 in the 30k 10 day combine, will you still fail them ?
Why are traders forced to trade every single day of the combine ?
There will be times when a high probability trade is just not there to be taken yet this rule forces you to do exactly that.
Also if a trader passes combine and goes live and generates 5k profits in the 30k account, do you remove the strict rules or still keep them handcuffed even though your money is no longer at risk ?
Successful trading is about flexibility and I think using fixed statistics is a surefire way to miss out on potential profitable traders
Quote from Maverick74:
So is putting down a 2k deposit at some chop shop and think you are going to make millions. No laws against dreaming in this country.