Oh boy, where do we start here. Pekelo's math is once again a train wreck. Let me address these one at a time.
Here are 3 reasons why these firms overstating the funded account's value:
1. It just sounds better, and it pleases the trader's ego. No math yet, this is just psychology.
This is just silly, so let's just ignore this for now.
2. If the traders realized just how small amount really needed (to trade 1-3 cars intraday), they might fund their own account, instead of trying to get backed. 30K is usually too high for a newbie, but a 3-5K account is entirely doable.
Since Pekelo does not trade for a living, and doubt he ever has, he sees the world of trading through minimum margin requirements instead of through the lens of capital commitment. Two VERY different concepts. Yes, you can fund an account for 3k to 5k, that has been stated on this thread 100 times. However, 3k to 5k is NOT, I repeat NOT, your capital commitment. That account might actually need 25k, 50k or even 100k to become profitable. How much you start with is useless. It's a business. And like all business, they need cash flow and capital to sustain themselves.
Think of it as starting a restaurant. One can actually start a restaurant with little to no money. Pekelo would come on here and brag about the "minimum requirement to open a restaurant is only 10k or 20k, the rest the bank will loan you (margin). Here's the problem and if Pekelo EVER ran a real business he would know this, while the bank will loan him money, this restaurant will need WAAAAAAY more then 10k or 20k to stay in business. Over two years it may cost him over 100k. Sure he can try to borrow more and more and more, but at some point his cash flows has to make the loan payments are the bank will call the loan in. But Pekelo will tell newbies all it takes is 20k, don't listen to that evil Mav who says you need 100k to 150k to run a restaurant.
It's the same with trading. Yes, you can "open" an account for next to nothing. Hell, why stop at 5k, you can open an Oanda FX account for $5. But I assure you, most FX traders are not losing $5, they will refund that account 100 times. Remember, ALL businesses need cash flow to sustain themselves, trading included. So while one can open an account for 5k, at the end of the day, after a year or two of attempting to trade, their "total account funding" might exceed 50k or even 100k. Think of it as the gambler who goes to Vegas who tells his wife he is only going to take $200 out of the ATM to play. Well, he does, except he never told her he was going to make 20 trips to the ATM.
As I've stated 100 times before on this thread, the real value of TST, and I believe the only value, is the amount of money they will save you vs refunding your own account 10 times. If a guy, or girl, can lose 1k to 2k in combine fees over the course of a year and realize they should do something else with their life, then TST is a Godsend. Because I will bet the moon they would have dropped more then that at AMP Futures over the course of a year trying to make it work.
3. The higher the account's value, the smaller the return % needed to pass the combine, thus it seems more achievable. Ready for the math? Here we go:
If it is TST's 30K 10 days combine with the 1.5K profit target, that is a 3K monthly return on the supposedly 30K account. Since I have my calculator handy, that is a 10% return per MONTH, which is entirely doable with a futures account.
Now this is just a product of lack of a good education. NOBODY and I mean NOBODY uses return on margin except some scrub bragging to his friends he made 100% on his trading account. The entire professional world uses return on notional. Why? Because it's standardized!!!! In business, you have to standardize data or you can't compare numbers. That's why in accounting they have this thing called GAAP (generally accepted accounting principles). It's so when companies put out their annual statements you don't have to decipher what metrics they are using.
In the trading world we use notional. This will normalize my data so that if my broker happens to give me better margin then Pekelo's broker or maybe I decide I'm going to trade nat gas in a 2k account and Pekelo uses 25k to trade nat gas, we have to normalize this data somehow to make it compatible. So we use notional value. Notional value does not mean that is the actual equity in the account, it simply means that we are generating a return off a notional amount that is standard.
So if Pekelo trades one crude oil contract and I trade one crude oil contract, we are both trading about 102k worth of oil. Maybe he think he only needs 1k to do this. I say 20k. If we both made 1k in a month trading oil, he would claim to be the better trader because he made 100% return. I only made a 5% return. Nobody would realize we actually had the SAME performance. So we "standardize" it, so that our return on notional is exactly the same.
But wait! The real account's size can be as low as 5K (depending on the traded product) thus the math changes a lot. Now you actually have to make 60% PER MONTH to pass the combine.
Again, see above, there is no real account size, there is only notional exposure. Nobody has to make 60% per month. It's absolutely shocking to me that he doesn't understand some basic finance 101.
I will do the math for you guys, that is a 720% annual return rate. Now ask yourself, if a trader can make such a return, does he really need a backer??? Now to be fair (because I am a fair animal) the backed traders don't have to sustain the Combine's level of achievements all year long, but my point is still stands, if you take the real account size into account, the needed level to pass looks way more unrealistic. And if the trader doesn't keep a close to the Combine's level of profit making up, he might as well just drive a taxicab because he won't be making much....
No, let's do some "adult math" here. Let's say a trader has to make 1500 a month. That's the so called 30k combine. Let's say he trades crude oil and let's round it down to 100k on the notional. That comes out to 18k a year on 100k notional or an 18% return. Not 720%. LOL. Now to be fair, I actually think making 18% a year for most guys IS really hard. I mean if you could do that year in and year out you could raise a billion dollars to start a hedge fund. So let me be clear here, I do NOT think the combine is easy. I do NOT think trading futures intra-day is easy. And I do NOT think trading in general is easy. So please don't mistake my position for, this is so easy even a caveman can do it. I'm simply showing the "real"math here. Not the silly Pekelo math that NOBODY in the real world uses.
Let's think of it this way. If you had to walk into a bank today, with your best suit on, nice clean shave, and you sat down with the President of the bank to get a business loan to execute a trading business. Whose math would you show to the Bank President? Pekelo's or mine? That's what it comes down to. You guys need to start thinking about this like a business and use "real" math and use "real" accounting standards. Enough of this making 1% a day and 500% a year and trading is so easy I just draw trend lines crap. Let's try to stay in the real world here. Not ET fantasy land.
Any constructive criticism to my math is welcomed, because I like to be correct...
I rest my case.
