If a trader qualifies via the $150k Combine, trades a funded account with 3 contracts and starts off by losing nearly $3,000 on each of their first three days, then TST is nearly $9,000 down on the arrangement. If I were running that risk, with other people trading with my funds, I'd want some pretty hefty safeguards in place. Wouldn't you?
C'mon Xela, I thought you'd be familiar with the rules by now, lol.
A trader
cannot lose $9,000 "by losing nearly $3,000 on each of the first three days", because he's capped at $3,000
weekly. He would then be restricted from trading until the following week. BUT...he's also capped at the
trailing max draw of $4,500, which means he cannot lose more than $1,500 starting the second week.
Regarding equity, Pekelo mentioned the screen shot where the trader asked if it's only $3k of equity on the 100k account. In order to assess a value of the live account, it must be compared to the
substitute, which is a retail account.
Since most trade CL, we'll use that as the example:
(Day trade margin x maximum cars) + maximum allowable draw
The max cars to start is 3, so that gives you $3,000 for the day trade margin ($1,000 per lot x 3), PLUS the start of the maximum trailing draw, which on the 100k account is $3k.
All traders start at a "$0" balance in the live account, but that doesn't mean it's $0 equity, since you have to account for the starting maximum number of contracts allowed, plus the maximum allowable trailing draw. Therefore, if you were to start trading using the SAME value as the 100k live account, it's
$6,000 of actual equity if it was a retail account. However, in the retail account, you MUST add day trade margin for every added car in addition to the $3,000 trailing draw, whereas in the TST live account, you place ZERO capital.
THIS is the value of the live account. The trader gets to "build up" equity with ZERO risk, unlike a retail account.
Remember, TST is using
a base value of $10,000 of equity per car to calculate the percentage of daily risk. The $3,000 figure is based on a 15 cars max account on a 150k account, and thus $3k is a 2% risk of equity ($3,000 divided by $150,000 is 2%).
Obviously, when you start the LIVE account, the backer is
not providing you with $150,000 of equity. They are providing you with the ability to trade 3 cars to start, and allowing the account to go against you $4,500 within the first 10 days, as long as you abide by the live account rules.
That is the risk they take for each live trader on the 150k account.
Let's say a trader puts $7,500 of capital in their AMP account, and they want to trade 3 lots of crude each day with a maximum allowable draw of $4,500 (the "blow up" of the account, meaning they would not go below the 3k required to trade on the last day, they would close the account). Here, 3k is allocated to the margin, and $4.5k is allocated to the maximum draw. If you risked $3k on your first day, then you are allowing for roughly 67% of your maximum allowable draw ON DAY ONE, which is a tremendous amount of equity to risk per account value.
You would never do this on a live retail account (unless you're ready to blow it up fast), but you CAN do this on the TST live account, because they are using the $150k number
to define the percentage of risk. If you plan on trading every day of the week, then the added safeguard is the weekly loss limit, which if divided by 5, is actually net $600 loss per day. If you don't plan on trading each day of the week, then yes, $3,000 is the allotted amount you can lose in ONE day.
But here's the catch: you are going to try and maximize the account equity value once you are aware that you only have TEN DAYS to do it, so you MUST take the risk of adding cars as you build up the equity, otherwise you will end up with a piker sized account.
So if you're wondering why traders "blow up" their live accounts, see above.
