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The “We-Fund-You” Prop Trading Industry should be immediately shut down

It’s time for the CFTC/SEC/FTC and state attorneys general to do their jobs

 

In recent years there has been an explosion of “fraudulent” Prop Trading firms (herein, “Sham Shops”). I define how I use the term “fraudulent” herein.

A new Sham Shop seems to be popping up weekly — I estimate that Sham Shops domiciled in the U.S. are raking in at least $50,000,000 per month (yes, that’s million) out of the pockets of wannabee futures market traders.

I intentionally use the word “fraudulent” because these firms are nothing like the traditional/historical structure of real proprietary trading operations. [A more complete description of REAL prop trading firms is contained at the end of this posting.]

These Sham Shops are stealing the dreams of thousands of novice and aspiring market speculators who think that the “prop” trading offered by these firms is the direct road to real futures market trading. In the process they may be violating several Federal laws and the laws of at least 25 states. [Note: I not an attorney. It will be incumbent upon regulators to review the charges I am making herein.]

It is shocking that Federal regulators such as the Commodity Futures Trading Commission, Securities and Exchange Commission, Federal Trade Commission and state-level gambling agencies have not investigated the legality of these U.S. based Sham Shops.

The remainder of this post has several objectives:

  1. The case for litigating Sham Shops on several fronts
  2. Recommended actions for those who have lost thousands (and tens of thousands) of dollars to the Sham Shops
  3. Reasons why the CFTC might look at this outrage with a blind eye
  4. A comparison of the business model of Sham Shops with the historical standard of proprietary trading as understood by real professional traders
  5. My recommendation to regulators
  6. Estimating the size of the sham in the U.S.

 

The possible legal case against Sham Shops follows

Legal case #1. The Sham Shops are dealing in unregistered/unregulated and unlicensed derivatives

The Commodity Futures Trading Commission (CFTC) is a primary regulators of derivatives in the United States and the principal federal regulator of futures contracts. According to the CFTC, a derivative is:

A financial instrument whose value depends on the value of one or more underlying assets, rates, or indexes, and which is typically used for hedging risk or for speculative purposes.”

The instruments offered to clients by Sham Shops in hypothetical via paper-trading simulations meet the definition “derivatives” almost perfectly.

The Sham Shops may argue that the instruments traded by their clients are futures contracts. They are not! With full respect to brevity I will skip the many differences between actual futures contracts traded at registered/licensed/regulated exchanges and the instruments bought and sold by clients of the Sham Shops. I am hoping that regulators are smart enough to understand the differences.

Have no doubt about it — transactions in these derivative instruments are monetized to clients according to complicated formula, subject to very complex trading rules and calculations of profitability and payouts. But these trading rules and calculations of profits that might accrue to clients are part and parcel of the unregistered, unlicensed and unregulated derivates offered by the Sham Shops.

Another, perhaps more accurate, way to view the instruments “traded” by clients of the Sham Shops is that they are Contracts for Difference (CFDs), not actual futures contracts. Trading CFDs is currently not a legal practice for U.S. citizens.

 

Legal case #2. The Sham Shops have assumed the role of unregistered, unlicensed and unregulated OTC commodity exchanges

Each Sham Shop acts as its own OTC exchange for the hypothetical buying and selling of its own derivative instruments. In a real sense the Sham Shops are taking the other side of their clients’ trades. As such, the Sham Shops assume the role of proxy Designated Contract Markets (DCMs) or exchanges. All exchanges are required to be registered, licensed and regulated — three operational aspects avoided by the Sham Shops.

The Sham Shop industry may claim that they are only vendors of the price discovery of the CME and other exchanges, data stream brokers and order entry software providers, but such claims are thinly veiled attempts at legitimacy in the opinion of this writer.

The Sham Shops may also claim that comprehensive disclosure documents are  made available to their clients. This might be true, yet how do disclosure documents let the Sham Shops off the hook for acting as unregistered, unlicensed and unregulated commodity exchanges dealing in unregulated derivatives.

 

Legal case #3. The Sham Shops have assumed the role of unregistered, unlicensed and unregulated options brokers

The Sham Shops might claim that their operations are not subject to the same regulatory framework as FCMs because their clients are not subject to the same loss-of-capital-plus conditions of actual futures trading

In reality, the set-up and monthly fees charged to clients of the Sham Shops are proxy options contracts and should be viewed by regulators as such. Clients can lose 100% of the set-up and monthly maintenance fees charged by the Sham Shops. The risk/reward matrix of prop trading with the Sham Shops is quite similar to the risk/reward matrix of options on futures contracts. Clients are simply saying, “I will pay a certain fee as a bet that I can beat the dealer.”

 

Legal case #4. The Sham Shop version of prop trading is basically a form of illegal online gambling/gaming/betting

In 2006 the U.S. government put into place a federal statute that defines and references gaming known as the Unlawful Internet Gambling Enforcement Act (UIGEA). While the act does not provide a comprehensive definition of “gaming,” it does define “unlawful internet gambling” as:

To place, receive, or otherwise knowingly transmit a bet or wager by any means which involves the use, at least in part, of the internet where such bet or wager is unlawful under any applicable Federal or State law in the U.S.

It remains the burden of the U.S. Justice Department and the Federal Trade Commission to determine if the Sham Shops are violating federal internet gaming statutes.

 

Legal case #5. The Sham Shops are violating state laws against unregulated internet betting/gaming/gambling

The clients of the modern version of prop trading are betting money (start-up and monthly fees) that they will successfully predict the price changes of  unlicensed, unregistered and unregulated proxy futures market prices in accordance with complex calculations and rules.

Any way you look at it, the Sham Shops are engaged in unregulated internet betting/gaming/gambling. Their clients are placing their chips as an online bet that they can beat the game.

Betting on the price changes of proxy unregulated futures derivatives is very similar to online betting on sporting events in that the bettors (clients of Sham Shops) are gambling their monthly set-up/monthly fees to parlay their bets into a considerable profit.

Twenty five states allow their citizens to engage in online sports gaming — and in every case these states require the sports betting operations to register with the state gaming commissions. Thus,  another 25 states outlaw online gaming.

Yet, in my opinion, Sham Shops are bookie operations offering online gaming.

I have advice for all U.S. citizens who are in the hole with the Sham Shops. Calculate your total lost capital and submit a request to your Sham Shop to reimburse you IN FULL. Make sure you also file a complaint with your state’s gaming commission, informing them that your losses represent money paid to an unregistered online gaming company — then keep them appraised of your refund request.

 

Legal case #6. The operations of the Sham Shops look very much like Ponzi schemes

A Ponzi scheme is defined as a type of investment fraud where returns are paid to earlier investors using the capital from newer investors rather than from profits earned by the operation of a legitimate business. The Ponzi relies on a continuous influx of new investors (or reboots from existing investors) to sustain payouts, as there are no actual earnings. 

This definition precisely defines the business plan of the Sham Shops. No actual trading in real futures contracts through real FCMs on real exchanges are involved with the Fraudulent Prop Trading Industry. Rather, a very small proportion of clients (perhaps 5% or fewer) make net profits over a time continuum. The profits of the few becomes the entire marketing scheme by the Sham Shops to bait and hook new clients.

 

Legal case #7. The marketing structures of the Sham Shops might be deemed as pyramid schemes

The cornerstone of the marketing pitch by the Sham Shops is the hype pumped by a small minority of those who qualify for payouts. The reality is that the Sham Shops do NOT want all clients to tap out — they need the chosen few to pump the millions made via social media and YouTube channels.

These chosen few then PUMP PUMP PUMP their Fraud Shops as commission-paid “affiliates.” And, herein is a major issue.

The legal case can be made that the social influencers paid by the Sham Shops constitute pyramid schemes. As such, these social influencers could be found culpable if courts convict Sham Shops of running pyramid schemes.

A pyramid scheme is a fraudulent investment strategy that recruits members by promising payments or services for enrolling others into the scheme rather than supplying any real investment or sale of products. These schemes rely on the continual recruitment of new members to provide returns to earlier participants, creating a structure that resembles a pyramid.

An example is Apex Trader Funding, Inc., one of the largest Sham Shops in the U.S. Clients of Apex are invited to become affiliates — to receive a lifetime 15% commission of eventual fees paid to Apex from referred customers. The majority of Sham Shops offer affiliate deals.

Here is an example of the pyramid.

 

Legal case #8. Sham Shops might be illegally operating as Introducing Brokers

Sham Shops draw a very slippery and grey distinction between hypothetical not-for-real simulated paper trading and actual futures trading. A goal of many clients that enter the Sham Shop world is to qualify as a trader of actual futures contracts. Sham Shops are aware of this fact and are not completely transparent to make clear the impossibility that clients will be granted real money to trade actual futures contracts.

The reality is that no actual futures contracts are traded by the any client of any Sham Shop. Yet, at least in the case of Apex Trader Funding, the separation is extremely blurred between sim accounts and real accounts, as seen below.

This web content from Apex suggests strongly that clients can progress to real accounts trading real markets through real FCMs on real futures exchanges. But this just is not the case. Or at least it better not be.

Yet, Apex and other U.S. domiciled Sham Shops refer their clients to exchanges such as the CME and CFTC regulated FCMs such as Tradovate and NinjaTrader. It is the opinion of this writer that the business referrals to FCMs for any purpose by Sham Shops should require registration as Introducing Brokers at the very minimum. Such registration would impose strict regulation of many aspects of Sham Shop operations which are running amuck without transparency and scrutiny.

It is incumbent upon the CFTC and NFA to closely examine the relationships between Sham Shams and exchanges, FCMs and other CFTC registered enterprises.

Hey Sham Shops, if you are actually transitioning your Sim clients into real actual futures trading accounts, please let me know who you are — because you should probably be the first Sham Shop the CFTC investigates.

 

Legal case #9. Other possible legal/ethical violations by the Sham Shops

Firms registered and regulated by the CFTC must also join the National Futures Association (NFA), an industry self-regulatory body with substantial investigatory and enforcement capability. The NFA takes its charter seriously in most instances.

It is the belief of this writer that the Sham Shops would would NOT fair very well if subjected to the type of regulatory oversight imposed upon NFA member firms.

The operational structures and promotional messages of the Sham Shops should leave potential regulators in shock.

Following is a screen shot of the YouTube channel for Apex Trader Funding.

The promotional messages of Apex (and other Sham Shops) are not balanced in the communications of risk vs. reward. Accuracy is also a standard of the CFTC/NFA. For example, the NFA would most likely require audit-level investigation of the $1 million claim. The inability of Apex to verify such claims in all promotional channels would likely result in large monetary fines at a minimum.

The NFA also reviews the activities of its members to determine “unprofessional, improper and “un-business-like conduct.” The NFA would have an absolute field day with the Sham Shops enforcing this standard.

Lack of corporate transparency is one characteristic of the Sham Shops. For example, Apex Trader Funding suggests it has collected at least $85 million from wannabee traders in the last three months. That is a big-time operation. Apex self reports itself to be the largest Sham Shop in the U.S. Yet, Apex appears to be a ghost. It uses a post office box in Austin TX as its only published address and reaching a live voice at Apex is basically impossible.

Social media is flooded with complaints against the Sham Shop industry by clients. The complaints tend to be clustered in several categories:

  • Slippery and ever-changing rules on payoffs
  • Rude treatment by customer service personnel in resolving complaints
  • Non-payment of eligible profits
  • Unauthorized position close-outs by the Sham Shops of customer paper trades
  • Delayed responses from Sham Shops on urgent issues
  • Rules changes on trading procedures that favor the Sham Shops

Apex is an example of a Sham Shop that has complicated rules for payouts — and rules that seemingly are always in motion.

Link to current rules at Apex is https://support.atf.com/hc/en-us/articles/10403497070363-How-Do-Payouts-Work-Payouts-Withdrawals-Performance-Split-Percentages

Following is one of many Twitter X posts from traders who were denied payments. I have communicated with many of these traders — they are credible and claim that their Sham Shop changed the payment rules mid-stream. I believe them to be truthful. I have scratched out the name on this Twitter X post because Apex (and other Sham Shops) have a history of terminating business with clients who air the dirty laundry of the fraudulent prop firms.

As an ethical issue (separate from a legal issue), the rules/guidelines/allowances imposed upon the clients of the Sham Shops almost guarantee trading failure. Verified by academic research and the experiences of many market speculators, day trading is the most dangerous time frame for trading. Yet, simulated day trading is rule for clients of the Sham Shops.

The leverage allowed by these phony prop houses would be disastrously high if employed in real trading. For example, according to its web page, Apex allows clients with a sim $100,000 account to trade 14 mini contracts at a time. The underlying value of 14 E-Mini S&P (ES) contracts at the close on Jul 10, 2024 was $3,978,100 — representing 40X leverage. Some experienced traders with outstanding risk management techniques would blow up trading 14 ES contracts per $100,000 — how would you expect a novice wannabee trying to “kill” the markets to do?????

At least two other problematic dictates are made upon clients by most Sham Shops.

  • Unrealistic asset volatility restrictions
  • Requirement to trade and be profitable a certain number of days each month
  • Drawdowns limited to 1-2%

Most professional career traders say that all traders must develop their own unique style to be consistently profitable. Yet, the Sham Shops jam their clients into restrictive boxes with rules and guidelines that this writer believes are optimized for clients to fail. Sham Shops need the vast majority of their trader clients to fail — and IMO they have optimized their business plans to accomplish this goal.

A hallmark of the Sham Shops and their social influencers is the false claims of trading profits. There are NOOOOOOOOOOOOOOOOO trading profits, sorry folks. I have challenged the Sham Shop industry to send me a copy of even one FCM brokerage statement showing a trading profit, much less an actual trade or one IRS form 1256. I’ve not received a single response.

 

Recommendations for traders who have lost money to Sham Shops

My sense — and I hope I am wrong — is that most victims of the Sham Shops have Stockholm Syndrome. Why? It’s the same emotional driver of FOMO. It’s greed without check. “After all,” Sham Shop suckers will say, “it’s only a few hundred dollars per month for unlimited upside potential.” Victims do not like admitting they have been had.

For those victims of Sham Shops who want to address their victimhood, I recommend the following:

  1. Yell loud and often on social media, calling out Sham Shops by name
  2. Write a letter of complaint detailing any grievances you might have with your Sham Shop(s). Send the letter with a copy of this blog post to:
    • The gambling commission in your state. Communicate that you have lost money to an unregulated OTC gaming operation.
    • The National Futures Association
    • The Commodity Futures Trading Commission
    • The Chicago Mercantile Exchange
  3. Total up your damages – send a certified letter to your Sham Shop requesting full and complete recovery.
  4. Keep others posted via social media

Traditional Prop Trading vs. Sham Shop Prop Trading

The futures market Prop Trading offered by the Sham Shops is anything but proprietary futures market trading. Rather, it is the gambling of unregistered and unregulated OTC derivatives.

The table below compares the “prop” trading offered by Sham Shops with the traditional structure of true prop trading as understood by long-time futures trading professionals.

 

 

In real and traditional prop trading ALL  parties are pulling for each other. Real prop trading firms want their traders to be profitable. In contrast, Sham Shops only make money if their clients in composite lose money. How is this idea not the definition of “conflict of interest.

One final point is worth noting. The REAL futures markets are considered to be a “ZERO SUM GAME.” There is a short for every long. For each $1MM made by a trader there is $1MM lost by a trader (of course adjusted for fees of approximately .005% per futures contract). The “trading” offered by Sham Shops are not zero sum. My estimate is that 90-95% of Sham Shop clients lose money annually.

 

Recommendations for CFTC, state gaming commissions and the CME

I highly recommend simulated paper trading for aspiring novice traders as well as for experienced traders who want to test new strategies. In fact, I recommend to new traders that they paper trade for at least two years prior to placing their first real trade. The problem is not paper trading.

Rather, the problem is unscrupulous firms that stretch the law to separate traders from their money.

Here are my recommendations:

  1. Sham Shops should be required to register with the CFTC/NFA — category TBD, but the category of Sim Exchange is suggested
  2. Sham Shops should be required to cease business activities until the NFA can completely review their business structures and all communications channels
  3. NFA should solicit and review letters of complaints from Sham Shop trader clients
  4. The CFTC should demand from overseas Sham Shops a completed list or their U.S. clients
  5. The new rules for trading for clients might be as follows:
    • Client pays for an account set up — let the market place compete for price and details
    • Sham Shops may charge clients whatever the market bears for account set up fees, ongoing hypothetical order placement software, sim accounting fees, and sim brokerage commissions. All such fees must be clearly separated and disclosed to clients
    • Sim accounts remain open until client decides termination or account goes on hypothetical margin call
    • Clients have complete freedom to trade sim account, including overnight holds
    • Margin requirements are attached to all paper trades
    • Clients pay for live data feeds
    • Clients may carry multiple accounts but all covered by one data feed
  6. Sham Shops must clearly differentiate between the sim hypothetical proxy futures contracts being traded and actual real exchange traded contracts that are not offered
  7. Sham Shops must not interfere with the trading style of clients in any way. If a client sim account goes into margin call or deficit the account can immediately be closed
  8. Sham Shops must annually publish the following data:
    • Total number of clients with open and traded accounts the previous year
    • Total number of sim accounts traded the previous year
    • Percent of clients with net simulated profits or losses the previous year
    • Percent of sim accounts traded with net simulated profits or losses the previous year
    • Of the Form 1099 reported payments to social influencers, a report on the proportion paid for “trading” profits vs. the proportion paid for affiliate commissions
  9. Any and all social media “affiliates” and/or social influencers must also be registered  as Introducing Brokers with and subject to the NFA
  10. In short, sim accounts should be treated as if they were real account trading real futures markets.
  11. Any Sham Shop that refers clients to an actual FCM must register as an Introducing Broker and be subject to corresponding regulations

 

Size of the Sham Shop industry in the U.S.

I estimate the annual revenue generated by U.S. supposed “Prop Shops” to be $1.2 billion per year.

Apex has posted its monthly payouts on line. Assuming that Apex pays out 50% its revenue, then assuming that Apex has 50% of the market, then the Sham Shops domiciled may be raking in $1.2 BILLION annually.

“Prop” futures trading firms believed to be domiciled in the U.S. include:

  • @topstep
  • @apextradefund
  • @tradedayfunding
  • @myfundedfutures
  • @elitetraderfund

Note to Sham Shop operators. You all will vigorously deny the allegations in this blog post. If you are so sure of the legitimacy of your industry, then please take the initiative to as vigorously join the National Futures Association and request from them oversight of your business. I am quite sure doing this is the last thing on your mind. I believe yours is a Predatory business enterprise aiming at making money at your client’s expense. I believe you need some of your clients to make money (lots of it) so that you have a promotional edge to bring more lambs to slaughter.

 

### for now

 

The beautiful symmetry of past Bitcoin bull market cycles

The “Halvings” have represented the half-way points of past bull market cycles

 

The Bitcoin Halvings are those dates when the mining rewards are cut in half from the previous halving cycles. Remarkably, the Halving dates have also represented almost perfect symmetry within past bull market cycles.

More specifically, the number of weeks from the start of each bull market cycle (the low following a 75%-plus decline) to the Halving dates has been almost equal to the number of weeks from the Halving dates to the subsequent bull market highs, as shown on the chart herein.

If this sequence continues, the next bull market cycle high should occur in late Aug/early Sep 2025.

How high might Bitcoin go in this bull cycle? No method of analysis is fool-proof, but it should be noted that the highs of past bull markets line up quite well against an inverted parabolic curve. Should this tendency also continue, the high of this bull market cycle could be in the $130,000 to $150,00 range. The X on the chart marks the probably high date and price level.

Note: As a trader I avoid being dogmatic about any idea. While the view presented in this post is my preferred analysis, it is not my only interpretation. I continue to place a 25% probability that Bitcoin price has topped for this cycle. You can view this analysis here: https://www.peterlbrandt.com/does-history-make-a-case-that-bitcoin-has-topped/ Should Bitcoin fail to make a decisive new ATH and decline below $55,000 I will raise the probability of the Exponential Decay.

End.

 

 

Bitcoin — a once in a lifetime trade, never to be equaled

There has never been and may never be another market like Bitcoin $BTC

2024 is my 50th year anniversary of the first futures market trade of my life — it was for contracts of bags of pre-1964 Silver quarters and dimes. https://www.nytimes.com/1971/04/02/archives/futures-in-silver-coins-traded.html

I have traded a best-guess 35,000-plus futures contracts in my life covering everything from Corn to Gold, treasuries to Copper, Sugar to Palm Oil, Lumber to Cattle, stock indexes to shelled eggs, Iron Ore to Idaho Potatoes.

I can say with no pause that there has never been a market like Bitcoin. Sure, some of  you ask, but what Alt-coins and memes? Well, these proliferations owe their existence to Bitcoin.

What makes Bitcoin so unique? There are two things I point to:

  1. The nature of the asset itself – non-hackable (at least so far), limited quantity, globally accepted, trackable, almost instantly transactional
  2. The price behavior of the asset

This blog post focuses on the second point above — the price discovery history of Bitcoin. Here are the unique features not attributable to any other asset I can identify.

Repeated multiple X price advances. Just to name them:

    • 2009 to 2011,  3,191 X advance
    • 2011 to 2013, 572 X advance
    • 2015 to 2017, 122 X advance
    • 2018 to 2021, 22 X advance
    • 2022 to ????, 4.7 X advance to date

Even though Bitcoin’s advances have been subject to exponential decay, the advance still put Bitcoin in a class by itself.

The other price behavior feature is the magnitude of the bear market crashes between the multiple X advances. There have been at least seven declines in Bitcoin larger than 50% and six grater than 75%. Thus, Bitcoin has a unique feature of making some people a huge bundle and wiping out another cohort.

 

 

 

 

 

 

 

 

 

The chart below is a graphic representation of the above. Not only have the major advances in BTC been according of parabolic nature, but of parabolic on log scale. I can find no other stock, commodity or publicly traded asset that can make the same claim.


What’s next for Bitcoin? Who knows. I am in my late 70s and of poor health, so I am unlikely to witness the end of the Bitcoin story. But I have no doubt but that excitement and surprises are to come. I remember that the stock market of the 1980s was the era of hostile takeovers of corporations. Bitcoin represents an attempted hostile takeover of the world’s currency system. What an exciting story to follow and take part in. I feel privledged that I’ve been able in some small part to have taken part in this grand experiment.

End

History of Bitcoin bull market corrections since 2015

Here is an update upon numerous requests

Does history make a case that Bitcoin has topped?

Judge for yourself

It’s called Exponential Decay — and it describes Bitcoin

I hate being the bearer of bad news, but data are data.

The fact is that the bull market cycles in Bitcoin have lost a tremendous amount of thrust over the years. You may like the story of this data or not — but you will have to deal with it (or at least account for it, adjust for it or just plain ignore it). In fact, I don’t like the Exponential Decay occurring in Bitcoin — Bitcoin is one of my personal largest investment positions.

There have been four major bull cycles in Bitcoin, with the current advance the fifth major bull cycle [the advance from cycle low to cycle high shown in brackets].

  1. Dec 21, 2009 to Jun 6, 2011 [3,191X advance]
  2. Nov 14, 2011 to Nov 25, 2013 [572X advance]
  3. Aug 17, 2015 to Dec 18, 2017 [ 122X advance]
  4. Dec 10, 2018 to Nov 8, 2021 [ 22X advance]
  5. Nov 21, 2022 to xxx x,, yyyy [high so far is $73,835 registered on Mar 14, 2024]

Now, here is where Exponential Decay is showing its ugly head.

  • The magnitude of the 2011-2013 was approx. 20% of the 2009-2011 cycle
  • The magnitude of the 2015-2017 was approx. 20% of the 2011-2013 cycle
  • The magnitude of the 2018-2021 was approx. 20% of the 2015-2017 cycle

Worded another way, 80% of the exponential energy of each successful bull market cycle has been lost.

Applied forward, this would indicate that the current bull cycle will experience an an exponential advance of approximately 4.5X or so (80% of the 22X of the 2018-2021 cycle).

Taking a low for the current cycle of $15,473 projects a high for this cycle of  $72,723 — guess what — a price that has already been reached.

Well, you will ask, what about the halving? Prices have exploded upwards after every previous halving. And that may happen again.

But for now we need to deal with the fact of Exponential Decay. It has happened. It is real. You may not want to believe it, but I place a 25% chance that Bitcoin has already topped for this cycle.

If Bitcoin has topped, what’s next you might ask. Of course I have no clue. But, if Bitcoin has topped I would expect a decline back to the mid-$30s, or the 2021 lows. From a classical charting point of view, such a decline is the most bullish thing that could happen from a long-term view. If you want to see an example of such a chart structure, look at the Gold chart from Aug 2020 to Mar 2024.

Do I believe the analysis just presented? I don’t want to, but the data speak for itself.

End

 

Factor Update, April 6, 2024

This report was shared with Factor Members on April 6, 2024. Enjoy!

Become a Factor Member

Members receive:

  • Trading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
  • The Weekend: Thoughts on a Sunday (Weekend) Afternoon / Factor Update
  • Private Twitter Page: Real-time alerts on interesting charts and observations, member dialog, the process of trading, the human aspect of trading, and risk/trade management
  • Webinars: Periodic member-only webinars where Peter speaks about current conditions and fields member questions
  • Knowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of trading content
  • Automatic notifications: Email and social media notifications are sent out when new content is published
  • Factor Report Educational Papers: Periodic educational and instructional documents

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work. My goal is to shoot straight on what trading is all about.

I hope you will consider joining the Factor community.

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Learn my little secret price indicator that AI has unsuccessfully tried to reverse engineer for months

Know the trick I’ve used to identify the next massive price move

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Scroll down to the bottom of this blog post to find out these and other treasured secrets

 

 

 

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Happy April Fools Day Image | April fools pranks, April ...

The scammers who promise you such things are total frauds

Paper on Bitcoin Halving Cycles

Enjoy

Become a Factor Member

Members receive:

  • Trading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
  • The Weekend: Thoughts on a Sunday (Weekend) Afternoon / Factor Update
  • Private Twitter Page: Real-time alerts on interesting charts and observations, member dialog, the process of trading, the human aspect of trading, and risk/trade management
  • Webinars: Periodic member-only webinars where Peter speaks about current conditions and fields member questions
  • Knowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of trading content
  • Automatic notifications: Email and social media notifications are sent out when new content is published
  • Factor Report Educational Papers: Periodic educational and instructional documents

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work. My goal is to shoot straight on what trading is all about.

I hope you will consider joining the Factor community.

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A correct understanding of “rate-of-return”

The lack of understanding of trading performance is wider than I imagined

On January 29, 2024 I posted on “X” the polling Tweet shown below.

The wording was intended to reveal the faulty understanding of performance by the majority of social media participants.

Faulty indeed!!

81% of the 1,553 respondents answered wrong.

The trade produced a 6% rate on capital.

Anyone who monitors Twitter is accustomed to such claims as:

    • “Trade delivered 10x profit”
    • “120% return in one-week”

My response to such claims is always: Bull Crap!

The profit/loss and risk of a trade MUST always be expressed as a percent of the composite value of the entire amount of capital from which the trade was made. In the example of the polling question, the two datum points attributable to performance are:

  1. Investment of $12,000 to purchase 400 shares of XYZ
  2. A profit of $6,000 or $15 per share

The percent change of the underlying asset does NOT represent the rate of return.

The profit as a percent of the margined position does NOT represent the rate of return.

I repeat — the risk AND profit/loss of a trade must be calculated in relationship to the total actual or nominal value of a trading/investment account.

Let me unpack an actual example from the prop account of my company, Factor Trading. For the sake of this argument, assume that my trading account has a total nominal value of $1 million.

On January 9 I shorted seven contracts of May 2024 Soybeans at 12.85. The underlying value of this trade (35,000 bushels) was $449,750. The margin requirement to carry this trade was $28,910 (keep in mind that the CME sets a minimum margin requirement per contract but each FCM can require more).

I covered the trade today at a price of $12.23, or a profit per bushel of 62 cents. So, the total profit of the trade was $21,700.

Based on the answers to the poll (above), 26% of respondents would have pegged the rate of return of this trade at 75% (21,700/28,910) — and this answer would be wrong.

And 42% of respondents would have pegged the rate of return at 4.8% (.62/12.85) — and this also would be wrong.

Repeating once again — rate of return (and risk) must be expressed as a percent of the total account capitalization, so a profit of $28,910 represented a return of 2.9% (or 290 basis points), derived from dividing the profit of $28,910 by the total nominal capitalization of $1,000,000.

To conclude, rate of return should NOT be calculated based on the profit/loss as a percent of the change of the underlying asset or as a percent of the margin used.

Yet follow Twitter in the days ahead and see how many braggard traders misreport the return of their trades.

One final note — if a Commodity Trading Advisor or investment manager were to report performance in any other way than explained, the NFA/CFTC or SEC would severely judge such reporting as misleading and subject to a monetary fine.

End

Become a Factor Member

Members receive:

  • Trading Commodity Futures with Classical Chart Patterns: A free PDF copy of Peter’s classic out-of-print book
  • The Weekend: Thoughts on a Sunday (Weekend) Afternoon / Factor Update
  • Private Twitter Page: Real-time alerts on interesting charts and observations, member dialog, the process of trading, the human aspect of trading, and risk/trade management
  • Webinars: Periodic member-only webinars where Peter speaks about current conditions and fields member questions
  • Knowledge Center: Fast and easy access to current and archived content from Peter’s extensive library of trading content
  • Automatic notifications: Email and social media notifications are sent out when new content is published
  • Factor Report Educational Papers: Periodic educational and instructional documents

View your Factor Member options here. You could consider your membership in the Factor Service as just one more trade. If the Factor Service is not of value to you, well, it is just one more trade that did not work. My goal is to shoot straight on what trading is all about.

I hope you will consider joining the Factor community.

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Obstacles facing Ethereum ETH

While Ethereum has shown significant growth and potential, there are several factors that could potentially hinder its price appreciation in the future. It’s important to understand that the cryptocurrency market is highly volatile and influenced by a wide range of factors, both internal and external to the Ethereum network. Here are some reasons that might work against Ethereum’s price growth:

  1. Technical Challenges: Ethereum faces ongoing technical challenges, including scalability issues. While Ethereum 2.0 aims to address these through sharding and a transition to proof of stake, any delays or problems in this upgrade could negatively impact investor confidence and the price.
  2. Regulatory Risks: Cryptocurrencies are subject to a rapidly evolving regulatory landscape. Increased regulatory scrutiny or unfavorable policies could impact the adoption and price of Ethereum, as governments might impose restrictions on its use or trading.
  3. Competition: The rise of other blockchain platforms that offer similar or improved functionalities, such as Litecoin, Cardano, Solana, and others, could divert developer and user attention away from Ethereum, impacting its market position and price.
  4. Market Sentiment and Speculation: The cryptocurrency market is highly influenced by investor sentiment, which can be fickle. Negative news, market trends, or loss of investor interest could lead to a decrease in Ethereum’s price.
  5. Security Concerns: While Ethereum has a strong security record, the blockchain and its smart contracts are not immune to vulnerabilities. Any significant security breach or successful attack could lead to a loss of trust and a decline in price.
  6. Network Congestion and High Fees: Ethereum has struggled with high transaction fees and network congestion during periods of heavy use. This could push users and developers towards more efficient platforms, affecting Ethereum’s price negatively.
  7. Scaling Solutions and Layer 2 Adoption: The adoption and success of Layer 2 scaling solutions are crucial for Ethereum. If these solutions fail to deliver as expected, or if there’s slow adoption, it could negatively impact Ethereum’s usability and value.
  8. Environmental Concerns: The environmental impact of blockchain technology and crypto mining has become a significant concern. Ethereum’s shift to proof of stake aims to address this, but any perception that it’s falling short in environmental responsibility could hurt its price.
  9. Dependence on Decentralized Finance (DeFi) and NFT Markets: A substantial portion of Ethereum’s value is tied to its use in DeFi and NFTs. A downturn in these markets could lead to a decrease in Ethereum’s price.

It’s essential for investors to conduct thorough research and consider the dynamic nature of the cryptocurrency market when evaluating potential risks and rewards.