It’s a relatively slow day for Chicago Board of Trade because it’s Veteran’s Day. A slow day for the Board of Trade is a whirlwind everywhere else. Squares of trading slips liter the floor. Runners zip back and forth as wise cracks hurl across the room to continuously keep the mode light in a high stress, high pressurized environment. Above, gigantic boards representing markets and stocks all over the world light up in various colors, flip, scroll and change constantly. Fox Business is stationed overlooking the pit, broadcasting reports of the market’s happenings. In pits similar to UFC’s Octagon, men yell loudly as trades happen and periodically cheer. It’s exciting. It’s exhilarating. In some sense, it’s an elaborate game. Enter TopstepTrader.
TopstepTrader is a year and a half old trading firm, started with the strategy of using professional sports methodology to, according to the company, “develop, scout, and discover trading talent.” I met Michael Patak, President of Topstep, and he energetically and passionately explained to me this unique business which he considers to be the future of trading.
Topstep “mines for talent” via trading blogs and business clubs at universities through a process it calls its “draft”. Those in the draft are asked to enter the Topstep program. Patak likens Topstep’s draft process to baseball where draftees enter a minor league system to develop to become a “top step trader” (a top step trader is a term for the best traders on the trading floor). After being drafted, draftees have the option of entering a one or four week training simulator known as “the batting cage”. The batting cage simulator allows the user to select a particular industry or type of stock to trade and make trades based on current market conditions. The user gets a feel for trading and is not monitored by Topstep. However, they can utilize a trading coach to help them understand daily market conditions as well as help them to identify their trading style. No pressure here, it’s just practice.
If the draftee feels ready, he then may enter a football title themed “Combine”, which allows draftees to trade futures real-time, all while being “scouted” by Topstep. The Combine is also referred to as “the minors” by Patak. Make no mistake; the Combine is not for the uninitiated. Every Combine participant, called a “recruit”, now has to show what they can do in front of scouts who see if the recruit can manage risk and discipline. Over four weeks, the recruit is given $50,000 in a fictional futures trading account where the recruit is given a “loss limit” of $1000. At $1000 the account is shut down for the day. If the recruit hits the loss limit 3 times, he is effectively “cut” from the Combine. Successful recruits showing an “increased aptitude” for trading are “called up” with a “scouting call”. In order to be called up, a recruit has to trade for at least 20 days during the minors and average $300 day, totaling $6000 profit or more.
At any time 500 recruits around the world participate on their very own computers with the trading software on the Combine. Recruits also have the option at the beginning of the Combine to shorten the combine to 2 weeks, as well as increase/decrease the fictional trading account amount and or loss limit according to preset Topstep parameters. One flex Combine allows recruits to start and stop the Combine in one week increments.
Recruits consist of high school dropouts, MBAs, Ivy League students, even truck drivers. Patak stressed the Combine levels the playing field in futures traders. Traditional futures trading firms will not financially back a trader without recruiting them from a top school or having them invest thousands of dollars of their own money.
- Every trader receiving "scouting call" gets this t-shirt.
After the scouting call, the trader is taken to “live” action with $50,000 real money in a risk free trading account in the futures market. The trader then takes 60% of the profits made on his account. After the trader makes $15,000 in profit his split goes to 70%; at $20,000 profit his split is 80%. Conversely, if the trader’s account goes negative, he is “sent down” back to minors and has to earn his way back to the pros. Over the process traders are set at a daily loss limit of $3000. The trader’s account is frozen for the day after hitting the loss limit.
Traders are not alone. “Trading coaches”, psychologists who have worked as traders, come in every Friday to help traders manage their thoughts and emotions. Everyday won’t be a winning day, so the best way to stick it out over a long haul is to manage the emotions and stick to a strategy during those stressful times. The coaches’ jobs are to help traders deal with the stress.
Patak states the purpose of keeping one’s head in futures trading is not only about winning, but to “manage” losses. Patak calls it shooting for being a great singles hitter, not a high strike out home run hitting trader.
“Guys might have a good day, but can you feed your family, buy a home, and send your kids to college? That’s what separates top traders from busts”.
Bad pitches equal bad trades, while good pitches equal good trades. Additional one on one “pitching” coaches help traders with their “mechanics”.
- Topstep Maket Broadcaster doing the coaching thing.
In addition to coaches, traders have market broadcasters who function as a “skipper/manager”. Through live chats on screens around the world, market broadcasters give market information to help traders do their job. Meanwhile scouts are in the bleachers taking notes on trading strategies. Every trade, amount lost, trends, and other individual information is accessible over screen to the scouts. The scouts see how traders pitch, hit, and field. The trading profiles for all traders are similar to online trading cards.
- Topstep even has technical support like a team's trainer.
“THE NEXT SEASON” IN TRADING?
Is the TopstepTrader model sustainable? Patak seems to think so. The market has increasingly gone electronic. Gone are the days of crowded pits. Now Topstep can utilize traders around the globe. Instead of the older trading model on the floor where the trading firm has no idea real time whether traders are up or down, Topstep can manage the accounts of traders and minimize losses. In the process it can develop its traders to become successful long term.
One last unique aspect of Topstep employs is inviting everyone to the draft. Anyone, like you or I, could go to the website, get into the batting cage, enter the draft, get recruited, and be scouted to become the next top trader.
The futures, market that is, is in your hands. All you have to do is step up to the plate.
Exavier B. Pope, Esq. is an entertainment and sports attorney and legal blogger for Chicago Now. All opinions expressed are those solely of Mr. Pope.
(c) 2011, Exavier Pope
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