Toxic trading refers to risky, impulsive trading behaviors that can endanger not only individual trader accounts but also the overall stability of proprietary trading firms. Understanding and avoiding toxic trading is crucial for your success as a trader.
Toxic Trading Flow
Toxic trading cover a variety of behaviors and practices, including but not limited to:
Excessive Risk-Taking (Over-Leveraging)
Engaging in trades with risk levels that exceed a trader's capital or risk tolerance. This leads to overexposure or full margin use, magnifying both gains and losses. The first violation results in a warning, while the second leads to account closure, profit deductions leaving only 30% performance commission, and removal of any profits from trades exceeding the limit.
Gambling Behavior
Trading is driven by emotions rather than rational analysis, similar to gambling. Traders may pursue losses, make impulsive trades, or addictive tendencies, leading to negative trading outcomes. Your biggest loss should not exceed 3% of the account size on the Master accounts only. Splitting up a trade into multiple positions will be counted as one single trade on any of our accounts.
Overtrading
Continuously entering and exiting trades without a clear strategy or rationale, resulting in diminished profitability and emotional exhaustion.
High-Frequency Trading (HFT) & Tick Scalping
Engaging in excessive and rapid trading activities indicative of higher volatility, which may result in significant losses.
Arbitrage
All forms of arbitrage are considered toxic due to the lack of a clear underlying idea, strategy, or rationale. Below are two common arbitrage strategies:
Hedge Arbitrage
Simultaneously entering opposing positions with different firms.
Latency Arbitrage
Exploiting disparities in trade execution times across various trading platforms or venues. Traders using this strategy seek to profit from minor price differences resulting from delays in order processing or data feed.
Poor Money Management
Traders who frequently encounter margin calls due to inadequate funds or risky positions may indicate a lack of risk management, posing a threat to their accounts and potentially the firm’s stability.
Behavioral Patterns
Inconsistent behaviors, such as trading during non-liquid market hours to exploit liquidity shortages, consistently disregarding risk management principles, or making emotional decisions
Reverse Trading
Signs and behavior, which includes risking the full daily loss on one trade, which often indicates reverse trading between different firms.
Consequences of Toxic Trading
Engaging in such behaviors may be subjected traders to various restrictions including but not limited to:
Reducing leverage
Limiting the number of trades per day
Lot size limit per day
Lower daily/max loss (limiting the risk per trade)
Imposing a 1% risk limit rule
or even being banned from the firm
Our goal as an evaluation firm is to assist you in becoming a better trader and risk manager, while also benefiting from the trading flow you provide. This evaluation aims to gather the best trading data possible, enabling us to monetize our data more efficiently, enhancing our stability, and strengthening the industry as a whole.