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Understanding Overleveraging: A Risk Management Perspective

Introduction:

Overleveraging represents a significant risk in financial trading, often leading to substantial losses and destabilizing the trading environment. This article explores the concept of overleveraging, its implications for traders, and the importance of implementing effective risk management measures at TopTier Trader.

What is Overleveraging?

Overleveraging occurs when traders utilize excessive levels of leverage relative to their account size and risk tolerance. Leverage allows traders to control larger positions with a smaller amount of capital, magnifying both potential gains and losses. However, when leverage is used irresponsibly, it can amplify the impact of market fluctuations, leading to significant capital erosion.

Trigger Explanation:

The trigger point for overleveraging is determined by the relative risk to the account’s daily drawdown limit. If the accumulated risk exceeds a certain percentage of the initial daily drawdown, it indicates a violation of prudent risk management practices.

  • Forex and Major Currency Pairs: A violation occurs if the total open position generates a profit or loss greater than 25% of the initial daily drawdown within a 10-pip movement.
  • Cryptocurrencies: A violation occurs if, for every $500 movement in price, the total asset position generates a profit or loss greater than 20% of the initial daily drawdown.
  • Indices: A violation occurs if, for every $10 movement in price, the total asset position generates a profit or loss greater than 12.5% of the initial daily drawdown.
  • Metals and Commodities: A violation occurs if, for every 10 pip movement in price, the total asset position generates a profit or loss greater than 12.5% of the initial daily drawdown.

Simple Formula for Checking Threshold:

The formula for checking if a position exceeds the threshold for overleveraging is as follows:

Position Size × Price Movement × Pip Value ≤ Threshold Percentage × Initial Daily Drawdown 

Explanation of the Formula:

  • Position Size: The total number of contracts or lots in the trader’s position.
  • Price Movement: The threshold movement in price for the specific asset class being traded.
  • Pip Value: The value of one pip for the specific asset.
  • Threshold Percentage: The threshold percentage for the specific asset class being traded.
  • Daily Drawdown: The initial allowable daily drawdown for the trader’s account.

If the calculated value on the left side of the equation exceeds the threshold determined by the threshold percentage, it indicates a violation of prudent risk management practices.

Implications and Consequences:

Overleveraging poses significant risks to traders’ capital and the stability of the trading environment. Excessive leverage can lead to rapid and substantial losses, potentially wiping out a trader’s account. At TopTier Trader, overleveraging is strictly prohibited, and violations of this policy may result in severe consequences, including strikes, delayed payouts, reduced/rejected payouts, and ultimately, a ban from the platform.

Example 1: No Violation

Suppose a trader is trading EUR/USD with the following details:

  • Asset: EUR/USD
  • Total Position size: 3 standard lots
  • Pip value for EUR/USD: $10 (for 1 standard lot)
  • Price movement: 10 pips (threshold for forex and major currency pairs)
  • Initial balance: $200,000
  • Initial daily drawdown limit: $10,000

Using the formula:

Position Size × Price Movement × Pip Value ≤ 0.25 × Initial Daily Drawdown 

∴ 3 × 10 × $10 ≤ 0.25

∴ $300 ≤ $2,500

Since $300 is less than 25% of the initial daily drawdown limit of $10,000 ($2,500), the total position size does not exceed the threshold. Therefore, it is not a violation of the overleveraging policy.

Example 2: Violation

Suppose a trader is trading Gold (XAU/USD) with the following details:

  • Asset: XAU/USD (Gold)
  • Total Position size: 35 standard lots
  • Pip value for XAU/USD: $10 (for 1 standard lot)
  • Price movement: 10 pips (threshold for metals and commodities)
  • Initial balance: $200,000
  • Initial daily drawdown limit: $10,000

Using the formula:

Position Size × Price Movement × Pip Value ≤ 0.125 × Initial Daily Drawdown 

∴ 35 × 10 × $10 ≤ 0.125 × $10,000

∴ $3,500 ≤ $1,250

Since $3,500 is greater than 12.5% of the initial daily drawdown limit of $10,000 ($1,250), the total position size exceeds the threshold. Therefore, it is a violation of the overleveraging policy.

Example 3: No Violation

Suppose a trader is trading US30 (Dow Jones Industrial Average) with the following details:

  • Asset: US30 (Dow Jones Industrial Average)
  • Total Position size: 20 standard lots
  • Pip value for US30: $1 (for 1 standard lot)
  • Price movement: $10 (threshold for indices)
  • Initial balance: $200,000
  • Initial daily drawdown limit: $10,000

Using the formula:

Position Size × Price Movement × Pip Value ≤ 0.125 × Initial Daily Drawdown 

∴ 20 × 10 × $1 ≤ 0.125 × $10,000

∴ $200 ≤ $1,250

Since $200 is less than 12.5% of the initial daily drawdown limit of $10,000 ($1,250), the total position size does not exceed the threshold. Therefore, it is not a violation of the overleveraging policy.

Example 4: Violation

Suppose a trader is trading Bitcoin (BTC/USD) with the following details:

  • Asset: BTC/USD (Bitcoin)
  • Position size: 15 standard lots
  • Pip value for BTC/USD: $1 (for 1 standard lot)
  • Price movement: $500 (threshold for cryptocurrencies)
  • Initial balance: $200,000
  • Initial daily drawdown limit: $10,000

Using the formula:

Position Size × Price Movement × Pip Value ≤ 0.2 × Initial Daily Drawdown 

∴ 15 × 500 × $1 ≤ 0.2 × $10,000

∴ $7,500 ≤ $2,000

Since $7,500 is greater than 20% of the initial daily drawdown limit of $10,000 ($2,000), the total position size exceeds the threshold. Therefore, it is a violation of the overleveraging policy.

Updated: 1st of April 2024
With Effect From: 6th of April 2024

Understanding All-or-Nothing Trading Style: A Risk Management Perspective

Introduction:

In the realm of financial trading, the concept of all-or-nothing trading style represents a high-risk approach that can have significant implications for traders’ capital and the stability of the trading environment. This article delves into the intricacies of all-or-nothing trading style, its impact on traders, and the importance of risk management at TopTier Trader.

What is All-or-Nothing Trading Style?

All-or-nothing trading style involves consecutively opening a substantial number of positions on a single financial instrument, often without regard for market conditions or risk management principles. Traders adopting this approach seek quick profits by risking a significant portion of their capital on each trade, with little consideration for the potential downside.

Trigger Explanation:

The trigger points for All-or-Nothing Trading Style vary depending on the asset class being traded:

  • Forex and Major Currency Pairs: A violation occurs if the total open position generates a profit or loss greater than 25% of the initial daily drawdown within a 10-pip movement.
  • Cryptocurrencies: A violation occurs if, for every $500 movement in price, the total asset position generates a profit or loss greater than 20% of the initial daily drawdown.
  • Indices: A violation occurs if, for every $10 movement in price, the total asset position generates a profit or loss greater than 12.5% of the initial daily drawdown.
  • Metals and Commodities: A violation occurs if, for every 10 pip movement in price, the total asset position generates a profit or loss greater than 12.5% of the initial daily drawdown.

Simple Formula for Checking Threshold:

The formula for checking if a position exceeds the threshold is as follows:

Position Size × Price Movement × Pip Value ≤ Threshold Percentage × Initial Daily Drawdown 

Explanation of the Formula:

  • Position Size: The total number of contracts or lots in the trader’s position.
  • Price Movement: The threshold movement in price for the specific asset class being traded.
  • Pip Value: The value of one pip for the specific asset.
  • Threshold Percentage: The threshold percentage for the specific asset class being traded.
  • Daily Drawdown: The initial allowable daily drawdown for the trader’s account.

If the calculated value on the left side of the equation exceeds the threshold determined by the threshold percentage, it indicates a violation of the All-or-Nothing Trading Style.

Implications and Consequences:

The all-or-nothing trading style poses significant risks to traders’ capital and the stability of the trading environment. At TopTier Trader, such practices are strictly prohibited and may result in severe consequences, including strikes, delayed payouts, reduced/rejected payouts, and ultimately, a ban from the platform. Traders adopting an all-or-nothing approach risk not only their own financial well-being but also the integrity and stability of the trading community as a whole.

Example 1: No Violation

Suppose a trader is trading EUR/USD with the following details:

  • Asset: EUR/USD
  • Total Position size: 3 standard lots
  • Pip value for EUR/USD: $10 (for 1 standard lot)
  • Price movement: 10 pips (threshold for forex and major currency pairs)
  • Initial balance: $200,000
  • Initial daily drawdown limit: $10,000

Using the formula:

Position Size × Price Movement × Pip Value ≤ 0.25 × Initial Daily Drawdown 

∴ 3 × 10 × $10 ≤ 0.25

∴ $300 ≤ $2,500

Since $300 is less than 25% of the initial daily drawdown limit of $10,000 ($2,500), the total position size does not exceed the threshold. Therefore, it is not a violation of the All-or-Nothing Trading Style.

Example 2: Violation

Suppose a trader is trading Gold (XAU/USD) with the following details:

  • Asset: XAU/USD (Gold)
  • Total Position size: 35 standard lots
  • Pip value for XAU/USD: $10 (for 1 standard lot)
  • Price movement: 10 pips (threshold for metals and commodities)
  • Initial balance: $200,000
  • Initial daily drawdown limit: $10,000

Using the formula:

Position Size × Price Movement × Pip Value ≤ 0.125 × Initial Daily Drawdown 

∴ 35 × 10 × $10 ≤ 0.125 × $10,000

∴ $3,500 ≤ $1,250

Since $3,500 is greater than 12.5% of the initial daily drawdown limit of $10,000 ($1,250), the total position size exceeds the threshold. Therefore, it is a violation of the All-or-Nothing Trading Style.

Example 3: No Violation

Suppose a trader is trading US30 (Dow Jones Industrial Average) with the following details:

  • Asset: US30 (Dow Jones Industrial Average)
  • Total Position size: 20 standard lots
  • Pip value for US30: $1 (for 1 standard lot)
  • Price movement: $10 (threshold for indices)
  • Initial balance: $200,000
  • Initial daily drawdown limit: $10,000

Using the formula:

Position Size × Price Movement × Pip Value ≤ 0.125 × Initial Daily Drawdown 

∴ 20 × 10 × $1 ≤ 0.125 × $10,000

∴ $200 ≤ $1,250

Since $200 is less than 12.5% of the initial daily drawdown limit of $10,000 ($1,250), the total position size does not exceed the threshold. Therefore, it is not a violation of the All-or-Nothing Trading Style.

Example 4: Violation

Suppose a trader is trading Bitcoin (BTC/USD) with the following details:

  • Asset: BTC/USD (Bitcoin)
  • Position size: 15 standard lots
  • Pip value for BTC/USD: $1 (for 1 standard lot)
  • Price movement: $500 (threshold for cryptocurrencies)
  • Initial balance: $200,000
  • Initial daily drawdown limit: $10,000

Using the formula:

Position Size × Price Movement × Pip Value ≤ 0.2 × Initial Daily Drawdown 

∴ 15 × 500 × $1 ≤ 0.2 × $10,000

∴ $7,500 ≤ $2,000

Since $7,500 is greater than 20% of the initial daily drawdown limit of $10,000 ($2,000), the total position size exceeds the threshold. Therefore, it is a violation of the All-or-Nothing Trading Style.

Updated: 1st of April 2024
With Effect From: 6th of April 2024

Understanding Gambling/Betting Behavior: A Risk Management Perspective

Introduction:

In the world of financial trading, distinguishing between legitimate trading practices and behaviors akin to gambling or betting is crucial for maintaining a fair and transparent trading environment. This article aims to explore the concept of gambling/betting behavior, its implications, and how it intersects with risk management principles at TopTier Trader.

What is Gambling/Betting Behavior?

Gambling/betting behavior refers to engaging in trades that resemble high-stakes gambles, characterized by the absence of a well-defined plan or strategy. Traders exhibiting such behavior often rely on luck rather than informed decision-making, treating the market as a game of chance rather than a platform for strategic trading. This reckless approach to trading undermines the integrity of the trading environment and poses significant risks to traders’ capital.

Trigger Explanation:

Traders engaging in gambling/betting behavior often exhibit certain behaviors that serve as red flags. These triggers include:

  1. Impulsive Trading Decisions: Traders make impulsive trading decisions without conducting thorough research or analysis, relying solely on speculative news or rumors.
  2. All-or-Nothing Trades: Traders risk a significant portion of their capital on a single trade, hoping for substantial gains without implementing effective risk management strategies.
  3. Overreliance on Luck: Traders exhibit an overreliance on luck rather than adopting a disciplined approach to trading, leading to inconsistent results and heightened volatility in their trading activities.
  4. Lack of Trading Plan: Traders fail to develop a well-defined trading plan or strategy, making trades based on emotions or gut feelings rather than objective analysis.

Real-Life Trigger Cases:

  1. Impulsive Trading Decisions: A trader enters a trade based on a speculative news headline without conducting any research or analysis, leading to significant losses.
  2. All-or-Nothing Trades: A trader risks a substantial portion of their capital on a single high-risk trade, hoping for quick profits without implementing proper risk management measures.
  3. Overreliance on Luck: A trader consistently makes trades based on gut feelings or hunches rather than objective analysis, leading to inconsistent trading results and heightened volatility.
  4. Lack of Trading Plan: A trader enters trades without a well-defined trading plan or strategy, relying on emotions rather than disciplined analysis and risk management.

Implications and Consequences:

Gambling/betting behavior poses significant risks to traders’ capital and undermines the integrity of the trading environment. At TopTier Trader, such practices are strictly prohibited and may result in severe consequences, including strikes, delayed payouts, reduced/rejected payouts, and ultimately, a ban from the platform. Traders engaging in gambling/betting behavior risk not only their own financial well-being but also the credibility and integrity of the trading community as a whole.

Conclusion:

Gambling/betting behavior represents a violation of ethical trading practices and poses significant risks to traders’ capital and the integrity of the trading environment. Traders must recognize the dangers associated with such behavior and adopt a disciplined and strategic approach to trading. At TopTier Trader, we are committed to upholding fairness and integrity in the trading community and will take strict measures to enforce compliance with ethical trading standards.

Updated: 1st of April 2024
With Effect From: 6th of April 2024

Understanding Account Rolling/Churning in Trading: A Comprehensive Guide

Introduction:

In the realm of trading, maintaining integrity and transparency is paramount. However, certain practices, such as account rolling or churning, pose a threat to the fairness and credibility of the trading environment. This article aims to shed light on the concept of account rolling/churning, its implications, and how it intersects with risk management principles at TopTier Trader.

What is Account Rolling/Churning?

Account rolling, also known as churning, refers to the practice of acquiring multiple evaluation accounts within a short period and deliberately allowing some accounts to fail while focusing on completing others. Essentially, it involves navigating evaluation processes without genuinely showcasing the trader’s skill and proficiency in the market. This tactic undermines the integrity of trading evaluations and compromises the credibility of traders on the platform.

Trigger Explanation:

Traders engaging in account rolling/churning often exhibit certain behaviors that serve as red flags. These triggers include:

  1. Rapid Acquisition of Multiple Accounts: Traders acquire several evaluation accounts simultaneously, often within a short timeframe.
  2. Deliberate Failure of Some Accounts: Traders strategically allow certain accounts to fail while focusing efforts on completing others.
  3. Inconsistent Trading Patterns: Traders display inconsistent trading patterns across different accounts, suggesting a lack of genuine trading intent.
  4. Lack of Trading Strategy: Traders fail to implement a consistent trading strategy across accounts, relying instead on opportunistic tactics to pass evaluations.

Real-Life Trigger Cases:

  1. Rapid Account Acquisition: A trader registers for multiple evaluation accounts within a week, bypassing the standard evaluation process.
  2. Selective Account Management: A trader deliberately allows one evaluation account to fail while focusing on completing another, indicating a lack of genuine trading intent.
  3. Inconsistent Trading Patterns: A trader exhibits vastly different trading strategies across multiple accounts, raising suspicions of opportunistic trading behavior.
  4. Absence of Trading Strategy: A trader fails to adhere to a consistent trading strategy across accounts, instead opting for ad-hoc trades to pass evaluations.

Implications and Consequences:

Account rolling/churning undermines the credibility of traders and compromises the integrity of the trading environment. At TopTier Trader, such practices are strictly prohibited and may result in severe consequences, including strikes, delayed payouts, reduced/rejected payouts, and ultimately, a ban from the platform. Traders engaging in account rolling/churning risk damaging their reputation and credibility as traders, thus impeding their long-term success in the trading community.

Conclusion:

Account rolling/churning represents a violation of ethical trading practices and undermines the integrity of the trading environment. Traders must recognize the risks associated with such practices and adhere to transparent and responsible trading behaviors. At TopTier Trader, we are committed to upholding fairness and credibility in the trading community and will take strict measures to enforce compliance with ethical trading standards.

Updated: 1st of April 2024
With Effect From: 6th of April 2024

Swing Trading

We allow traders to swing trades over the weekend on our TopTier Challenge Swing and TopTier Challenge Plus accounts. However, we do not allow it on our TopTier Challenge Regular accounts.

Scalp Trading

We allow our traders to scalp their trades on our accounts.

Copy Trading

We allow the use of copy trading on our TopTier Challenge Plus accounts. However, we do not allow them on our TopTier Challenge Regular or TopTier Challenge Swing accounts.

 

For more information regarding the use of copy traders based on your evaluation/funded account please visit the below links:

For more information about TTT Challenge

TTT Challenge

 

For more information about TTT Challenge Plus

TTT Challenge Plus

EA Trading

We allow the use of EAs on our TopTier Challenge Plus accounts. However, we do not allow them on our TopTier Challenge Regular or TopTier Challenge Swing accounts.

EAs are no longer available as of February 27th.

Hedge Trading

We allow our traders to hedge their trades.

Weekend Trading

We allow weekend trading on the TopTier Challenge Swing and TopTier Challenge Plus accounts provided that the instruments are tradeable on the weekend (eg. cryptocurrencies). However, we do not allow weekend trading on the TopTier Challenge Regular accounts. All positions will be liquidated on TopTier Challenge Regular accounts on Friday at 4PM EST.

Trading Restrictions

As much as we try not to restrict our trader’s style at TopTier Trader, there are certain strategies we have deemed as “cheating” as they provide an unfair advantage by manipulating the demo accounts. Any trader that is caught using any of the strategies we deemed prohibited, not limited to those stated on this page, will have their challenge or funded accounts breached as they would have violated our terms of use policy.

 

Below are some of the prohibited strategies:

  • Grid Trading

  • Latency arbitrage

  • Reverse arbitrage

  • Tick scalping

  • Account management

  • Signal trading

  • High-frequency trading

  • Martingale

  • Hedging between accounts

  • Guaranteed limit orders

  • Data feed manipulation

  • Trading on delayed charts

  • Macroeconomic trading during high-impact reports and being filled at an unrealistic price due to the volatility.

Can I Trade The News?

While news trading is permitted on our Tier 1 and Tier 2 accounts, please be aware that TopTier Funded accounts (Regular and Swing) come with specific restrictions.

 

It’s important to note that the news trading restriction rule does not affect our Plus Model. However, for our Add-On model, the News Trading Add-on is required to participate in news events trading during both the challenge and funded phases.

 

TopTier Funded accounts are not permitted to execute new trades or close existing trades on instruments being targeted by red folder macroeconomic events in the window of ≈ 4 minutes (≈ 2 minutes before and ≈ 2 minutes after the release of a red folder event).

 

For clarification, executing a trade is defined as opening, closing, or the modification of either a pending or market order.

 

You are permitted to hold your trades on instruments being targeted by red folder macroeconomic events that were open for more than ≈ 2 minutes prior to the restricted red folder macroeconomic event.

 

Do note that if your trade were to close, this includes your SL/TP being triggered prior to ≈ 2 minutes before until ≈ 2 minutes after the red folder macroeconomic event, any profits of those affected trades will be revoked and a warning will be issued to the member. Trades that result in a loss will not be compensated and will still receive a violation warning.

 

After the first warning, if your account violates the restriction once more then the account will be fully breached and terminated without further notice.

Red Folder Macroeconomic Events can be found under the following link: https://www.forexfactory.com/calendar / https://www.fxstreet.com/economic-calendar

The following table illustrates some of the Events that restrict trading activities. To see all Major Announcements, please go to the link mentioned above.

INSTRUMENT

MACROECONOMIC EVENT

USD

NASDAQ

US30

US500

US OIL

GOLD

SILVER

  • Non-Farm Payroll

  • Unemployment Rate

  • FED Rates

  • FOMC Minutes

  • GDP q/q

  • CPI y/y

  • Red Folder Government Speeches

  • Crude Oil Inventories

GBP

UK100

UK500

  • CPI y/y

  • Bank Rates

  • MPC Votes

  • Red Folder Government Speeches

EUR

DAX30

FRA40

GER30

  • Refinancing Rates

  • Red Folder Government Speeches

CAD

  • BOC Rate Statement

  • Overnight Rate

  • CPI m/m

  • Unemployment Rate

  • Employment Change

  • Red Folder Government Speeches

AUD

ASX200

  • RBA Statement

  • Cash Rate

  • GDP q/q

  • CPI q/q

  • Unemployment Rate

  • Employment Change

  • Red Folder Government Speeches

CHF

  • SNB Rate

  • Red Folder Government Speeches

NZD

  • RBNZ Rate Statement

  • Cash Rate

  • GDP q/q

  • CPI q/q

  • Unemployment Rate

  • Employment Change

  • Red Folder Government Speeches

JPY

JPN225

  • JPY Rate Statement

  • Cash Rate

  • GDP q/q

  • CPI q/q

  • Unemployment Rate

  • Employment Change

  • Red folder government speeches (e.g., government official speaks)

Note: Allowing one warning notification does not mean the rule is intended to be violated. If it is determined, either via gross negligence or periodically violating the rule (many news trades during a short period of time) or otherwise, that the account in question had no intention of complying with our news rules, TopTier Trader reserves the right to breach the account prior to issuing the warning stated above. Do note that if the deduction were to breach any of your drawdown limits the account would remain as such.