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Evaluators: A Business Model Part 1

Most evaluation companies offer a trading test that you pay for, usually as a monthly subscription. Generally to pass you need to:

  • trade for a minimum number of days
  • hit a specific profit target
  • not break any of their other evaluation rules

If you don’t pass during the subscription period, it will renew and you keep going (and paying!) until you either:

  • 😁 reach the profit target and receive an offer of a live “funded” account, or…
  • 😭 blow up the account, or break a rule. Then you’ll be offered the opportunity to “reset” the evaluation. For a fee of course. And so it continues.

Critics of the trading evaluator business model refer to the ongoing subscription/reset model as “being on a hamster wheel”.

If you have a trading edge and a process – and are then capable of passing a test and gaining a “funded” account (There is a reason why we put that in quotation marks!) – evaluators can be an efficient way to turn a relatively low fee ($50-$300) into much larger real trading profits. Some would contend though, that just trading micro futures with your own money also lets you turn a small account into a larger one – and this is a valid argument.

On the other hand, If you don’t have a trading edge or a process, you are fuel to the fire of this business model. Many would-be traders think (bizarrely!) that trading is different from any other skill or profession and it doesn’t require learning or practice. They think that they’re smarter than “the moving average bear” and will magically be in profit quickly. These are the people that get stuck on the hamster wheel, or blow up their real trading accounts… or both!

Evaluations are advertised as being a “$50k account”, a “$100k account”, etc. This is totally misleading. Understand that these tests are marketed on the basis that if a $50k account lets you trade 5 E-mini contracts, the exchange margin would require a roughly $50k trading account. In reality, the size of the account from the evaluator is the size of the drawdown available to you. If the most you can lose in the evaluation account (or the “funded” account) is $3000, you’re really trading a $3000 account, just the same as if you put $3000 in your own brokerage account.

A typical discount futures broker would enable you to trade maybe 5 E-mini contracts with a $3000 account – which is absolutely not recommended!  This is why the account sizes for the evaluation accounts are listed as they are, but, we’d argue that it’s very misleading to market this as a $50k, $100k, etc. account! Some evaluators put small print explaining this as “buying power” but even so… the account size is how much you can lose and nothing more!

Know what you’re really trading, and manage it accordingly!

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