Capital protection comes first, how this trader lost his $40k payouts and $400k funded accounts

Summary

In this video, a trader shares a cautionary tale about a fellow trader who lost a $400K funded account with FTMO due to poor risk management. Despite being up $40K, the trader ignored advice to secure profits and took an impulsive trade that resulted in significant losses. The speaker emphasizes the importance of protecting capital, managing risk, and avoiding emotional decisions in trading. The key message is to stay disciplined, follow strict risk management rules, and always prioritize account protection, especially when trading with prop firms.

Takeaways

• 😀 Protecting your account is crucial for long-term success as a trader. Don't let impulsive decisions jeopardize your funds.
• 😀 Always secure your payouts when you're up. Don’t risk it by holding positions when you could take profits and wait for the next cycle.
• 😀 Prop firms, such as FTMO, can have their own brokers with different liquidity and conditions, so be aware of the risks of slippage and gaps in the market.
• 😀 Avoid holding positions overnight unless they are significantly profitable (at least 2 hours in unrealized profits), and don't hold through news events.
• 😀 Capital protection should be your top priority as a trader. Don’t gamble on a position hoping for a good outcome in the opening session.
• 😀 A small mistake can lead to big consequences, like losing not only the profits but also the account and future payouts.
• 😀 Prop firm challenges have strict drawdown limits. Even if you are a profitable trader, a string of unlucky losses can result in failing the challenge.
• 😀 Prop firms set conditions (like 10% drawdown) to ensure that fewer traders succeed. Always be mindful of these restrictions when trading.
• 😀 Don’t let emotions like overconfidence lead to higher risk-taking. Manage your risk exposure carefully to avoid failure.
• 😀 The risk of violating prop firm rules, such as over-risking, can result in non-payment, even if you've made a profit. Stick to the firm’s guidelines to ensure you get paid.
• 😀 Learn from mistakes, and remember that self-control and greed management are key to protecting your trading career.

Q & A

What happened to the trader with the 400K FTMO funded account?

The trader lost his 400K funded account after being up $40,000 due to not following the advice to secure the payout and protect his account. He took a trade on gold that eventually resulted in a loss, which blew his account and caused him to forfeit the payout.

Why was the trader advised to wait for the next payout cycle?

The trader was advised to wait for the next payout cycle to secure the $40,000 in profits, which would likely leave him with around $30,000 after commissions. The advice was aimed at preserving the account's profits and ensuring a safer outcome rather than risking it by taking another trade.

What was the primary mistake made by the trader in this situation?

The primary mistake was that the trader took an unnecessary trade and held it overnight, despite clear advice to secure his profits and avoid risking the account. This led to a gap in the market, which caused the trade to go against him and ultimately blew the account.

Why is it not advisable to hold a position overnight according to the speaker?

It is not advisable to hold a position overnight because of the risk of gaps, slippage, and volatility, especially during off-hours when liquidity is lower. The speaker emphasizes the importance of capital protection and following strict rules for managing positions, particularly during overnight or weekend periods.

What are the strict criteria for holding a trade overnight or over the weekend?

The strict criteria include: ensuring the position has at least 2 hours of unrealized profit before holding overnight, closing any positions that are near break-even or small profit/loss, and not holding positions through news events. These rules are in place to protect capital and minimize risk.

What is the role of prop firms like FTMO in this situation?

Prop firms like FTMO provide funding for traders to trade with larger accounts, but they also impose strict risk management rules, such as drawdown limits. The speaker points out that prop firms have their own brokers, which may have less favorable trading conditions compared to regulated brokers, especially during off-hours when liquidity is low.

What is the consequence of blowing the FTMO account for this trader?

The trader not only lost his 40K in potential payouts, but he also violated the daily drawdown limit and lost the entire account. He now has to redo the FTMO challenge, which costs over $2,000, with no guarantee of passing it again.

What advice does the speaker give to traders in terms of managing risk?

The speaker emphasizes the importance of managing risk, protecting one's account, and avoiding impulsive behavior. Traders should focus on preserving capital and securing profits rather than becoming overconfident and risking too much. Self-control and understanding the risks of prop firms are crucial to long-term success.

Why is it risky to increase risk tolerance over time?

Increasing risk tolerance over time, such as moving from risking 1% to risking 2-2.5%, can lead to overexposure. While this might result in big wins, it can also lead to significant losses. Prop firms often have hidden rules that penalize excessive risk-taking, even if a trader is profitable in the long run.

How does the speaker view the role of prop firms in the trading process?

The speaker views prop firms as offering opportunities but also placing heavy restrictions that can make it difficult for traders to succeed. The prop firms' rules, such as the 10% drawdown limit, are designed to ensure that fewer traders pass and are paid out, creating challenges even for consistent and profitable traders.