Line Your Own Pockets

Michael: 00:00

Alright, everyone. Welcome back to another episode of Line Your Own Pockets. So today, we're gonna talk about something that I know Dave has gotten a bunch of questions about, and I've gotten a bunch of questions as well about people with smaller accounts. Right? You wanna get into the game.

Michael: 00:14

You wanna start dipping your toes in, but maybe you're younger or maybe you're just not willing to commit, you know, all of the wealth you've built up over your life to trading. So you wanna start small. What are some limitations, you know, things that we could recommend for those type of people? But I think Dave's got a little bit of a rant that he said he wants to do before we get into it.

Dave: 00:35

Yeah. So as you know, I use the trade client that I provide with Maibkit to make all my trades. A trade came through this morning, and I got a partial I'm just basically gonna tell you, I basically overrode my my trade client and made a manual trade and butchered it so badly.

Michael: 00:55

Wait. So first of all, Dave's human. So that's that's good. Right? So you made a manual trade.

Michael: 01:01

You hit the buttons to buy or sell yourself. Now just so for the people, how how common is that that you actually want you load up an order entry screen and fill it out and hit some buttons?

Dave: 01:13

I will do it occasionally when I'm proving a system. Like, I've got an idea and I wanna make some trades before fully automating it just to kind of get a sense and get a feel for the trades. This one was not that though. I got basically, I got a partial fill from my automation and, I took a look at the trade. I was like, oh, yeah, man, I should be way bigger in this trade.

Dave: 01:34

So I went and said, okay. Well, let me just put a manual trade in here. And it's it's I feel like such a kindergartner when I have to make these manual trades because with the trade client, like, all the complex and very specific order types go in perfectly. Right? I don't have to do anything.

Dave: 01:54

So when I end up having to do it, it's like I feel like such an idiot because it's pretty it's complicated. Like, you gotta get things right. There's all these forms on the order entry thing. I mean and so I I basically, I I took the wrong side of this trade. So, basically, I lost a bunch of money, and it's just and so another podcast we did a long time ago is keeping your p and l on the screen.

Dave: 02:19

Do you keep it up or not? And we say hide

Michael: 02:21

it. Yeah.

Dave: 02:22

This specific day, when I make a mistake like this, I am not gonna hide that p and all day because I won't

Michael: 02:29

let you be staring at you.

Dave: 02:30

My face all day, like, unavoidably having to look

Michael: 02:34

A gym. I don't know if you've ever followed any Tim Ferriss' work, but he proposed opening a gym. And the idea was that when you went to the gym for the first day, you took a picture in your underwear, and you you went and you said, these are these are these are my goals for the next six months. And if you miss those goals, they print off a life-sized cutout, and they put it in the lobby of the gym of of what you looked like there as, like, a embarrassing kind of ritual. Uh-huh.

Michael: 03:00

I just it just made me think of that because I kinda do the same thing is that if you know, I know there's another example is there's one trader that I talked to who just bought the stock because he liked the name, and the thing went down. And it went under a dollar where they have to do a reverse split. He never got out. And he's down, like, 99.999% on this because it keeps going down reverse splitting and going down. And I just asked him, like, why don't just sell the thing?

Michael: 03:27

He's like, no. He's like, I want it there. Every time I log on to my broker, I wanna see that that's what happens when you just do something kinda willy nilly with no stop at all. So I a 100% agree with just having that thing to shine directly into your face to say, yes. This is a mistake you made or a rule you broke or whatever it is, and just have it kind of bother you for for a period of time.

Michael: 03:52

Yeah. And then get over it later.

Dave: 03:55

Yeah. I think I don't I'm not gonna be I don't wanna have this thing in my face for a year, but I think one day is good enough. Yeah. And it's not it's not a huge amount, but it's just the principle of it, you know? Here, like, I should not every time I try this, it just underscores the fact that I shouldn't be trying it.

Michael: 04:11

Yep. So going forward, what the lesson is, you got a partial fill, you missed the fill, just move on. Right? Deal with that when the markets close, try to figure out what happened, maybe change an order type or something, but not when the lights are on and, right, the the bullets are flying and all that kind of stuff. I've done the same thing where I've, you know, I've redirected.

Michael: 04:35

I use a lot of webhooks, and I have, like, the wrong thing in there, and it's it's not sending to my account. So I go in, and I try to make all the trades kinda manually after the fact, and it's the same thing. Yeah. You're you're missing your price or you're screwing up your your entry or or something. And, you know, you're spiking your cortisol because you're getting all worked up trying to, like, chase the market and figure out what's going on.

Michael: 04:56

So you're not thinking as clearly as you would anyway. So you should just go, okay. Well, that was dumb of me. Now let's set a a timer on my phone that yells at me to triple check the the thing kinda going forward.

Dave: 05:08

So so I've got the p and l here that's staring me in the face, and I just went back and looked at the at the chart. And, of course, I basically got out at the worst possible part of the day. And, like, if out of hell, that'd be in the money now. Like, I I can't even it's just like it's just so typical.

Michael: 05:27

And and the problem with that is that you there's kind of the one learning lesson of it, but it's there's not like a direct kind of correlation to I should have done this or I should have done right? As soon as you hit the button, then every other thing that happened after that was just like the whim of fates. Right? So if you had made money on it, probably should also be as equally as mad as if you you lost money on it. Right?

Dave: 05:53

Yeah. It'd be way worse if I actually made money on it. I mean, and this is a common story I hear from traders that use the trade client. When they go and have to do something manually, you just feel like an absolute idiot because, like, you're not getting the prices you want even if you don't make mistakes. Like, it's just so much harder.

Michael: 06:13

Yeah. It's just crazy. Well, and and it's kinda funny you got yourself back into a glimpse of what most traders do every day. Right? There's most traders out there, hit the buttons for every single trade on on every single day.

Michael: 06:28

So they're living that that one mistake that you did. That's their that's their life. So that should give you a little bit of appreciation that, you know, thankfully, you're you're not doing that anyway.

Dave: 06:38

Yeah. So let let's bring this back to our topic at hand, which is when you're just getting started, you've probably got a small account. How do you handle that situation? What are the things that you can do at that point to be productive, but maybe you can't make the day trades that you want because you don't you don't have $25,000 in your account.

Michael: 07:02

Right. And, you know, the main thing I want to I want to encourage people right off the bat because, again, we get this question all the time. And, again, it's often young or, you know, people who live in different countries in which the, you know, the value of the dollar is different. Right? So, you know, they have 2,000 US dollars, but to them in their currency, that's actually a big deal.

Michael: 07:23

Or again, like I talked about people who, you know, maybe they they do have the money, but they just don't have the the confidence in order to trade it yet. So they want to open up a small account to kind of to kind of get started. And the first thing I do right away is I I encourage, like, dramatically. Right? It's I think that's the right thing to do.

Michael: 07:41

I would much rather, you know, get a message from, an 18 year old kid who's like, hey. I was able to put $2 together, and I and I wanna start trading it. Because I think we talked about this in the last episode as well is that you're gonna mess up, that's gonna be the best time to do it. When you're young and when your your account's relatively small, when it goes from that $2,000 is a big deal to you to hopefully down the road, that's that's a day. You know, you're either making or losing thousands of dollars in a day, and it will seem less impactful then.

Michael: 08:11

But that's, to me, I think step one is if you're, you know, writing, hey. I don't have much money. How do I get started trading? You know, just first of all, like, Right? I think you're doing the right thing at the right time.

Michael: 08:21

Now is the time to get into it. It's time to, you know, look to build systems and learn and figure everything out because then eventually, hopefully, you're just adding zeros to the end of it, and your process is the same and your system's the same and all that kind of stuff.

Dave: 08:37

Yeah. I I think a lot of people feel like, man, if I just had more money, then I could trade x or, you know, then I could make money, then I could trade some strategy. Right? Where really it's the opposite. You have a lot more freedom with a small account, assuming you have over $25,000, and we can go into the differences there.

Dave: 09:00

Yeah. Small accounts, you have a lot more freedom than bigger players do. I mean, there's whole strategies that you can trade that other bigger traders just can't because they it's not worth it to them. They have to put more money at risk to even make a dent in what they're doing. So it's actually the opposite of what most people think.

Michael: 09:19

Yeah. And I I think that's that'll be a good place to go next. The liquidity scale up, that'll be an issue. But, yeah, let's talk about and again, I am Canadian, so we don't have these funny rules up here. But down in America, you have pattern day trader rules.

Michael: 09:32

So if you have under $25,000 in your account, I think it's you can't trade margin at all, and you can't do more than, what, three day trades a week or something like that.

Dave: 09:41

Yeah. I think it's three trade day trades a week. Yeah. Maybe the margin thing, I'm not sure about that, but it's I would not be surprised that, there's silly what I think are silly rules like this to protect people from themselves. That's I just think that's almost always a bad idea.

Michael: 09:59

Yeah. It may if you can you can buy zero DTE options and be and be fine. So these rules aren't aren't saving anyone for anything. There is a rumor going around that I I read while I was researching this that it'll be lowered to 2,000 or so fairly soon. I think that's making its way through whatever, you know, boring government process it has to go through.

Michael: 10:19

So there is a world in which that will get alleviated soon. But for now, you just need to understand that that's going to be a limitation. You know, I almost kinda tell these people, lot of them, right, if you only have a couple thousand saved up, maybe you just have to live in in two worlds that we'll talk about. One, think is just paper trading for a while. Right?

Michael: 10:38

You need to, you know, take the time instead of looking to take that $2,000 and make a whole bunch of money with it. Maybe some of that has to get allocated to education or technology or or something like that. I'd almost rather someone spend, if they only had $2,000, to buy a real test or an Amni broker and data for that and start testing and start building and start doing these things as opposed to taking that and and trading it right away in the in the market. Sometimes your budget, if it's small, is better spent on the education and the tools and everything behind it. And then so that when you're ready to go, when you actually have some money saved up to actually do some trading off of, you're able to go.

Michael: 11:22

So, yeah, you have to, you know, avoid, at least for now with the 25,000, you have to avoid really actively day trading. But, again, you could buy a paper trader. You could buy, you know, a back testing system. You could buy some of these things with that $2,000 that gives you the ability to start building and testing things so that, hopefully when you save up money, you're one step ahead of the guy who just has the money now. And and now he's gonna start, you know, trying to build models after that.

Dave: 11:51

Yeah. I think that's a great idea. So I remember back when I was I had I had less than $25,000 coming out of college or, you know, even after work a little bit. And when I was considering day trading, I was like, okay, well, I gotta get more than 25 k in my account before I can even really consider this. And so I, I definitely didn't even consider day trading all until I got that.

Dave: 12:16

And so my entire focus was saving that amount of money. So I think looking back on that time, there are a couple of things I did that I I'm glad I did. Would take money and sort of pay myself in savings every month. It would never get into my account. Like, I I could never actually really see that money that I Mhmm.

Dave: 12:40

So I didn't have to make a decision to do that. It was automatically handled. So I never felt like, oh, okay. I'm making more money that I could do something with. And I kept that same sort of attitude.

Dave: 12:52

I still have that attitude today. Like, I'm paying myself in savings long before I even see any of the money in any of my accounts. So it's like I've I kinda always feel kinda poor sort

Michael: 13:04

of. Mhmm.

Dave: 13:05

Like, so I've always had that mindset. So which I think is it served me well. It's kinda hard to do. Mean, it's it's it's always hard to you know, I I call it lifestyle creep. Like, once you start getting used to something that costs more money, It's hard to call it back.

Dave: 13:24

It feels like a failure, you know, like you're really giving something up if you have to try to call that back at some point. So if you never allow yourself to have that, then you're kind of paying yourself in freedom from now on. Like, every day you get a little bit more free.

Michael: 13:39

Yeah. The the best example I I love of this is my grandfather that, he served in World War two. He was, you know, a rear gunner or whatever in World War two. And then we had an old steel plant up up here, and then he worked at that. So he never made a lot of money at all.

Michael: 13:58

But by the time he retired, he was a millionaire, and it was the same thing. He just from the first paycheck until his last paycheck, it was 10% immediately. He never saw it went. Right? And he didn't do obviously any trading or crazy investments or whatever.

Michael: 14:14

He lived in a world where bonds would give you $10.20 percent, so you could just put it in that and and build those up over time. Yeah. It just goes to show you that the, you know, some of this, right, we're obviously not the personal finance guys, but some of this, it's just you have to get the money from somewhere. Right? You have to live under your means, and then you have to kind of save up over time.

Michael: 14:34

And, you know, that's why I like the idea of spending the money on the tools because I think you'd be way more motivated to save if you ended up having a system that is proven to work, that you've back tested and it's proven to work, and you're paper trading it, that's gonna be a hell of a motivation. If, you know, say you had a you open up a $100,000 paper trading account and, you know, it's making you a couple thousand dollars a month, and you go, oh, man, if this was real because I've I've back tested it, I've done the thing. If this was real, I was able to go through, that should really incentivize someone to be scrolling away as much as possible into a real account that you could just then change the same system over. And and things like, I know Interactive Brokers is is a beautiful place to do that because you have you could just paper trade an account. And then if you're using, you know, like Dave's bot or or whatever, what the trade ideas bot or whatever it is, eventually, when it comes to time go live, it should just be changing the account number in the thing, and then everything else remains the same.

Michael: 15:36

So by doing this with the tools and everything now, you end up getting to the point later where you're like, oh, great. I just changed one line on on the the software I'm using to to get involved, and now I'm able to go from there, maybe adjust position sizing based off your account or something. But really putting in the work and setting up yourself now, I think would put you ahead of, like, 99% of of all traders. Most of them have they save up $25.30 k. They throw it into an account and then try to figure out how to trade after the fact.

Michael: 16:05

So by doing it the complete opposite, I think you'd be way better off than most.

Dave: 16:09

Yeah. I totally agree. I think it's a great point. And a lot of the work you do as a trader doesn't it's not gonna pay off today, tomorrow. It may not pay off for many years in a in a real concrete way, but you're building this foundation that will eventually pay off.

Dave: 16:30

And that's kind of the hardest part of of doing the work like this is that sometimes it's not clear that it it's working, that something's working, that you're making progress, especially if you have a small account or you can't make trades yet or maybe even you're, you know, you're losing money. But the better your foundation is, the the better and the better your processes are, the better you're gonna be in the long run. Probably the biggest thing that I did, and I was in a great position to be able to do, is I literally not need the money that I'm trading.

Michael: 17:06

Mhmm.

Dave: 17:07

Like, I I it's just it would have been so much more difficult if I was trading with money that I needed to pay the bills or that I would need soon to pay the bills. That would have been a whole a completely different mindset. It's just such a you're giving yourself such a great chance to succeed. But by not needing the money, it's just so your mindset will be completely different.

Michael: 17:34

Well, and I I learned that as well. So, you know, if anyone doesn't know just brief history about me, I spent time on a prop firm. After university, I spent a little bit time in the hedge fund space, and we had, like, a boutique firm that kinda helped out hedge funds with, like, accounting and investor relations, that kind of boring stuff. And that got bought out, and I was probably in my early twenties at the time, and I got a nice little little chunk of change for for the buyout because we were, again, a small little boutique company. It was actually Mitsubishi Bank, which I thought only made cars, but I guess it's, like, one of the largest banks in the world had just came and bought us out.

Michael: 18:06

So I got a little bit of money. I said, okay. Well, I'm gonna go try to make this trading thing a thing because I had been trading while at work kinda the whole time and, you know, doing okay. Right? Very simple strategies.

Michael: 18:17

This is actually where I started using trade ideas because I had it's where I'd I'd say I I kind of put my nose into the systematic style of things. So I just had a little corner of my screen, an alert window that would just flash. And I'd bring up the chart, I'd buy the stock, and I'd go back to work, and then check on it a little bit later. And then instantly started to suck. Like, the second it was I was in my own home, and this is the only thing I had to I had to focus on, was not systematic at the time.

Michael: 18:42

It was basic strategies with some discretion. And yeah, just because of that simple fact of the weight you put on yourself, kind of the burden, the need of it. One of my favorite quotes is that from a friend I'm sure you met too, Brian Lund, who's OG in the community. He always says the mortgage payment is regular. Trading profits are are not.

Michael: 19:03

Right? You could have an amazing month and then maybe a less great month or even a losing month or something like that. But the bank still wants its money every month. This is why I could not agree with that more. As soon as you get to the point where you're like, you know, I am doing something that I like doing that, you know, pays the bills and keeps everyone fed, and then I trade, and then that's, you know, either bonus money or, you know, something like that.

Michael: 19:28

That's great. And, you know, until a certain point, until your account gets large enough that even a modest return each year can pay for your pay for your life. That's that's a 100% as well. But I did wanna circle back to just other ways. Like, you know, we talked about using, know, the savings is kind of the main way you do it.

Michael: 19:44

But I did wanna touch a little bit on the prop firm space. So I I do some work with a prop firm called Trade the Pool. Just putting that out there. But there there are more and more of these coming up. And essentially, how they're set up is that, you know, trade the pool is US equities.

Michael: 19:59

There's ones for stocks. There's ones for forex. And the idea is that you outlay a small amount of money, and you enter what they call like a combine or an evaluation. And the goal is you generally have to live within the rules. You have to make x before you lose y, that type of thing.

Michael: 20:15

And if you pass, you get an account. So for trade the pool example, it's like a $120. And if you pass, you get a $25,000 account. This is another way to do it. I wouldn't recommend this as like this is what you're gonna do forever.

Michael: 20:27

Eventually, you want to have your own account, and this might be a way to fund that own account because you want to be able to live by your own rules as opposed when you're trading someone else's money, they're going to put tighter regulations on you. They're gonna put tighter rules because it's their money. Right? If you go crazy and do something, they're gonna blow you out. So they're gonna have things like daily stop out limits that you're gonna have to live on.

Michael: 20:49

They're gonna, you know, take the account away if you lose too much money, that type of thing. But because the capital outlay is so small, I think this is it's a good next progression from paper trading. So you paper you you know, do what we talk about. You take your initial amount of money, You buy your tools. You do your back tests.

Michael: 21:06

You run your models. When they're good, you pay for trade them. If they look like they have the ability to pass one of these accounts, then I would immediately go and do that because it's it's a $120. So it's, know, if you blow up a couple, that's fine. But then you can get to the point where you're now hopefully putting money into your own account.

Michael: 21:24

Right? So you take any payout you get from the prop firm, that goes into your own account. You take your savings from the other side, that goes into your own account. So these are, I think, again, great tools for people with out the amount of money to trade for themselves, but not really long term or overall replacements for them. Ideally, you do both.

Michael: 21:41

Right? If you have your own account and say your own account's 200,000, and then you have a $200,000 trade the pool account, well, great. You got 400 k. And maybe you have to trade those a little bit differently because one's money, your money, and one's a company's money. But these, again, are great, great tools.

Michael: 21:57

Again, I always recommend doing both because why not? But, yeah, just just know that that's an option available for you as well from that side of the prop firm space. And then, I don't know, maybe I know you have more experience with the other side of the prop firm space with guys like SMB.

Dave: 22:12

Yeah. So that definitely has changed dramatically over the years. I mean, I don't even think I remember some prop firms back in 2005 or so when I got started, but there weren't many, and they weren't it wasn't like this obvious choice that you could make. And at the time, I think I think s and b started a little bit later than that, but that you know, the the prop space has changed dramatically. So with with s and b, you don't put any money up.

Dave: 22:44

You apply. And there's a very a very competitive application process where they take very few traders, but then there's a split. You know, once you get in, there's a split and you split the money with the firm for your profits. And then, you know, as your track as your track record gets better and better, you get more buying power over time.

Michael: 23:04

Mhmm.

Dave: 23:05

But, man, the the explosion of different prop firms just in the last, what, ten years or so just gives people a lot more options that that I wouldn't I didn't have when I was coming through, and there's just many more options for people to take these days.

Michael: 23:23

Well, I think it's it's a technology thing too. Right? It's it's a lot easier now than it would have been twenty years ago to have a prop firm like a trade the pool where they have thousands of traders all over the world, long short stocks, whatever, and keep the firm safe as opposed to, like, with someone like S and B Capital. One of the reasons they're gonna be so selective is because these guys, they're they're gonna be trading much larger. Right?

Michael: 23:48

With these, you know, something like a trade the pool I keep using trade the pool with their stop step. There's a lot of these names out there. You know, it's it's a lot easier for them to go, okay. Here is some allocation, but we're going to hedge on the other side. There's some times where, you know, maybe if you even if you pass the combine, if they see you're a problematic trader, they, you know, either take the other side of trades or, you know, it's just a lot easier for them to systematically lower their risk for for different people, whereas that would be really, really hard to to deal with before.

Michael: 24:19

And, again, I I know that it's it's controversial. Some people don't like these firms at all because, you know, you could get I don't think this is their fault, but you could get someone spending their $120 just YOLO ing some random trade blowing up, and you could get that kind of gambling aspect of it. I think that's the fault of the person doing it, not the not the firm offering it. But what they're doing as opposed to, you know, having this hiring process that's, you know, very diligent that something like SMB does, they're just saying, listen, you you pay us, you know, you're in and you're just trading a demo. And if you can prove yourself, okay, then we'll give you real money.

Michael: 24:56

So definitely something to look at. But just like anything, I wouldn't start there until you've done the first bit, until you have a system that makes sense that you've, you know, you've paper traded. Otherwise, you're just going in and you're gambling with someone else's money as opposed to doing it with yours.

Dave: 25:11

Yeah. And, you know, with these prop firms and the challenges that you see, it's basically one big optimization problem to solve. And it's still it's actually the same problem to solve if you have your own money. Like, how efficient can you be with your capital? How efficient can you make a trading strategy?

Dave: 25:32

So in my mind, the immediate most impactful thing you can do is come up with good strategies. That's going help you whether you choose this route or that route. And I don't believe there would be any Or let me ask you, is there any would you think about, okay, this is the type of strategy that would work well for a prop challenge, but this one would not? Or do you think about things that way?

Michael: 25:59

Yeah. Well, the the main things you need to focus on, the differences between potentially your account and a prop account, is that a prop account, they're always monitoring unrealized loss, and you generally have a limit. Right? So say it's a thousand or 500, a thousand bucks. If your p and l ticks unrealized in that amount, they flatten your positions, and and that's their way to per kinda protect themselves.

Michael: 26:21

Maybe that, you know, I could see systems like mean reversion, things like that that you've tested, and they have a large unrealized loss and then come back. Now the the obvious answer is just, well, size them smaller, so you stay with inside those those bounds, which is the solution. But yeah. And you you can end up just modifying, I think, any of these. So at the end of the day, what you need to do is be just track that number as you know, because most back testers, they track just the realized profit.

Michael: 26:49

So they don't really show you. So things like maximum adverse excursion gets much more important because you need to know not what the profit on the trade was, but how much you were down before the profit on the trade hit, which, like you mentioned, is an optimization problem. You want to risk enough that you're making enough money per trade, but then also not risk too much. And, you know, I'll just say when you're looking for these kind of accounts is make sure you find ones that have unlimited time to pass. Right?

Michael: 27:16

Which I know Trade the Pool and I think Topstep and and the Fiverrs, these are the big in equities, futures, and forex. They do. Because I think that changes the game entirely, especially for systematic traders where it is just, like you mentioned, an optimization of how big can I trade and not hit those those risk walls? But if you have one that has a a timer, which some of them do is say, hey. You you pay us.

Michael: 27:42

You only have thirty days to pass. Again, that becomes a whole different problem because you're trying to figure out, you know, how to hit that that target in that period of time. But most of them, and this has been a movement, I think, that's happened over the last couple years, do have unlimited time accounts. So you just buy the account, and away you go. You just keep trading.

Michael: 28:00

Okay.

Dave: 28:00

Yeah. I I assumed all of them had some sort of time limit on them, but, yeah, apparently, I guess maybe that's changed.

Michael: 28:08

Yeah. And that I think that was a big change because that was a big because you gotta remember at the end of the day, the the goal of these firms is they make money on two sides. Right? If you're gonna be the kind of trader who's never going to do the work to trade, They're just gonna they're gonna you're basically paying for a paper trading account, which I don't think is a bad say you blew up once a month and you spend a $120 a month on a paper trading account. I don't think that's a horrible deal anyway.

Michael: 28:31

You know, you could get better paper trading accounts for certainly cheaper, and it's not the end of the world. But they're using this as a filtering mechanism. So they want to find those rare traders. We know that I'm sure if you looked at their back end, 90% of the people who get there never get a payout. I'm sure that's a 100% true.

Michael: 28:50

That's just the way trading goes. So if you're using one of these things as a as like a, you know, a gambling thing, then, you know, just know that you're doing that. But, yeah, a lot of them now have transitioned because they realized that that was a sticking point for a lot of traders that, like we just talked about, it puts that same burden on you as if you are a you know, you have to make money to make a bill. If you see this clock and you say, oh, I only have thirty days to pass the account, it puts that additional burden on you as well. So most of them have come up with options that you can just pay and you just have, you know, unlimited time.

Michael: 29:24

Just just trade as much as you want, and then again, pass or fail. If you fail, you pay again. If you pass, they'll move you on to a real account.

Dave: 29:32

So this reminds me a little bit of so I coached cross country at the local high school here for many years.

Michael: 29:39

Mhmm.

Dave: 29:39

And so I would see kids applying to schools, colleges to go, and they would take the SAT or the ACT. And some of them would take it once or twice. Some of them would take it a whole bunch of times. Mhmm. And I always thought, okay.

Dave: 29:56

Well, that's sending some signal. If you're taking this a whole bunch of times and you get a good score versus somebody that just takes it once and gets a good score, surely there's some sort of like, you can't just take the one you know, sign up for one of these things 20 times and then you you pass on the twentieth time and then, like, there's gonna be some they're decrementing some ticker on the back end to say, okay. Yeah. This guy's passed, but he's taken it 20 times.

Michael: 30:26

A 100, you know, a 100. I guarantee you. I don't have any you know, what I do with Trade the Pool is, like, more marketing and and market commentary and that kind of thing. So I don't have the vision in the back end, but I think they'd be insane not to. Right?

Michael: 30:39

Because it's the the rules for the the 25 k account I mentioned is you gotta make 1,500 before you lose a thousand. You could imagine how easy that would be to do with dumb luck. If you're like, I'm gonna buy one account a day, and I'm just gonna full port into whatever crazy penny stock is a day. Give me a week, and I'll pass it. Right?

Michael: 30:55

I'd buy 10 accounts in that week maybe to do it. But so there's gotta be some sort of back end watching and saying, okay. This guy, either we, you know, don't send the trades to market or we do some hedging in the back end or or whatever ends up happening. That's and that's the biggest thing is you wanna make sure that you're it's why I recommend doing both. Right?

Michael: 31:14

Is again, while you're learning, risk someone else's money. I think that I think it's great. You know, I think prop firms are are great for that. And then when you get good, make sure that you're putting some away for your own account as well, and then look at it as margin. Like I mentioned before, if you have $200,000 of your own money, thousand dollars of someone else's money, essentially, you've just doubled your the margin in your account, and maybe you're more comfortable trading your own account larger, so you're making more money from that.

Michael: 31:40

But as long as you're living within the rules, you've got this this other side that you could, you know, trade. Even if you're trading it very small to live inside their risk boundaries, you pay once and then you got the account right. So it's free money after that. So definitely give that give that a shot if they're if they allow auto trading and and that kind of thing, and it kind of fits your your style there.

Dave: 32:01

Yeah. It's so I guess these firms are pretty much like brokerages, but they provide all the money. That's a very that's a that's a lot riskier than just a brokerage in itself, which is already a pretty risky business. Mhmm.

Michael: 32:19

Well, right, it's why, you know, a lot of them, it's rare to see equity ones. A lot of them will live in futures and forex world. And I think that is the reason because it it would be way easier to hedge total firm risk in an insanely liquid asset like that. Like, if people are trading Euro USD and you look down and you see that your firm is just insanely long this, it would become a lot easier to take some of the firm money and just and hedge the other side or or do some derivatives or something like that to to hedge firm risk. But that's that's what they're doing on their side of the things.

Michael: 32:55

They're definitely making sure that they they work. And again, 90% of traders, I don't think will ever ever get to that real money stage. Right? They get half of the way there or or maybe they pass an account. And like you mentioned, they failed 20 times, so the firm's just like, okay.

Michael: 33:10

We'll let you have your account, but we're gonna keep, like, a laser hawk eye on it. But, yeah, again, it's an interesting place to get started. I again, I highly recommend it for people who are are in this state, but I just don't want you to be the people who buy an account. Right? Blow it up.

Michael: 33:27

Buy another account. Blow it up. I don't want that to happen. So that's why I really say step one should be spend the money that you have on the tools and get those together. And when you're confident enough that you could pass one of these accounts, I'd say that'd be step two.

Michael: 33:40

All along, you're doing what we talked about, living under your means, saving up money for your own account. And then you take whatever you're making, hopefully, from these prop accounts, and you're putting those into your own account as well. So now you've really kind of compounded the growth of your account, and you're trading, you know, this kind of leverage model where you have your own 25 k and you're trading someone else's k, and there's no rules why you can't open up a bunch of these. Right? There's no rules why you can't open up one with for equities and then one for futures and one for forex.

Michael: 34:15

If you're someone who wants to trade all of these different things and you develop models for them, then, again, go ahead, but this is another way to get firm money. And that's that model. And then there's also, like, kind of the SMB style out there where if you have built a good enough track record, maybe with some of these other prop firms or with yourself, you'd start applying. If you have a good enough system and you have something that you've kind of proven trading your money or prop money even small enough, and you're loud enough and you're sending these track records to people, eventually. You know, I know the regulations down there are a lot harder, but up here, we don't have regulations for prop trading.

Michael: 34:58

Depending on where you are in the world, somebody's gonna throw some money at you if you have a track record that's good enough. They're a 100% gonna they'd be crazy not to.

Dave: 35:07

Yeah. So, again, the the name of the game, no matter how much money you have in your account or or somebody else's account, the strategies are the most important thing. Like, that's the the most important thing. So the better you get at creating those and creating them for yourself, the better off you're gonna be. So you you you said a second ago that, yeah, these these are like free money, but but it's not really it's not really free money.

Dave: 35:35

And I know that. I mean, that's what we're this kind of underlying thing here.

Michael: 35:40

So

Dave: 35:43

there's always gonna be strings attached with when you trade somebody else's money. And I've had multiple people offer to give me money over the years to to trade on their behalf.

Michael: 35:55

Mhmm.

Dave: 35:55

And I've always said no. In fact, one guy last year offered me, like, a billion dollars to trade. I'm like and I said no. And I love saying no to these people just because I'm in a position where I can I don't have to do that? Like, I don't there's so many I know that there would be so many strings attached that I don't want to have to answer to somebody.

Dave: 36:15

It would just be more complicated. And the amount of money that I could make, I mean, I don't really care that much about it. So there would just be freedom that I would be giving up by doing that and that I don't need.

Michael: 36:27

Well, and that's the main reason why I say always kind of focus on your own account as well. Because, you know, eventually, right, you may develop a strategy that's an amazing strategy, but just doesn't work with whatever firm you're with risk tolerance. And, you know, you could do it with your your own account. That's why I think it's a mistake to solely rely on on kind of the prop firm game. And and, you know, just the prop firms we were talking about with the combines and the evaluation stuff.

Michael: 36:53

But really, also, I could see a world where you're in somewhere like an S and B capital, and you've got a really good idea that you think is an amazing idea, and the management there just says no. And wouldn't it be great to go, okay, well, I've got my own account, and it's funded enough, and I've been diligently squirreling my money away and and through trading profits, building up the account. You guys don't want to trade it here? Fine. I'll I'll trade it over there.

Michael: 37:15

And I imagine I haven't met a lot of these guys, but if you walk in there and you tap a bunch of them on the shoulder, they've got their own account, and maybe it's a different style or maybe it's, you know, they're day trading with SMB or they're they're, you know, taking some longer term bets with their own account. I would imagine that's like 90 percent of the people out there. But, yeah, you you always wanna make sure eventually that you're kind of the master of your own domain where, you know, you can say, okay, eventually, I have a large enough account on my side that I would continue to like to trade prop, but if there's a strategy that doesn't work with it or something that you guys don't want me to do, that's fine. I've got my own account over here, and I can do that myself because it's it's mine. I can do whatever I want.

Dave: 37:54

Yeah. So so there's another type of person that does trade prop that you wouldn't think might want to trade prop, and that's somebody who's who has a lot of money, but and they have plenty of money to trade their own account, but there's still a good reason to trade prop with somebody like S and P Capital. And that is you don't have to put up the money. So you may wanna use the money for something else. Buy a house.

Dave: 38:23

Mhmm. Send your kids to college. Like, there's all sorts of reasons that you might choose to trade prop, not just because, hey, you don't have enough money or you need more buying power. There's a whole entire team atmosphere there. And I mean, the, the culture there is like, hey, they're there to make money and they have a specific way to collaborate, and they're gonna teach you exactly the things to do that they know most traders can make money doing.

Michael: 38:50

Mhmm.

Dave: 38:51

And there's a lot of value there, and you're gonna have a whole team of people to collaborate with based on that. So there's a huge incentive to do it even if you have plenty of money that you could trade yourself if you wanted to.

Michael: 39:05

Yeah. And and it's kinda what I go to too is using it as maybe leverage in a way. Because you're right. Maybe they you know, there is a additional risk and additional pressure with trading your own money. Because, you know, say you had, you know, your own account and that's doing fine.

Michael: 39:23

You're taking, you know, investments and and boring things in that account. And then the more aggressive side is someone else's money. There's a there's a freeing aspect of that where worst case scenario with SMB, if you are bad enough, they fire you and you leave. And you haven't you you're out of a job and that sucks, but you're not you know, you haven't touched your wealth, right? So I think that comes to a lot of confidence in what you're doing and confidence in your strategies and things like that as well, where that additional stress of this is my money that I've worked so hard to save up for, It could play a lot of kind of mental toll toll and mental games where, you know, if you are given money by a firm, that's just it's a different it's a different beast entirely.

Michael: 40:10

Right? It's like, okay, you can, not to say that you'll be flippant with it or something like that, but it's just less pressure when it is a giant pool of firm capital as opposed to, you know, I took money that I made from doing something and paid tax on it and put it on in an account. That's yeah. It's a different beast.

Dave: 40:29

Yeah. And you there's another important aspect of it in. And, you know, people have different mindsets about money, especially when it's their own. And a lot of times you can have a different mindset when you're trading somebody else's money. So you maybe you're way too risk averse with your own money and trading somebody else's money when you have a stake.

Dave: 40:52

That's the important thing. You're both incentivized for you to do well. That can unlock a different kind of mindset where you can trade different strategies with the way you need to be able to trade them to make a lot of money, where maybe you couldn't do that with your own money. It's a that's a completely normal mindset that a lot of people have.

Michael: 41:12

Well, and I think like we talk about all the time is that multiple systems, right? Now you're talking maybe multiple systems across not only your money, but multiple systems across different accounts. Right? So maybe you have systems that are if you are like that, you're more willing to take risk with firm capital. We have a system over there that's a little riskier and and and does better prob hopefully, because it's a little bit riskier.

Michael: 41:38

And then for yours, you you are more risk averse, so you're either trading the same system smaller or completely different systems that you've optimized for lower drawdown and maybe smoother equity curve. And you've given up the fact that, you know, it has the return potential of of what you're doing over there. I'm sorry. Go ahead.

Dave: 41:59

There is one caveat there. With some preference, and S and P Capital is one of them, you can't trade your own account. You have to trade. So so that's like that's different with different prop firms, but you're getting access to a lot of tools, lot of proprietary stuff, and there would be a conflict of interest if you traded, you know, use their tools and traded your own account. So there's sometimes you have that, you know, that hurdle that you have to to cross to to make the decision, which I think is a healthy one.

Dave: 42:29

I mean, that that makes total sense. Mhmm. Because they're investing a lot in their traders. I mean, they they're you know, they've got a whole tech staff, which is just, you know, building and investing a lot in their tech stack to help their traders make money and to so they're totally incentivized for any profits to be shared by the firm rather than on the side by traders.

Michael: 42:54

Yeah. And that makes sense. And that's what we were talking about earlier that there will always be stipulations, right, if you're doing someone else's stuff. And it it might just be that you're in the point of your life where you are either okay or you don't have a choice with with those stipulations. Because the reason I think we're we're spending so much time on on the prop firm side of things, it's really the only two ways to build up an account is to put your own money in or to trade other people's money.

Michael: 43:18

And that's kinda that's all there is to it. It's unfortunate. I think some people would love a magic answer of this is how you you trade with a bunch of money. And the last thing I just really wanted to hit on is is just make your expectations reasonable. Right?

Michael: 43:32

If you I hope that especially if you're forty minutes into this episode and and you're listening to us, you're not one of those people who fall for the, oh, yeah, you just need to start with $5, and I'll tell you how to turn it into a million dollars, and and you'll retire for life. Right? Just look at some of the best hedge funds and the best traders out there on a percentage basis, what they're making, and make your expectations with what you have reasonable. What I would say is when you have a small account, your goal is not to make a living with that. Your goal is not to, you know, pay your bills or feed yourself with it.

Michael: 44:07

It's you're in the wealth accumulation stage and then also the skill building stage. Because, you know, like we talked about, eventually, barring liquidity restraints, if you have, you know, 20 k in your account or 200 k in your account or 2,000,000 in your account, if the liquidity is is there for you, you're not doing anything different. Right? You're just building it up over time. So the skills that you develop when you have a tidy account will most certainly translate when you hopefully have a much larger account.

Michael: 44:34

So just make sure that you're, you know, you really understand. And again, I doubt many people listen to this would fall for it, but someone's telling you they turned like $5 into a million dollars in a couple of weeks, then I have a bridge. I have a bridge to sell you.

Dave: 44:46

Yeah. I think that's well put. And, yeah, I can I know we're coming up on time here? I could think of several other topics maybe we can discuss next time. But, yeah, I think this is a good probably a good place to stop.

Dave: 44:57

What do you think?

Michael: 44:58

Yeah. Yeah. No. We and we could pick it back up because this is something I get commented all the time. There's just so many people out there who, you know, want to make a go at it.

Michael: 45:08

And my biggest worry is that they're waiting until they have the money. And that's why, you know, I think is the the wrong thing. So again, if you if you're if you're listening to this and you are one of those people who has a small account, just the the biggest encouragement I can give is just don't start now. Right? Just start building the systems and the processes and this and that and the other thing and and go from there.

Michael: 45:31

But, yeah, I I knew this would be a I knew this would be a big one, we probably have more to cover.

Dave: 45:35

Yeah. My my wheels are already turning for a good topic for next week as a follow-up.

Michael: 45:41

Well, that's awesome. So tune in whenever you're listening to this, the the next one, we've, I guess, just committed that it's gonna be it's gonna be more of this.

Dave: 45:49

Yeah.

Michael: 45:50

As always, I'm Michael Noss.

Dave: 45:51

And I'm Dave Mabe. Talk to you next week on Line Your Own Pockets.