Trading in financial markets can be a daunting task, but with the right strategy and rules, traders can increase their chances of success. One of the most prominent programs offering traders the opportunity to demonstrate their skills without risking their own capital is TopStep. As a funded trader program, TopStep allows traders to prove their abilities and receive capital to trade in various markets, including futures, forex, and stocks. In this article, we delve deep into the TopStep rules, providing an extensive breakdown of the program’s structure, evaluation process, and tips for succeeding as a funded trader.
What is TopStep?
TopStep is a platform that offers traders the opportunity to gain access to real money trading accounts. By participating in the TopStep Trader Evaluation Program, traders must meet specific performance criteria in a simulated trading environment to prove their skills. Upon passing this evaluation, they can become a funded trader, receiving access to capital for real trades while following the program’s rules.
The main objective of TopStep is to provide talented traders with an opportunity to trade professionally while mitigating the risk associated with using personal funds. However, to become a funded trader, traders must adhere to a set of rules and guidelines that test their consistency, risk management, and ability to handle real-world trading scenarios.
Key TopStep Rules and Requirements
1. Evaluation Phases: A Two-Step Process
The TopStep program consists of two key phases:
- The Trading Combine: This is the first phase of the evaluation process. Here, traders are given access to a simulated account with real-time market conditions. They must meet specific profit targets while adhering to the program’s risk management rules. The goal is to demonstrate consistency and profitability.
- The Evaluation: After passing the Trading Combine, traders proceed to the Evaluation phase. This phase is more stringent and aims to ensure the trader can handle real capital. In this phase, traders must prove they can maintain profitability and stick to risk management practices, as they would if they were managing real funds.
2. Profit Target and Minimum Trading Days
In order to pass the Trading Combine and advance to the Evaluation stage, traders must meet specific profit targets and complete a required number of trading days. The specifics vary depending on the account size traders choose. Typically, these are the two main goals:
- Profit Target: Traders must reach a specified profit target to demonstrate their ability to generate consistent returns. The target is usually set as a percentage of the starting account balance. For instance, if the account starts with $50,000, the profit target may be $3,000 (6% profit).
- Minimum Trading Days: To ensure that traders aren’t just making a lucky trade, TopStep requires a minimum number of trading days. This is usually a period of 10 trading days, giving traders the opportunity to show they can produce consistent results over time.
3. Drawdown Limits
One of the most important TopStep rules involves controlling drawdowns. Drawdown is the peak-to-trough decline in an account’s equity, and excessive drawdown is a sign of poor risk management. The program sets strict rules regarding drawdown limits, which vary depending on the account type and size:
- Daily Drawdown Limit: Traders are usually given a daily drawdown limit, typically 4% to 5% of the starting account balance. If a trader’s account balance falls below this threshold on a given day, they will be disqualified from the evaluation process.
- Overall Drawdown Limit: The overall drawdown limit is the maximum allowable loss from the highest account balance achieved. This is often set between 10% and 12%. If the account falls below this level at any point, the trader will fail the evaluation and must start over.
Maintaining a disciplined approach to risk management is essential for passing the evaluation stages. By staying within the drawdown limits, traders demonstrate their ability to manage risk and avoid emotional decision-making.
4. Trading Hours and Trade Frequency
TopStep also sets clear rules about trading hours and trade frequency. Traders are encouraged to trade during the most active market hours to avoid the risk of volatility or low liquidity. Typically, the program’s rules recommend trading during regular market hours for the specific market being traded (for example, the futures markets are most active during the Chicago Mercantile Exchange (CME) hours).
- Trade Frequency: While there are no specific limits on the number of trades, it is essential to note that TopStep does not encourage overtrading. Traders should focus on making high-quality, well-thought-out trades rather than attempting to reach their profit targets by making excessive trades.
- Weekend and Holiday Trading: Some accounts have specific rules about trading during weekends or holidays, and traders should carefully review these restrictions. In general, TopStep encourages traders to avoid trading when markets are closed or highly volatile.
5. Risk Management and Position Sizing
Effective risk management is one of the core principles that TopStep emphasizes. Traders must use proper position sizing to ensure they do not risk too much of their capital on a single trade. Here are some of the essential risk management rules:
- Max Position Size: TopStep limits the maximum position size traders can take based on their account size. For instance, a trader with a $50,000 account may only be allowed to take a position size of up to $250,000, or 5 contracts in a specific futures market. These limits are designed to reduce the risk of large, single-position losses.
- Stop-Loss Orders: Traders are strongly encouraged to use stop-loss orders to protect against excessive losses. While TopStep does not require stop-losses for every trade, it recommends that traders use them to mitigate risk. Traders who consistently fail to adhere to stop-loss rules may be disqualified from the program.
6. Account Scaling and Funding
Once a trader passes both the Trading Combine and the Evaluation, they are eligible to become a funded trader. This means they can trade with TopStep’s capital rather than their own. However, funded traders must continue to follow all of the rules, including drawdown limits, profit targets, and risk management practices.
TopStep’s scaling plan allows traders to increase their capital over time as they demonstrate profitability and risk management skills. As traders meet performance targets and adhere to the rules, their accounts can be scaled up, allowing them to trade with larger capital and access more profit opportunities.
Tips for Success in the TopStep Program
1. Stick to the Rules
Consistency is key in the TopStep program. Traders must follow the rules outlined above, including drawdown limits, trading hours, and profit targets. Failing to adhere to these rules can result in disqualification, even if the trader is profitable overall.
2. Focus on Risk Management
Proper risk management is critical in achieving success within the TopStep rules. Keep your risk per trade low, typically no more than 1-2% of your account balance per position. Always use appropriate position sizing and stop-loss orders to protect your capital.
3. Avoid Overtrading
Quality over quantity is essential in the TopStep evaluation. Instead of taking numerous trades with small profits, focus on identifying the most favorable setups that align with your trading strategy. Overtrading can lead to excessive commissions, fees, and emotional trading mistakes.
4. Stay Disciplined and Be Patient
Trading is a marathon, not a sprint. It’s crucial to maintain patience and discipline throughout the evaluation process. Do not rush to reach your profit targets, and always stick to your strategy, even if the market conditions seem challenging.
Conclusion
The TopStep rules are designed to ensure that only skilled and disciplined traders are given the opportunity to trade with real capital. By adhering to the program’s requirements, including profit targets, drawdown limits, risk management rules, and position sizing guidelines, traders can successfully navigate the evaluation process and move on to becoming funded traders.
With consistent effort, careful risk management, and a disciplined approach, traders can leverage the TopStep program to prove their trading skills and gain access to real money accounts, unlocking new opportunities for success in the financial markets.
For further information on the rules, guidelines, and program offerings, visit the official TopStep website.