Prohibited Trading Strategies
Prohibited Strategies: Gambling, copy trading between accounts, reverse trading, arbitrage, tick speculation, martingale, hedging, HFT bots, exploiting inefficiencies of trading platforms (such as latency arbitrage, reverse arbitrage, and gap trading), using third-party bots, and third-party signals will result in account cancellation.
For more details regarding prohibited trading rules, please refer below:
Gambling:
This involves excessive use of leverage. Risking a large portion of your account on limited trades, for example, using over 2.5% of your (Account total balance on any individual order or any trading day entering different orders to the market) margin on the opening of your positions. Open 5 positions or execute 5 orders or more on the same pairs or across different pairs on the same day, meaning that there is no clear strategy. This can result in your account’s leverage being lowered or your account closed.
Excessive Leverage:
Rule: Avoid using a large portion of your account’s margin for individual trades.
Example: If you have $10,000 in your account, don’t use over $250 (2.5%) of your (total account balance) margin for a single trade, or for multiple open trades. Doing so exposes you to high risk if the trade goes against you.---
Frequent Trading Without Strategy:
Rule: Refrain from opening multiple positions or executing numerous trades during a trading period without a clear plan and strategy or during all of your trading journey with us, without being consistent with one or two maximum trading strategies/edges.
Example: During your trading account period, for 4 days you are using SMC, the following two days, you are using day trading simple support and resistance, the following 4 days you are using indicators as ATR and RSI. The continuous change of strategies and trading plans, show inconsistency in your trading career and professionality.---
Potential Consequences:
Rule: Engaging in excessive leverage or frequent, unplanned trading can result in reduced leverage or even account closure.
Example: Repeated high-risk trading may lead to your leverage being lowered or your account being closed by the trading platform to prevent further risks.---
Copy Trading Between Accounts -- [ This involves mirroring trades from any type of our accounts to another, from our prop firm or different prop firms. ]
Rule: Copy trading, which involves replicating trades from one account to another, is prohibited. This includes mirroring trades between different accounts within the same proprietary trading firm.
Example: If you have multiple accounts with the FundYourFx, you cannot copy or mirror trades from one account to another. For instance, if you make a trade in Account A, you shouldn’t automatically replicate that trade in Account B.---
Exploiting Inefficiencies of Trading Platforms and Other Practices
This involves exploiting data feeds, including latency arbitrage, reverse arbitrage, gap trading, toxic order flow, account management, tick scalping, and server execution.
Rule: Do not exploit inefficiencies in trading platforms or engage in practices that take advantage of platform limitations or data feed issues.
This includes the following:
Latency Arbitrage: Profiting from delays in data feed updates between different markets or trading platforms.
Reverse Arbitrage: Taking advantage of discrepancies in prices by executing trades that exploit the time lag between market updates.
Gap Trading: Capitalizing on price gaps that occur between trading sessions or during market opens.
Toxic Order Flow: Submitting large or manipulative orders to influence the market or exploit order book dynamics.
Account Management: Manipulating accounts in a way that takes unfair advantage of the trading platform’s systems or policies.
Tick Scalping: Making numerous small trades based on minute price movements or inefficiencies in the tick data.
Server Execution: Utilizing high-frequency trading techniques that exploit the speed of server execution to gain an unfair advantage.
Engaging in tick speculation/trading
Rule: This rule aims to prevent trading strategies that focus on extremely short-term price movements, which can lead to high transaction costs and market manipulation, and often does not align with sustainable trading practices.
Example: If you frequently make trades based on minor fluctuations in price, such as buying and selling within seconds to profit from tiny changes in the price of an asset, this is considered tick speculation. For instance, buying a Pair/Index/Crypto and selling it moments later for a small gain due to a tick movement would fall under this practice.---
Martingale Trading:
The Martingale strategy is a trading technique that originated in the 18th century. It involves doubling the position size after each loss or opening more positions while you are losing, with the idea that a single winning trade will recover all previous losses and yield a profit equal to the original trade size.
Rule: Prohibited to open simultaneous orders with you have a losing trade or after losing a trader using more risk than the first placed trade.
Example:
Hedging Positions: It applies to orders comprehended in 24 hours.
Rule: It’s prohibited to open buy and sell trades for any Pair/Index/Crypto in a close zones of the market between 24h.
Example: If you open a long position in a Pair/Index/Crypto and simultaneously take a short position in the same Pair/Index/Crypto to hedge against potential losses, both positions must be addressed (i.e., closed or adjusted) within 24 hours. You cannot leave the positions open beyond this timeframe without risking non-compliance with the rule.
High-Frequency Trading: We define HFT as holding trades for 5 seconds or less
Rule: Avoid high-frequency trading (HFT), which is defined as holding trades for 15 seconds or less. Using High Frequency Bots is fully prohibited.
Example: If you enter and exit a trade in less than 15 seconds, this qualifies as high-frequency trading. For instance, buying a Pair/Index/Crypto and selling it within a few seconds to capitalize on minute price changes is considered HFT.---
Third-Party Bots:
Rule: Do not use third-party bots or automated trading systems that are not officially provided or approved by the trading platform or proprietary trading firm.
Example: If you use an external trading bot developed by a third party to execute trades on your behalf, this would be prohibited. For instance, using a bot from an external developer that makes buy and sell decisions for you based on its algorithms is not allowed.---
Algorithmic trading bots:
Automated systems that use algorithms to execute trades in financial markets based on predefined criteria, such as price, volume, and timing. Here are some common types of algorithmic trading bots along with examples:
Trend-Following Bots:
Example: Moving Average Crossover Bot
Description: This bot buys or sells based on the crossing of short-term and long-term moving averages. If a short-term moving average crosses above a long-term moving average, the bot might buy, signaling an uptrend.
Arbitrage Bots:
Example: Cross-Exchange Arbitrage Bot
Description: This bot exploits price differences for the same asset across different exchanges. For example, if Bitcoin is cheaper on Exchange A than on Exchange B, the bot will buy on A and sell on B, profiting from the price disparity.
Market-Marking Bots:
Example: Spread Trading Bot
Description: These bots place both buy and sell orders at different price levels around the current market price, earning profits from the spread between buy and sell prices
Mean Reversion Bots:
Example: Bollinger Bands Reversion Bot
Description: This bot assumes that prices will revert to their mean or average over time. It buys when the price is below the average and sells when it’s above
Statistical Arbitrage Bots:
Example: Pairs Trading Bot
Description: This bot identifies pairs of correlated assets and trades on the assumption that their price relationship will revert to the mean. For instance, if the prices of two stocks that typically move together diverge, the bot might short the one that’s up and buy the one that’s down
High-Frequency Trading (HFT) Bots:
Example: Latency Arbitrage Bot
Description: These bots execute a large number of orders at extremely high speeds to profit from very small price differences. They might exploit latency in the market to get ahead of other traders
Momentum-Based Bots:
Example: RSI (Relative Strength Index) Bot
Description: This bot trades based on the momentum of price changes. For example, it might buy when the RSI indicates an oversold condition and sell when it indicates an overbought condition
Scalping Bots:
Example: Quick Buy/Sell Scalping Bot
Description: Scalping bots aim to make small profits on many trades throughout the day, buying and selling rapidly in response to minute price movements
Sentiment Analysis Bots:
Example: Social Media Sentiment Bot
Description: These bots analyze sentiment from news articles, social media, or other sources and trade based on positive or negative sentiment trends
Volume-Weighted Average Price (VWAP) Bots:
Example: VWAP Execution Bot
Description: This bot executes trades in a way that the trade price is as close as possible to the volume-weighted average price of the asset, typically used by institutional traders to minimize market impact.
Reverse Trading:
Signs and behavior that include risking the full daily loss on one trade, which often indicates reverse trading between different firms.
Rule: The rule is designed to prevent manipulative practices and ensure responsible trading. By avoiding excessive risk-taking in single trades and potential manipulation between different firms, it maintains the integrity of trading activities and minimizes undue risk.
Example: If your daily loss limit is $1,000, and you place a trade risking the entire $1,000 on a single position, this behavior might suggest an attempt to offset losses or manipulate trading outcomes between different accounts or firms. This could also involve trying to recover losses from one firm by taking high-risk trades with another firm.---
Arbitrage:
All forms of arbitrage are considered toxic due to the lack of a clear underlying idea, strategy, or rationale.
Below are two common arbitrage strategies:
Hedge Arbitrage: Simultaneously entering opposing positions with different firms.
Latency Arbitrage: Exploiting disparities in trade execution times across various trading platforms or venues. Traders using this strategy seek to profit from minor price differences resulting from delays in order processing or data feed.
Latency Arbitrage: Exploiting delays in data feed updates between different markets or trading platforms.
Example: Trading a Pair/Index/Crypto on two platforms where one shows a slight delay in price updates, allowing you to profit from the price discrepancy before the other platform catches up
Reverse Arbitrage: Profiting from discrepancies in prices by executing trades that exploit time lags in market updates.
Example: Buying an asset on one exchange where the price is temporarily lower and simultaneously selling it on another exchange where the price is higher, taking advantage of the price difference before it corrects.****
Use of Third-party signals:
Using this kind of service will breach your account.
Rule: This rule is designed to ensure that trading decisions are based on your own analysis and strategies rather than relying on external sources that might not align with the firm’s policies or standards.
Example: If you subscribe to a service that provides trading signals or recommendations based on their analysis and use these signals to make trading decisions, this is considered a breach. For instance, if a third-party service sends you alerts to buy or sell certain assets and you act on those alerts, you are violating the rule.
For more details regarding prohibited trading rules, please refer below:
Gambling:
This involves excessive use of leverage. Risking a large portion of your account on limited trades, for example, using over 2.5% of your (Account total balance on any individual order or any trading day entering different orders to the market) margin on the opening of your positions. Open 5 positions or execute 5 orders or more on the same pairs or across different pairs on the same day, meaning that there is no clear strategy. This can result in your account’s leverage being lowered or your account closed.
Excessive Leverage:
Rule: Avoid using a large portion of your account’s margin for individual trades.
Example: If you have $10,000 in your account, don’t use over $250 (2.5%) of your (total account balance) margin for a single trade, or for multiple open trades. Doing so exposes you to high risk if the trade goes against you.---
Frequent Trading Without Strategy:
Rule: Refrain from opening multiple positions or executing numerous trades during a trading period without a clear plan and strategy or during all of your trading journey with us, without being consistent with one or two maximum trading strategies/edges.
Example: During your trading account period, for 4 days you are using SMC, the following two days, you are using day trading simple support and resistance, the following 4 days you are using indicators as ATR and RSI. The continuous change of strategies and trading plans, show inconsistency in your trading career and professionality.---
Potential Consequences:
Rule: Engaging in excessive leverage or frequent, unplanned trading can result in reduced leverage or even account closure.
Example: Repeated high-risk trading may lead to your leverage being lowered or your account being closed by the trading platform to prevent further risks.---
Copy Trading Between Accounts -- [ This involves mirroring trades from any type of our accounts to another, from our prop firm or different prop firms. ]
Rule: Copy trading, which involves replicating trades from one account to another, is prohibited. This includes mirroring trades between different accounts within the same proprietary trading firm.
Example: If you have multiple accounts with the FundYourFx, you cannot copy or mirror trades from one account to another. For instance, if you make a trade in Account A, you shouldn’t automatically replicate that trade in Account B.---
Exploiting Inefficiencies of Trading Platforms and Other Practices
This involves exploiting data feeds, including latency arbitrage, reverse arbitrage, gap trading, toxic order flow, account management, tick scalping, and server execution.
Rule: Do not exploit inefficiencies in trading platforms or engage in practices that take advantage of platform limitations or data feed issues.
This includes the following:
Latency Arbitrage: Profiting from delays in data feed updates between different markets or trading platforms.
Reverse Arbitrage: Taking advantage of discrepancies in prices by executing trades that exploit the time lag between market updates.
Gap Trading: Capitalizing on price gaps that occur between trading sessions or during market opens.
Toxic Order Flow: Submitting large or manipulative orders to influence the market or exploit order book dynamics.
Account Management: Manipulating accounts in a way that takes unfair advantage of the trading platform’s systems or policies.
Tick Scalping: Making numerous small trades based on minute price movements or inefficiencies in the tick data.
Server Execution: Utilizing high-frequency trading techniques that exploit the speed of server execution to gain an unfair advantage.
Engaging in tick speculation/trading
Rule: This rule aims to prevent trading strategies that focus on extremely short-term price movements, which can lead to high transaction costs and market manipulation, and often does not align with sustainable trading practices.
Example: If you frequently make trades based on minor fluctuations in price, such as buying and selling within seconds to profit from tiny changes in the price of an asset, this is considered tick speculation. For instance, buying a Pair/Index/Crypto and selling it moments later for a small gain due to a tick movement would fall under this practice.---
Martingale Trading:
The Martingale strategy is a trading technique that originated in the 18th century. It involves doubling the position size after each loss or opening more positions while you are losing, with the idea that a single winning trade will recover all previous losses and yield a profit equal to the original trade size.
Rule: Prohibited to open simultaneous orders with you have a losing trade or after losing a trader using more risk than the first placed trade.
Example:
Initial Trade: Suppose you start with a trade size of $100. You buy a Pair/Index/Crypto or enter a position.
First Loss: The trade goes against you, and you lose $100.
Second Trade: Following the Martingale strategy, you double your position size to $200 in the hope of recovering the initial loss plus making a profit. Again, you buy the same Pair/Index/Crypto or enter a similar position.
Second Loss: Unfortunately, the market continues to go against your position, and you lose $200.
Third Trade: You now double your position size again, this time to $400.
Outcome: If the third trade wins, you will recover your total losses ($100 + $200 = $300) and make a profit of $100 (equal to the original trade size). If the third trade loses, you have now accumulated losses of $700.Hedging Positions: It applies to orders comprehended in 24 hours.
Rule: It’s prohibited to open buy and sell trades for any Pair/Index/Crypto in a close zones of the market between 24h.
Example: If you open a long position in a Pair/Index/Crypto and simultaneously take a short position in the same Pair/Index/Crypto to hedge against potential losses, both positions must be addressed (i.e., closed or adjusted) within 24 hours. You cannot leave the positions open beyond this timeframe without risking non-compliance with the rule.
High-Frequency Trading: We define HFT as holding trades for 5 seconds or less
Rule: Avoid high-frequency trading (HFT), which is defined as holding trades for 15 seconds or less. Using High Frequency Bots is fully prohibited.
Example: If you enter and exit a trade in less than 15 seconds, this qualifies as high-frequency trading. For instance, buying a Pair/Index/Crypto and selling it within a few seconds to capitalize on minute price changes is considered HFT.---
Third-Party Bots:
Rule: Do not use third-party bots or automated trading systems that are not officially provided or approved by the trading platform or proprietary trading firm.
Example: If you use an external trading bot developed by a third party to execute trades on your behalf, this would be prohibited. For instance, using a bot from an external developer that makes buy and sell decisions for you based on its algorithms is not allowed.---
Algorithmic trading bots:
Automated systems that use algorithms to execute trades in financial markets based on predefined criteria, such as price, volume, and timing. Here are some common types of algorithmic trading bots along with examples:
Trend-Following Bots:
Example: Moving Average Crossover Bot
Description: This bot buys or sells based on the crossing of short-term and long-term moving averages. If a short-term moving average crosses above a long-term moving average, the bot might buy, signaling an uptrend.
Arbitrage Bots:
Example: Cross-Exchange Arbitrage Bot
Description: This bot exploits price differences for the same asset across different exchanges. For example, if Bitcoin is cheaper on Exchange A than on Exchange B, the bot will buy on A and sell on B, profiting from the price disparity.
Market-Marking Bots:
Example: Spread Trading Bot
Description: These bots place both buy and sell orders at different price levels around the current market price, earning profits from the spread between buy and sell prices
Mean Reversion Bots:
Example: Bollinger Bands Reversion Bot
Description: This bot assumes that prices will revert to their mean or average over time. It buys when the price is below the average and sells when it’s above
Statistical Arbitrage Bots:
Example: Pairs Trading Bot
Description: This bot identifies pairs of correlated assets and trades on the assumption that their price relationship will revert to the mean. For instance, if the prices of two stocks that typically move together diverge, the bot might short the one that’s up and buy the one that’s down
High-Frequency Trading (HFT) Bots:
Example: Latency Arbitrage Bot
Description: These bots execute a large number of orders at extremely high speeds to profit from very small price differences. They might exploit latency in the market to get ahead of other traders
Momentum-Based Bots:
Example: RSI (Relative Strength Index) Bot
Description: This bot trades based on the momentum of price changes. For example, it might buy when the RSI indicates an oversold condition and sell when it indicates an overbought condition
Scalping Bots:
Example: Quick Buy/Sell Scalping Bot
Description: Scalping bots aim to make small profits on many trades throughout the day, buying and selling rapidly in response to minute price movements
Sentiment Analysis Bots:
Example: Social Media Sentiment Bot
Description: These bots analyze sentiment from news articles, social media, or other sources and trade based on positive or negative sentiment trends
Volume-Weighted Average Price (VWAP) Bots:
Example: VWAP Execution Bot
Description: This bot executes trades in a way that the trade price is as close as possible to the volume-weighted average price of the asset, typically used by institutional traders to minimize market impact.
Reverse Trading:
Signs and behavior that include risking the full daily loss on one trade, which often indicates reverse trading between different firms.
Rule: The rule is designed to prevent manipulative practices and ensure responsible trading. By avoiding excessive risk-taking in single trades and potential manipulation between different firms, it maintains the integrity of trading activities and minimizes undue risk.
Example: If your daily loss limit is $1,000, and you place a trade risking the entire $1,000 on a single position, this behavior might suggest an attempt to offset losses or manipulate trading outcomes between different accounts or firms. This could also involve trying to recover losses from one firm by taking high-risk trades with another firm.---
Arbitrage:
All forms of arbitrage are considered toxic due to the lack of a clear underlying idea, strategy, or rationale.
Below are two common arbitrage strategies:
Hedge Arbitrage: Simultaneously entering opposing positions with different firms.
Latency Arbitrage: Exploiting disparities in trade execution times across various trading platforms or venues. Traders using this strategy seek to profit from minor price differences resulting from delays in order processing or data feed.
Latency Arbitrage: Exploiting delays in data feed updates between different markets or trading platforms.
Example: Trading a Pair/Index/Crypto on two platforms where one shows a slight delay in price updates, allowing you to profit from the price discrepancy before the other platform catches up
Reverse Arbitrage: Profiting from discrepancies in prices by executing trades that exploit time lags in market updates.
Example: Buying an asset on one exchange where the price is temporarily lower and simultaneously selling it on another exchange where the price is higher, taking advantage of the price difference before it corrects.****
Use of Third-party signals:
Using this kind of service will breach your account.
Rule: This rule is designed to ensure that trading decisions are based on your own analysis and strategies rather than relying on external sources that might not align with the firm’s policies or standards.
Example: If you subscribe to a service that provides trading signals or recommendations based on their analysis and use these signals to make trading decisions, this is considered a breach. For instance, if a third-party service sends you alerts to buy or sell certain assets and you act on those alerts, you are violating the rule.
Updated on: 06/11/2024
Thank you!