Spot trading rules

As with any of our challenges we are looking for talented traders who understand the markets and can demonstrate solid trading strategies with proven risk management. 

Now as we are one of the only crypto prop firms to allow spot trading. It is important that we also ensure we run a  fair strategy for spot traders that aligns with our overall evaluation rules while also accounting for the specific risks associated with spot markets. 

Diversification Requirement:At Hyrotrader we also emphasize the importance of diversification and risk management, especially in the volatile crypto market. To ensure balanced trading strategies, we have established specific requirements for spot trading as defined below:

Spot-Specific Cap: To prevent overconcentration in a single asset, safeguarding against significant losses from market volatility, such as those experienced with Terra LUNA.

 

• Rule: No more than 3% of the total account balance may be allocated to a single spot position, and the total balance at risk across all spot positions cannot exceed 5% at any given time when trading spot without a stop loss. 

 

• Example: With a $100,000 account, you may allocate up to $3,000 to a single asset and a total of $5,000 across all spot trades. Again this applies only when trading spot without a stop loss. 

Trading Spot with a Stop Loss and Spot-Specific Cap: 

Spot trading with a stop loss offers additional flexibility but requires careful risk management:

While there’s no cap on the amount invested in a single trade when using a stop loss, the maximum loss must not exceed 3% of the account balance.

 

• Example: Entering a trade for asset A at $2.00 with a stop loss at $1.00, and buying 3,000 units, utilizes $6,000. However, if the stop loss is triggered, your loss would be $3,000 (the difference between the entry price and stop loss, multiplied by the number of units), which complies with the 3% rule, as the loss does not exceed the threshold relative to the total account balance.

Combining Spot and Margin Trading with Enhanced Risk Management

For traders engaging in both spot and margin trading, managing overall risk is paramount to success. We do not recommend combining both spot and margin trading for those who are new to prop firms or inexperienced, we would recommend this is undertaken by experienced traders only. 

Allocation Limits When Trading Both Spot and Margin (regardless if trading spot with a stop loss or not): While traders who wish to trade both spot and margin are permitted to allocate up to 5% of their account balance to margin positions and another 5% to spot positions  for a maximum of 10% allocation in this instance, this allowance comes with an important caveat regarding risk management, particularly when trading without a stop loss.

Daily Drawdown Limit: The combined daily losses from both spot and margin positions must not exceed 5% of the total account balance. Surpassing this threshold results in failing the challenge or forfeiting the funded account.

Risk Management: This rule underscores the need for meticulous moderation and risk management, especially when operating both types of trades simultaneously. It’s not just about the allocation but how these allocations can affect your daily drawdown limit.

Example: Imagine your spot positions undergo a 2% loss due to market downturns, and concurrently, your margin trades are also in the red. As soon as the cumulative loss from both trading activities reaches or surpasses 3%, you’ve hit the daily 5% drawdown limit. This scenario illustrates the importance of not just splitting your focus between spot and margin trading but also carefully monitoring and managing the overall risk to ensure that the sum of losses does not breach the set limit.

 

By adhering to these guidelines and maintaining a disciplined approach to risk management, traders can navigate the complexities of trading both spot and margin instruments within the HyroTrader platform, optimizing their potential for success while safeguarding against significant losses.

 

Liquidity and Market Cap Considerations: From time to time given the amount of new assets that come into the market we may roll out criteria before we approve an asset to be spot traded. These will be announced and a comprehensive list will be provided. This is to protect against rug pulls and airdrop pump and dumps that can lead to extreme risk. If you are not sure please ask us before opening a spot trade in a new asset. This is so we can confirm the risk associated with low liquidity coins that could lead to slippage or being stuck in positions and not allowing you to exit your position as well.

 

Maximum Open Trade Count:

We currently allow for no more than 10 concurrent open spot trades to prevent overextension and to maintain focused trade management. This is for both spot traders with and without stop-loss. If trading without stop-loss than a total of 5% of your account balance can be risked across spot assets with no more than 3% allocated in a single asset.

When trading without a stop loss you can utilise more than 5% of your account balance however you must remember to be mindful of stop-loss placement. As in this instance if your SL on any spot trade exceeds 3% of your daily balance you would be in breach of the challenge and fail the challenge or loose the funded account. Again for avoidance of any doubt if you are a spot trader who likes to trade with stop loss.

Please remember where you set your SL should factor in your posistion size and a max of 3% of your account should it be triggered. For example lets say you havr a $100k balancr and you enter a spot trade in asset A and you buy 50k into a spot posistion. However you apply a stop-loss. Well it is imperative that the stoploss is placed to ensure you don’t loose more than 3% ($3,000) if the trade was to hit SL. Thus just placing a stop-loss and entering large posistions without thinking about the potential risk can lead to a breach. IE). Entering the same posistion

 

No Spot  Leverage: 

For spot trading, we enforce a strict no leverage rule. Meaning you cannot use spot/margin to leverage your spot positions. This is to help maintain risk. Any breach of this rule can lead to a failure of your evaluation or loss of a funded account. 

 

Drawdown Rules Explained For Profitable Spot Positions:

We understand that spot positions can be very profitable and when executed properly a very thrilling experience for traders. However with standard challenges you also do not want to cut a runner due to a potential pull back in the market. Nor do we want you to be penalized for having a profitable trade which is beneficial for you and us. As such with spot positions once your position doubles if you are to close out half of the position realizing profit, and thus making the position risk free the remaining open position will not count towards your draw down if the trade runs up and pulls back. 

 

Which is demonstrated below: 

 

1. Profit Realization  – Once the value of the spot position doubles, the trader is advised to sell half of the position. This locks in enough profit to cover the initial investment, effectively making the remaining position “risk-free” in terms of the initial capital outlay. While allowing you to let the winner run. (Now you do not have to do this but if you choose not to realize some profit then this open trade will apply to the daily and maximum drawdown rules). 

 

2. Adjustment of Drawdown Calculation If Partial Profit Is Realized:

   – After taking profits, the remaining position no longer counts towards the trader’s daily drawdown limit. This means if the value of this position decreases due to a market pullback, the reduced value does not affect the trader’s drawdown calculation. Allowing you to let your winner run and look for new trades. As both you and the firm are protected from derisking the original capital invested in the trade. 

 

Example:

 

1. Initial Trade. The trader buys $5,000 worth of a cryptocurrency as a spot position.
2. Position Doubles. The value of the cryptocurrency rises to $10,000.
3. Profit Taking: The trader sells $5,000 worth, recouping the initial investment.
4. Remaining Position: The trader retains the other $5,000 in the cryptocurrency, now a “risk-free” trade.
5. Market Pullback. The remaining position’s value drops to $3,000.
6. Drawdown Consideration: Despite the drop, this $2,000 loss does not affect the trader’s drawdown calculation as per the new rules.

 

So why do we do this and what are the benefits:

 

1. 1. Encourages Smart Profit-Taking: Traders are incentivized to lock in profits, which aligns with sound risk management principles.
   2. Facilitates Risk-Free Trades: After profits are taken, traders can explore more aggressive strategies without worrying about the drawdown affecting their account status.
   3. Supports Trading Flexibility: Allows traders to hold onto winning positions longer, potentially capitalizing on extended market trends without immediate drawdown pressure.

• Payouts: Upon being a funded trader and on a live funded account any profit you make in spot trades can be requested to be paid out in the spot asset alongside your other profit paid in USDT. Thus allowing you to hold onto the spot positions and not have to convert them to USDT if you wish to do so. 

 

Hyro Recommendations for New Traders: New traders should focus on either spot or margin trading to avoid the complexities of managing risk across both. Experienced traders can choose to engage in both, provided they maintain strict adherence to risk management rules to prevent quick failures in challenges. By engaging in both spot and margin on the same challenge you agree that you have read and understand the rules above.