The Complete Guide to Funded Trading
Funded trading has become an increasingly popular way for traders to access larger amounts of trading capital without putting their own money at risk. In a funded trading arrangement, traders are given access to trade using a proprietary firm’s capital in exchange for a share of any profits generated. This article provides a comprehensive overview of everything you need to know about funded trading.
What is Funded Trading?
Funded trading allows traders to profit from trading using the capital of other firms without risking their own trading account. Traders are provided access to trade on a proprietary firm’s capital in exchange for paying a monthly fee and sharing a portion of any profits generated.
In a typical funded trading program, a trader goes through an evaluation or “challenge” period where they must demonstrate profitable trading within set risk limits using a demo account. Once a trader passes the evaluation, they are granted a live funded account to continue trading using the firm’s capital.
How Does Funded Trading Work?
The process for getting started with funded trading usually involves a few key steps:
- Application – Traders fill out an application with their background, trading experience and account preferences. Firms review applications to verify eligibility.
- Evaluation – Traders undergo a testing period using a demo account provided by the firm. Specific profit targets must be hit within set risk limits.
- Funded Account – If evaluation requirements are met, the trader is granted a live funded account. Firm capital is now accessible for live trading.
- Profit Split – As trades are placed, the trader keeps an agreed upon percentage of any profits generated, such as 80/20 or 70/30 split in their favor.
Pros of Funded Trading
There are many potential benefits to trading with a funded account:
- Increased Buying Power – Access substantially more trading capital from the firm to magnify potential gains.
- Risk Protection – Firm capital absorbs losses, protecting trader’s own capital from risk.
- Profit Potential – Ability to generate significant income from trading by keeping a large share of profits.
- Support – Firms provide platforms, tools, and even mentorship to help traders succeed.
- Flexibility – Trade from anywhere with an internet connection. No physical presence required.
- Credibility – Being accepted into a reputable firm’s program can act as a stamp of approval.
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Cons of Funded Trading
There are also some potential downsides to consider with funded trading:
- Oversight – Firms impose rules and restrictions that traders must follow or risk account suspension.
- Profit Sharing – While still favorable, traders receive less than 100% of profits generated.
- Costs – Monthly or quarterly fees must be paid for access to the account and platform.
- No Guarantees – Acceptance into a program is not guaranteed. Traders must pass an evaluation.
- Stress – The pressure to meet profit targets and avoid losses can be psychologically taxing.
- Limitations – Some firms restrict instrument types, trade styles or times traders can access the market.
Funded Account Types
Funded accounts are offered in a variety of balance sizes and access levels depending on trader preferences:
- Micro Accounts – For newer traders. Provide $5,000 to $30,000 in buying power.
- Standard Accounts – $50,000 to $100,000 in firm capital. Ideal for experienced retail traders.
- Premium Accounts – $100,000 to $1 million in buying power for professional traders.
- Institutional Accounts – Over $1 million in firm capital for hedge funds and prop shops.
Account types also differ in their profit target requirements, risk limits, fees charged and profit splits offered to traders.
Top Funded Trading Firms
There are a number of reputable funded trading firms to consider:
- TopstepTrader – The largest funded trading firm. Offers accounts from $50K to $1M+.
- FTMO – Provides forex and stock index funded accounts up to $400k.
- MyForexFunds – Popular for forex trading. Account sizes from $5k to $100k.
- Maverick Trading – Focuses on futures and stocks. Accounts from $50k to $150k.
- Fidelcrest – Cryptocurrency and forex specialty firm with accounts up to $100k.
- Earn2Trade – Firm focused on forex funded accounts from $5k to $300k.
These are just a few of the major players in the space. There are dozens of other reputable firms to consider.
Choosing the Right Funded Account
With so many options, it’s important to choose the right funded account based on your needs:
- Instrument – Select a firm that provides accounts for your preferred asset class like forex, futures, stocks or crypto.
- Account Size – Apply for an account size that matches your experience level and is sufficient to properly execute your strategy.
- Risk Limits – Understand the firm’s risk management rules. Can your strategy operate within their limits?
- Profit Targets – Make sure you can consistently hit the firm’s required profit targets.
- Fees/Splits – Compare costs and profit splits across firms to maximize income potential.
- Reviews – Read trader reviews to gauge the reputation of the firm and its treatment of clients.
Becoming a Successful Funded Trader
If you want to trade successfully using a funded account, here are some best practices:
- Refine your strategy – Have an edge that generates consistent profits meeting the firm’s targets.
- Stick to your rules – Strictly follow your strategy and risk management plan. Don’t let emotions take over.
- Review performance – Analyze your metrics to identify areas for improvement.
- Adapt if needed – Continuously work to refine your strategy in changing market conditions.
- Limit risk – Avoid excessive losses on individual trades and in drawdowns that could get your account suspended.
- Withdraw profits – Regularly pull out profits you’ve earned above minimum balance requirements.
With proper preparation, discipline and performance, funded trading can be an incredible opportunity to generate income from the markets without risking your own capital. Choose an account and firm that best matches your trading style and experience level. Stick to your strategy and money management rules. By mastering the unique nuances of funded trading, your profit potential is dramatically increased compared to trading your own small account.