Understanding the Concept of Funded Trading Accounts
In the world of financial markets, the idea of trading with someone else's money is appealing to many aspiring traders. Enter funded trading—a model that allows individuals to trade using capital provided by firms, without risking their own Savings. This innovative approach gives traders the opportunity to prove their skills in real-Market conditions, access larger trading accounts, and earn profits without the pressure of personal financial loss. In this article, we’ll dive into what funded trading is, how it works, and why it’s becoming an increasingly popular path for both new and seasoned traders alike.
What is a Funded Trading Account?
Funded trading offers the resources of an institutional financial company to an individual trader. Before funded trading, employees of large firms and people with the largest bank accounts had a big advantage over new investors by trading with a larger balance. Short-term trading using a larger initial investment helps compound returns with smaller percentage movements, which may allow them to take profits earlier.
Funded trading firms offer resources that go beyond just capital. If approved to be a funded trader, an individual is granted access to funds and also to a company’s brokerage platform and can make trades on behalf of the company. In Exchange for providing funding, the firm takes a percentage of the trader’s earnings.
How Does Funded Trading Work?
If funded trading sounds too good to be true based on the description above, know that there are nuances to the business. Not everyone can become a funded trader, and even experienced investors may have trouble getting funded.
Many companies offer funded trading, and they are not all reputable. Part of being a funded trader is finding the system that works for you and that you can trust. The following are the basic steps you’ll go through to become a funded trader with most providers:
- Select a Company and (Usually) Pay a Fee
Companies that fund traders usually have a successful track record of adding traders to their teams who know what they’re doing and won’t lose the firm’s money. For most funded trading opportunities, an applicant must pay an upfront fee to be assessed as a trader. This test can take on different forms, but typically they must show their worth by piloting a demo account and producing good results consistently before being handed the reins to a funded account. If an applicant does not pass the evaluation, the upfront fee is usually not refunded. If they do pass, the fee can be refunded once they make enough money for the funding company.
- Trade Within the Company’s Rules
Once funded, a trader can begin using the funding company’s platform to trade on several Exchanges. Depending on the company, traders can work in futures, crypto or traditional markets. Keep in mind that funded traders are not trading on their own behalf but on behalf of the funding company. Take note of the company’s rules regarding how much can be traded per day, and ensure you understand any drawdown rules or policy violations.
- Withdraw and Scale Your Trading
Depending on the company you choose to trade with, the profit split can be as high as 90% going to you and 10% to the company. Most funding companies charge a fee per month based on how much capital you have access to. Review your company’s fee schedule before you trade to be fully informed on what to expect after each trading day.
Benefits of Funded Trading
Funded trading hasn’t been around for very long, but it puts traders without deep pockets and little access to margin trading on the same level as those with large bank accounts and established reputations. Some of the benefits that you might enjoy as a funded trader include the following:
- Access to more capital: Traders can access greater sums of money by working with a funding company and can reap larger profits much faster than if they were using their own funds.
- Access to markets: Instantly gain access to the company’s platform and resources, skipping steps required when opening individual brokerage accounts.
- Work on your own terms: Funded traders have the freedom to work whenever, and wherever they choose, with no set schedule.
Considerations With Funded Trading
Funded trading is a relatively new option for people looking to make significant moves in the stock market, and it doesn’t come without some considerations for those looking to get funded. Here are a few points to keep in mind:
- It’s for professionals: Funding companies take steps to ensure people who will be investing their funds are qualified.
- Predatory funding companies: Always read the fine print and make sure profits are possible given monthly fees and profit split Policies.
- Regulations for trading: Make sure you understand the trading requirements of a funding company before proceeding.
Frequently Asked Questions
Q: What is funded trading?
A: Getting funded in trading means that you have passed an introductory test and you are authorized to use a company’s funds to trade on their behalf, with the promise of a split of any profits to be made.
Q: What percentage of profits do traders usually keep?
A: Most traders can expect to take 80% to 90% of the profits from their funded trades before fees are paid to the company.
Q: Is funded trading worth it?
A: Funded trading can be worth it for individuals who have a well-tested and profitable trading strategy, but it also comes with its own set of challenges and risks.
