A funded trader is someone who trades financial markets with money provided by a third party, usually a prop trading firm or financial institution. This allows traders to trade with larger amounts of capital than they have personally, without risking their own money.
The programs that offer this arrangement will assess the trader’s skill and usually require them to pass certain tests or meet certain requirements before giving access to the funded account.
Funded trading is simple but selective. Once I’m accepted into a program I get allocated a trading account with a set amount of the firm’s capital. The agreement between me and the firm usually includes profit sharing, where I keep a percentage of the profits and the rest goes back to the firm.
Plus they provide leverage, training and support, but strict rules and risk management guidelines are in place to prevent big losses.
As a funded trader my goal is to use the provided capital to trade various markets – stocks, forex, commodities and more – as long as I follow the risk management and targets set by my funding source. This win-win relationship benefits me with financial gain and professional growth and the firm benefits from the collective results of all its traders.
What is Funded Trading
Funded trading is an innovation in the finance industry where individuals can trade with capital provided by another entity. In this section we’ll go into the details of what it means to be a funded trader and how it all started.
What is a Funded Trader
A funded trader is a trader who gets financial backing from an external source, usually a prop trading firm. This external source provides the capital to trade. The trader is not using their own money; they are using the firm’s capital to trade. In return for the capital the funding entity gets a percentage of the profits from the trader’s activity.
History of Funded Trading
Funded trading was created as a solution for skilled traders who don’t have enough capital to trade effectively but have the expertise to make profits. It opens up access to large capital markets, removing the big barrier of entry for those with limited financial resources. The rise of prop trading firms offering funded accounts has institutionalized this arrangement. These firms assess the trader’s skill and provide the necessary capital, so their interests are aligned with the trader’s trades.
Funded Trading Programs Mechanics
As an insider I’ll be explaining the structured parts of funded trading programs, including the types of accounts traders can work with, how profits are split and the evaluation process to get into these programs.
Account Types and Sizes
Each funded trading program has various accounts for different levels of experience and risk tolerance. Accounts are usually differentiated by the size of the capital allocation, from small accounts with a few thousand dollars to bigger ones with access to larger sums, sometimes up to 100,000 dollars or more.
- Small Accounts: From $1,000 to $5,000.
- Medium Accounts: From $10,000 to $50,000.
- Large Accounts: From $100,000 and up depending on the program.
Profit Sharing
Profit sharing in funded trader programs is an agreement where I, as the trader, share a percentage of the profits with the prop firm that provides the capital. The split can vary from program to program but usually it’s 50/50 to 80/20 in my favor after I hit a certain profit target.
- Example Ratio: 70% Trader / 30% Firm
- Risk Control: I may have stop-losses that protect the firm’s capital.
Evaluation Process
Before I get access to the funded account I have to go through an evaluation process, also known as a challenge. This involves trading a demo account under the firm’s rules and targets.
- Challenge Duration: From a few days to several months.
- Profit Target: I need to hit a certain profit level without violating the risk management rules.
- Rule Adherence: Maximum loss limits and consistency measures.
Pros and Cons
In this funded trader concept I’ll cover the benefits and the downsides.
Benefits for Traders
- Financial Leverage: As a funded trader I get access to larger trading capital than my personal investment. This means I can make more profits from my trades.
- Risk Distribution: I have less personal risk since the funding entity absorbs the losses, which protects my personal financial position.
Risks and Consequences
- Performance Expectations: In my experience as a funded trader the performance pressure is always there. Not meeting the targets can mean losing the funding.
- Restrictions and Rules: I’m bound by the firm’s rules. These include maximum drawdown limits and profit targets. They govern my trading strategy and risk management.