Funded Trading Accounts Explained

Why do proprietary firms provide funded accounts?

Participants in the financial markets who possess significant capital reserves often seek alternative or additional avenues to invest their wealth. Proprietary trading firms, well-versed in the dynamics of financial markets, recognize the potential of novice traders as a valuable asset. But why do these firms find novice traders to be a good option?

• Diversification of Investment - Large capital holders, whether they are institutional investors or individuals with substantial wealth, often look for ways to diversify their investment portfolios. By providing funded accounts to novice traders, proprietary firms can allocate a portion of their capital to a new and dynamic asset class

• Access to Trading Expertise - Novice traders may lack the capital to access financial markets on a significant scale, but they often possess valuable trading skills and market insights. Proprietary firms can leverage the expertise of these traders to make informed trading decisions

• Profit-Sharing Arrangements - Proprietary firms typically structure funded accounts with profit-sharing arrangements. This means that when novice traders generate profits through their trading activities, a portion of those profits goes to the proprietary firm

• Minimized Risk Exposure - While proprietary firms provide capital to novice traders, they often implement risk management measures. These measures can include setting loss limits or requiring traders to pass a testing period to prove their competence

So how do funded accounts work

Funded trading accounts operate with a well-defined process, as proprietary trading firms have a vested interest in ensuring that their capital is placed in capable hands.

Here's a breakdown of how these accounts function:

• Proof of Success - Prop trading firms do not distribute their capital haphazardly. They often require traders to demonstrate their trading prowess on a smaller scale before providing access to funded accounts. This involves showcasing consistent profitability and risk management skills, typically on a demo account or a smaller live account

• Monthly Fee for Management - This fee covers various services, including access to trading platforms, market data, and risk management tools. It's a way for proprietary firms to recoup some of their costs

• Testing Period - Some proprietary firms implement a testing period during which traders must prove their abilities. This period often includes trading specific objectives or meeting profit targets. Successfully completing the testing period is important

Once a trader satisfies these criteria, the proprietary trading firm will entrust them with capital to trade on a funded account.

Here's what a challenge for accessing a funded account might look like:

Source: forexfactory.com

Pattern of Mutual Benefit

The relationship between private traders and proprietary trading firms follows a pattern of mutual benefit. Private traders benefit from funded accounts by gaining access to substantial capital, which allows them to trade larger positions and potentially earn significant profits. This arrangement empowers private traders to turn their skills and knowledge into a sustainable source of income.

On the other side, proprietary trading firms benefit in several ways. They tap into the expertise and trading strategies of private traders, potentially increasing their profits. Profit-sharing arrangements align the interests of both parties, creating a win-win situation.

Explore the world of funded trading further, discovering the best-funded trading accounts.

Funded Trading Account Features

Funded trading accounts can be different across various proprietary trading firms.

Here's a brief overview of how these accounts may differ in various aspects:

• Rules for Obtaining a Funded Account - These criteria can include demonstrating a successful trading track record, passing tests or challenges, and potentially paying a monthly fee for account management services

• Amounts of Capital Under Management - Some firms offer relatively small amounts, while others provide substantial capital for trading

• Profit Targets - These targets can range from a fixed dollar amount to a percentage of the initial capital provided

• Loss Limits - To manage risk, many firms impose loss limits on traders. If a trader's losses reach a predetermined threshold, they may face account restrictions or even account termination

• Trading Platforms - Funded trading accounts may be associated with specific trading platforms or brokerage services

• Available Trading Instruments - Some may offer access to a wide variety of markets, including stocks, Forex, commodities, and cryptocurrencies, while others may focus on a specific asset class

• Fees - Traders should be aware of any fees associated with funded accounts. These fees can include monthly account management fees, profit-sharing fees, and other charges

• Profit Sharing Percentage - The profit-sharing arrangement between traders and proprietary firms can differ. You should know what portion of your profits will be shared with the firm, as this can impact your overall earnings

• Withdrawal Options - The ease and flexibility of withdrawing profits can vary. Some firms may allow traders to withdraw profits regularly, while others might have more stringent withdrawal policies

Here’s an in-depth exploration of Forex prop trading helping you to discover the best options in the Forex market.

To succeed in the world of funded trading accounts, read the terms of cooperation meticulously. Understanding the rules, conditions, and expectations set by proprietary trading firms is the foundation of trading well with funded accounts. Furthermore, remember that the goal is not just to obtain a funded account but to keep it active and thriving.

Maybe, you are also interested in information about key differences between Funded Account and Personal Forex Account

Best Forex Funded Accounts

1

9.4/10

Go to broker

Your capital is at risk.

Minimum deposit:

$1

Review

Topstep is a leading proprietary trading firm offering traders the opportunity to trade futures contracts. With a unique two-step evaluation process, traders can prove their skills on a simulated account before potentially receiving funding for live trading.
Topstep offers three account sizes: $50,000, $100,000, and $150,000. Regular pricing starts from $165/month, with frequent discounts available. Traders can leverage up to 1:100 and access diverse futures markets, including stocks, commodities, crypto, bonds, and metals. Commissions and fees charged on the Trading Combine (simulation account) align with those on a live funded account, helping traders develop skills for real markets.
Topstep supports traders with educational resources, including free group coaching, to enhance their chances of success.

Pros/Cons

•Real trading accounts are financed by a broker, there is no need to invest your funds in trading.

•The company provides a wide range of free training materials, including free group coaching.

•You can contact the support team using several convenient methods.

•The broker offers a referral program for extra income.

•The company doesn’t offer bonuses, automated trading, or other passive income options.

•The support service works only on weekdays during set hours.

Study Review

2

9.2/10

Go to broker

Your capital is at risk.

Minimum deposit:

€155

Review

FTMO is a prop trading firm offering experienced traders the chance to manage a funded account of up to $200,000 with a wide range of instruments including Forex, stocks, indices, commodities, and cryptocurrencies. To qualify, traders must pass a two-step evaluation process.
Beginners may start with a Free Trial account which has the same trading conditions as the challenge ones. Long-term traders are free to use a Swing Account that has no restrictions on holding positions over the weekend or trading during macroeconomic releases. The company offers trading with the most popular platforms – MT 4/5, cTrader, and DXtrade. The leverage is up to 1:100.
Additionally, FTMO is recognized for its educational resources and continuous support.

Pros/Cons

•Quite low testing cost is €155.

•Classic platforms such as MT4, MT5, and Ctrader are familiar to many traders. For these platforms, hundreds of indicators, scripts, and advisers have been developed.

•The starting reward is 80%.

•Diversification of tariff plans. Candidates can choose a demo deposit from 10 thousand to 200 thousand US dollars. There are tariff plans that span from standard to aggressive trading.

•Leverage is up to 1:100.

•Strict requirements for the test period. The allowable maximum loss is 10% of the deposit amount. The target profit is 10%, for which 1 month is provided.

•There is no information about how the company is funded.

Study Review