Forex Funded Account vs. Personal Account: A Comparison
The choice between a funded Forex account and a personal live account is ultimately the choice between safety and freedom:
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Suitable only for traders with high qualifications. A funded account provides access to increased capital and trading opportunities, support from a firm, and valuable experience, though it comes with increased pressure and the imposing of limits
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A more favored option in most cases. A personal account allows traders to have complete strategic freedom while keeping 100% of their profits, though their capital is likely to be lower and they receive no support
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As a forex trader, the decision to pursue a funded account and significantly increase your trading capital is enticing. Traders using only personal funds may experience slower-than-expected growth, so gaining access to more trading opportunities via a funded Forex account is an attractive option for many. Yet the decision is not always so clear-cut. This article aims to break down the two choices, exploring the advantages and disadvantages of both funded Forex accounts and personal accounts. By the end, you should have a clearer idea of which is best for you.
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What does it mean to have a funded account?
Having a funded account means that you have completed the challenge set by a prop trading firm or passed their evaluation test and received large amounts of capital to fund your trading. The profits generated are shared between you, the trader, and the prop firm.
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How hard is prop trading?
It can differ depending on which prop trading firm you are funded by, but generally it is challenging. You must generate consistent profits, and exceeding the loss limit set by the prop firm can result in losing access to the account altogether. You may also be required to trade according to strict requirements such as using particular risk management strategies or leverage.
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What is the average return for a prop trader?
Expectations can range anywhere from 30 to 90% annually, depending on the firm, though typically as a prop trader you are expected to generate roughly 20 to 30% profit with most firms.
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What do successful traders do?
Successful traders adhere to well-developed strategies, manage their risk effectively, continuously learn, and stay emotionally disciplined. They adapt to evolving market environments, focus on long-term goals, and maintain a strategic mindset.
Funded account vs Personal account: Which is better?
Choosing between either a funded Forex account, or a personal one using your own capital, depends largely on your individual preferences, the circumstances you are in, your trading experience, and how much risk you can tolerate.
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A funded account offers increased capital and trading opportunities but comes with more rules
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Using personal funds provides autonomy but requires starting with less capital
Both funded accounts and personal accounts have their advantages and disadvantages. Let’s take a closer look at each one.
Forex funded account
Forex funded accounts are trading accounts provided by third-party entities, usually a proprietary trading firm.
The account allows you to trade using the firm’s capital if you can pass an initial evaluation process. Profits generated using this capital are shared between the firm and you, the trader.
👍 Pros
• Increased capital: With a funded account, you gain access to a much higher amount of capital than you might have when using your personal funds. This provides the opportunity to significantly boost your profits and produce larger returns in a shorter amount of time
• Performance-based rewards: The better your trading performance, the higher the returns you generate will be. As you get to keep a percentage of those profits, sometimes up to 95%, you are incentivized to perform to your best ability
• Experience: Though you can still gain experience using your own capital, using a funded account allows you to gain valuable trading insight and knowledge at no cost to yourself, while also having the opportunity to make substantial gains
• Professional Support: If you are working with a firm that dedicates time to improving its prop traders, you could have access to educational resources, mentoring, and training programs. Some of the larger firms will also provide you with access to advanced trading tools that you likely couldn’t obtain as an individual
Not all prop trading firms are created equal – some of them offer more benefits than others. Traders Union has compiled a list of 20 of the top prop firms and reviewed each one. You can read more here: All Prop Firms List - TU Ranking.
👎 Cons
• High entry barrier: To gain access to a funded account, you must first pass the prop firm’s evaluation stages, which often have strict performance requirements and fees. Some prop firm challenges last for months, while others last mere days but with higher risk and stricter rules for loss limits. Either way, becoming a funded trader is no easy feat
• Profit sharing: The whole deal with receiving a funded account is that the firm lets you trade with their capital but then keeps a percentage of the profits. Sharing your profits with a firm might not sound ideal, but in most cases, you would still pocket a higher amount than you would when keeping 100% of your personally funded profit
• Trading restrictions: Prop trading firms sometimes impose limitations on how you can trade. They may also require you to apply certain risk management techniques or to use leverage. These conditions can impact the trading strategy you are accustomed to or force you to deal with trading situations you are unfamiliar with
• Increased pressure: The requirement to consistently perform well to maintain your funding and deliver results to the firm could put increased psychological pressure on you as a trader and cause significant stress. This, in turn, could affect your ability to trade and even affect your personal life
In addition to these disadvantages, it’s important to note that the failure rate for prop traders is considerably high. Prop trading is incredibly competitive, so not everyone makes the cut. We examine the exact failure rates for prop traders here: What is the failure rate of prop traders?
Personal forex account
A personal Forex account is an account that you open with a brokerage, as an individual. You use your own capital to execute currency trades in the foreign exchange market, assuming full responsibility for all trades engaged in while keeping any profit generated.
👍 Pros
• Complete control: You are in complete control of a personal account, meaning you make all trading decisions and have the freedom to choose any strategy and platform. You trade when you want to, can stop any time you like, and can enter or exit any trade as you see fit
• Keep all profits: When you perform well in your trading and generate profits, you get to keep 100% of that profit. You aren’t required to split it with any third party, meaning you directly benefit from your own performance
• Unrestricted trading: You can trade in any manner that suits you, without limitations imposed by a prop trading firm. Requirements such as minimum daily loss or particular risk management strategies are not enforced on you, giving you more freedom in developing and applying your trading methods
• Less pressure: As you trade with your own money and set your own pace, rather than trading for a third party under their rules, the psychological stress you experience is significantly lower. There is no pressure for you to perform consistently well, other than your own drive to generate profit
👎 Cons
• Limited capital: Unless you already have a large amount of capital, using personal funds means you will be trading with considerably less than you would with a funded account. Less capital means decreased potential to realize your full earning capabilities
• Full financial risk: When you incur a loss using your own funds, you bear full responsibility. That means a bad trade eats into your bottom line and directly impacts your personal capital rather than the account of a prop firm. This can increase the stress induced by trading
• No professional support: You're fully responsible for your education, trading development, and experience building. Without the guidance and direction offered by a prop firm, it may take considerably longer to expand your trading knowledge
Best Forex funded accounts
Funded account vs. Personal account: which should you choose?
Deciding between a funded account with a prop firm and using your own funds in a personal account comes down to your own preferences and position as a trader.
If you are a beginner early on in your trading journey, consider starting with a demo account first. A demo account allows you to trade with virtual capital and become accustomed to trading with larger amounts of (simulated) capital while perfecting your strategy and adapting it to evolving market conditions. Once you’ve built up more confidence, then look into applying for funded accounts for access to larger amounts of capital and potential rewards such as training and career progression.
On the other hand, if you are a more experienced trader with limited capital, then a funded account could offer a viable alternative to risking your own money and experiencing slow growth. A funded account may be the best way for you to significantly advance your trading progress and take advantage of more lucrative trading opportunities.
Summary
Overall, settling for a personal account might be the best choice as it offers increased freedom and allows you to keep 100% of your profits. Though the growth of your total capital might be slower, using a personal account is the easier option. If you prefer a challenge and want to give your trading journey a boost, trying to obtain a funded account might be a better option, though the journey there will be incredibly difficult. Try to learn as much as you can about trading before taking this challenging yet instrumental step.
Glossary for novice traders
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Broker
A broker is a legal entity or individual that performs as an intermediary when making trades in the financial markets. Private investors cannot trade without a broker, since only brokers can execute trades on the exchanges.
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Trading
Trading involves the act of buying and selling financial assets like stocks, currencies, or commodities with the intention of profiting from market price fluctuations. Traders employ various strategies, analysis techniques, and risk management practices to make informed decisions and optimize their chances of success in the financial markets.
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Prop trading
Proprietary trading (prop trading) is a financial trading strategy where a financial firm or institution uses its own capital to trade in various financial markets, such as stocks, bonds, commodities, or derivatives, with the aim of generating profits for the company itself. Prop traders typically do not trade on behalf of clients but instead trade with the firm's money, taking on the associated risks and rewards.
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Leverage
Forex leverage is a tool enabling traders to control larger positions with a relatively small amount of capital, amplifying potential profits and losses based on the chosen leverage ratio.
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Risk Management
Risk management is a risk management model that involves controlling potential losses while maximizing profits. The main risk management tools are stop loss, take profit, calculation of position volume taking into account leverage and pip value.
Team that worked on the article
Jason Law is a freelance writer and journalist and a Traders Union website contributor. While his main areas of expertise are currently finance and investing, he’s also a generalist writer covering news, current events, and travel.
Jason’s experience includes being an editor for South24 News and writing for the Vietnam Times newspaper. He is also an avid investor and an active stock and cryptocurrency trader with several years of experience.
Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.
Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO).