Why Are Funded Accounts Beneficial For Traders?
Usually, you have to pay for funded accounts (from $50-$100 to $1000 or more), because in this way the prop trading firm reduces risks, diversifies income and discourages traders from applying for deposits without serious intentions to trade.
Trading with funded accounts is a smart way to make more money for experienced traders with proven strategies.
However, a slight disappointment may be that prop trading firms usually require a fee to provide a funded account. Are there exceptions to this, how much will you have to pay and why?
Find out in this article on fees for funded accounts.
Fund your account with Topstep!Should I pay a fee to get a funded account?
The short answer is yes, as a rule. That said, there is some good news… Continue reading.
Let's start with the website of prop trading company One Up Trader. There you may learn that to access a $25,000 funded account, you must pay $125 per month.
oneuptrader.com
The larger the size of the funded account - the higher the amount you will have to pay.
And this policy is spreading as a common practice among other prop trading firms. You can familiarize yourself with the review of the most worthy of them in the article: 12 Best Forex Prop Firms Compared
The good news however is that the amount demanded by prop trading companies is well worth paying if you do have a trading edge and experience in forex.
Example. Let's say your proven strategy is yielding 10% per month and $500 in starting capital. Let's consider 2 options:
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Option 1. You trade with your own funds. So the income from your strategy for the month will be = $500 * 10% = $50. That is, your profit per month will be = $50 without taxes.
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Option 2. You pay 125 dollars, get an account of 25 thousand. The income from the strategy will be: 25,000 * 10% = $2,500 dollars.
Your profit is much more than the 50 dollars in the first option, even taking into account that you pay 150 dollars at the beginning, and at the end of the month prop trading will take its percentage of the profit you earned.
Which funded accounts do I need to pay for?
The other good news is that there are different types of funded accounts that avoid access fees.
| Account Type | Typically Has Fees? |
|---|---|
Evaluation Accounts |
Typically No |
|
Challenge Accounts |
Typically Yes |
|
Fully Funded Accounts |
Typically Yes |
There are 3 main types of accounts opened by proprietary trading firms:
Evaluation Accounts. It allows new clients to learn how the business is organized, familiarize themselves with the interface, trading conditions, trading platform. It is an analog of a demo account. They are typically small in size and have a limited trading period. Evaluation accounts used by prop trading firms to assess a trader's skills and profitability before offering them a larger account.
Challenge Accounts. Challenge accounts are larger than evaluation accounts and have a longer trading period. If a trader is successful in meeting the broker's performance criteria, they may be offered a fully funded account. In this case, if a trader passes the challenge, the money he/she pays for access to the challenge account may be returned.
Fully Funded Accounts. They are typically offered to traders who have a proven track record of profitability. Fully funded accounts typically have a performance-based fee, which is a percentage of the profits generated on the account. To gain access to this type of account, you may need to interview with a prop trading company representative.
Why proprietary trading firms charge for funded accounts?
There are several reasons why prop trading companies may charge a deposit fee. Among them are the following:
Covering the costs associated with account provisioning.
Funded accounts tend to require more resources than standard accounts opened with a forex broker. This is due to giving traders access to larger amounts of capital and providing additional support.
To weed out traders who are not serious about trading.
This step helps to discourage traders who are likely to lose money from applying for a funded account.
To generate revenue.
For brokers who charge a fee to open a funded account, the fee can be a source of diversified income.
Best prop trading firms
Types of fees that prop trading firms charge
Here's a more detailed explanation of the fees associated with funded accounts:
Upfront fees: As a rule, prop trading companies charge an upfront fee for fully funded accounts. This fee is typically a percentage of the account size. For example, a firm might charge a 2% fee for a $10,000 account, which would result in a $200 fee.
Performance-based fees: Most prop trading firms charge a performance-based fee on funded accounts. This fee is typically a percentage of the profits generated by trader on the account. For example, a firm might charge a 20% performance-based fee. This means that for every $1,000 of profit you generate, you would pay the broker $200 in fees.
Withdrawal fees: Some firms charge a fee for withdrawing profits from a funded account. This fee is typically a flat fee, such as $50 per withdrawal.
Inactivity fees: Some prop trading companies charge an inactivity fee if you do not trade on your funded account for a certain period of time. This fee is typically a flat fee, such as $50 per month.
Account management fees: Some brokers charge an account management fee for funded accounts. This fee is typically a monthly fee, such as $50 per month.
Tips for getting a funded account
Before you go and get a funded account to trade on, keep these points in mind:
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Calculate if the fees you’ll incur are reasonable when compared to the assets you will be allocated in your funded account.
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Ask questions and try to understand the profit sharing method of the company and calculate how much profits you will be left with after paying off the fees to the prop firm
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Also check if the company has set any minimum profit threshold that you need to reach to become eligible for profit sharing
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Also stay on the lookout for any additional costs that might be associated with the account, that you might not be aware of.
The fees you’re paying to obtain a funded account are justified, considering the significant risks that the prop firm is taking and the rewards you’ll generate in the long run. You can carry them without disappointment if you have enough experience, strategy, and discipline.
If you believe that the amount you will pay to access a funded account will bring you more benefits than risks, you should then probably read this article: Top 8 Funded Forex Accounts
Conclusion
Usually, prop trading firms do charge a fee for funded accounts. There are a few reasons why brokers might charge a fee for funded accounts, such as to cover the costs of providing the account, to discourage traders from applying for funded accounts without a serious intention to trade, or to generate revenue.
It is important to carefully consider the fees, risks, and requirements associated with funded forex accounts before opening one. Funded forex accounts can be a great way to access large amounts of capital and potentially earn significant profits, but they are not a get-rich-quick scheme. There is always the possibility of losing money, so it is important to have the skills, discipline, and risk management to be successful.
FAQs
How much do you need to get a funded account?
There is no pre-determined amount you can pay to get a funded account. If you have between $100 and $200 - you have the minimum amount to apply for a funded account.
How do I pass a 5k prop firm account?
Be prepared that you will have to prove your high professional level as a trader. For this purpose you may need: to pass a challenge, to be interviewed, to provide trading history, to pay a fee. The terms of access to a funded account may vary from firm to firm.
What is a Funded Account in Forex?
A funded account is a method of participating in the foreign exchange market which allows traders to trade according to the rules set by the proprietary trading companies. A Funded account is helpful for traders who can trade profitably but have a lack of funds.
What are the requirements for a funded account?
Various prop firms have different requirements for funded accounts, but generally, prop firms require traders to have a proven track record and pass proprietary evaluations before providing a funded account. However, you need to pay a certain amount of fee or a one time charge for using the services in the form of a monthly subscription or one time fee. Typically, monthly subscription ranges between $100 to $200 per month.
Glossary for novice traders
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1
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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2
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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3
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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4
Index
Index in trading is the measure of the performance of a group of stocks, which can include the assets and securities in it.
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5
ECN
An ECN, or Electronic Communication Network, is a technology that connects traders directly to market participants, facilitating transparent and direct access to financial markets.
Team that worked on the article
Upendra Goswami is a full-time digital content creator, marketer, and active investor. As a creator, he loves writing about online trading, blockchain, cryptocurrency, and stock trading.
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).