Funded Trading Accounts - A Guide to Getting Started in 2023 (2024)

If you’re a prop trader, your ultimate goal is earning a funded account. But what exactly is a funded account? In this article, we’ll explain the ins and outs of funded trader programs and how they can help you reach your financial goals.

What is a Funded Trading Account?

A funded trading account is an account that is traded on behalf of a company by a third-party trader. Funded accounts furnish talented individuals with sufficient risk capital, leverage, and purchasing power. Armed with this equity, astute traders can generate profits by engaging the world’s financial markets.

Many professional traders rely on funded accounts to make a living in the markets. Whether as a primary or secondary source of equity, a funded trading account is an invaluable asset for any serious trader.

Types of Funded Trading Accounts – What Markets and Assets Can You Trade as a Funded Trader?

One of the best things about funded accounts is flexibility. When you’re funded, you have the trading capital to trade nearly anything under the sun. Best of all, you can attack multiple markets at the same time.

Funded traders are free to engage in the most popular financial instruments. Anyone with a funded trading account can target the forex, futures, shares, and options markets.

Funded Forex Trading Account

A funded forex trading account offers the holder a chance to trade the globe’s largest market — the forex. Boasting an average daily turnover of upwards of US$5 trillion, the foreign exchange market (forex) is an ideal destination for many a funded trader account.

The forex market gives currency specialists a chance to apply their trading skills. Best of all, funded individuals have access to the leverage and purchasing power they need to make a living from actual trading.

Gone are the days of managing micro-lot positions. With forex-funded accounts, you can trade standard lots and let profits run!

Funded Futures Trading Account

A futures contract is a legally binding agreement that defines the exchange of a specific asset quantity at some forthcoming time. Futures contracts are traded with high degrees of leverage and offer an opportunity to realize extraordinary gains.

A funded futures account furnishes the trader with the ability to access vital markets such as the Chicago Mercantile Exchange (CME) and Euronext. Asset classes such as equities, energies, bonds, and metals are available.

Futures products have a reputation for being inherently volatile and pose a substantial risk. However, funded traders don’t have to worry about losing some or all of their initial investment. They risk the prop firm’s money, not their own.

Funded Stock Trading Accounts

A funded stock trading account allows talented traders to profit in the world’s premier equities markets. Once completing a prop firm’s funded trader program, individuals are able to buy and sell stocks according to their trading strategies.

Funded stock trading accounts furnish traders with not only risk capital but also market access. Placing trades on multiple international markets with one’s capital requires abundant legwork. To do so, you may have to open and fund numerous accounts in various jurisdictions. With a funded stock trading account, the prop firm takes care of these issues for you.

Stock trading is a premier way of engaging the capital markets. With great exchanges in places like London, New York, Sydney, and Tokyo, people around the globe are free to generate income from equities products.

Funded Options Trading Accounts

An options contract is a legally binding agreement between two parties: the writer and the holder. It gives the holder the right, but not the obligation, to buy or sell a specific quantity of an asset at some future point in time; the writer collects a premium for affording the holder’s rights.

One of the key benefits of options contracts is that they give traders strategic flexibility. Through buying and selling options, one can take a bullish or bearish position in a market, hedge risk, or generate instant cash flows. From calendar spreads to straddles and strangles, the opportunities in options trading are endless.

A funded options trading account allows traders to buy and sell options contracts for capital gain. Options are available on many assets, including stocks, commodities, and currencies. Given the available leverage and abundance of strategies, many funded traders focus on options and little else.

How Do Funded Trading Accounts Work?

Funded trading accounts have several parameters that must be completed before they become active. In practice, these challenges will vary from prop firm to prop firm. However, regardless of the firm, the process is fairly straightforward. All one needs to do is successfully pass an evaluation period, receive access to a funded trading account, and then begin trading.

The first step in becoming a funded trader is to pass an evaluation period. Commonly called a “challenge,” this is the time in which a trader must prove that they are profitable. Working within a set of risk management parameters, applicants must achieve a defined level of profitability in a certain period. For instance, a prop firm may require the trader to make 10% profits while not taking a 5% drawdown over a 20-day period.

Upon successfully completing the challenge, the trader is on their way to being awarded a funded account. Although additional evaluation may be conducted, the commencement of trade in the funded account is imminent.

Once awarded a funded account, live trading may begin. The trader engages in the markets while adhering to the same risk management parameters outlined in the challenge. If profitable, realized gains are split with the prop firm. Funded trader account profit splits vary from firm to firm. They may range from a standard 50/50 to a 70/30 split to the trader.

Funded accounts furnish talented individuals with sufficient risk capital, leverage, and purchasing power. Armed with this equity, astute traders can generate profits by engaging the world’s financial markets.

How to Choose the Best Funded Trader Program?

There are many factors to consider when selecting a funded trader program. The most important are reliability, available leverage, supported platforms, and profit share.

Reliability

No matter what business you’re in, it’s essential that your partners and affiliates are reliable. Prop trading is no different — your funded account provider must be honest, reputable, and reliable.

One way to establish a firm’s reliability is to conduct online research. Check out message boards and testimonials from other traders. If possible, speak directly to people who trade or have traded with the firm. This way, you can establish whether a prop firm pays on time and treats its traders fairly.

Initial Sum of Capital

Financial leverage and purchasing power are two elements critical to successful traders. If one doesn’t have enough capital, it is exceedingly difficult to trade profitably over the long run. Accordingly, it’s crucial that your prop firm gives you enough purchasing power to make the trades that you need to make!

Funded account sizes are unique to each particular trading program. Amounts range from $25,000 to upwards of $1,000,000, depending upon the firm and program. Ultimately, selecting the funded account that is right for you will depend on your strategy and financial objectives.

A word to the wise: past performance isn’t necessarily indicative of future results! Be sure to complete a funded trader program that will give you more than enough capital to trade.

Trading Platform and Tools

In the modern marketplace, technology is an indispensable element of trade. The best prop trading firms offer their clientele a variety of platform options and advanced trading tools. A few of the most common are Metatrader4 or Metrader5 (MT4, MT5), and Ninjatrader.

Also, proprietary platforms may be offered that are local to the funded trading account itself. Before choosing a funded trader program, it’s a good idea to ensure that the provided technology is well-suited for your trading approach.

Profit Target & Profit Share

The whole point of trading a funded account is to make money. That’s where the profit target and profit-sharing percentages come into play. It’s crucial that both of these financial metrics are feasible and complementary to your financial goals.

Upon signing up for a challenge, you must reach a profit target before receiving a funded account. Some are more stringent than others. For instance, Firm A may require a 5% profit target while Firm B asks for a 10% profit threshold to be reached. Why? Trading does involve financial risk; this is how the prop firm safely allocates funds to proven, talented traders.

As we mentioned earlier, all funded accounts are subject to profit share. Under a profit-sharing structure, traders must “split” realized gains with the firm. This split may vary wildly and be 50/50, 75/25, or 80/20. So, if you receive a funded account with a 75/25 split, you’ll receive 75% of the profits, and the firm will take 25%.

Evaluation Time Limit

The evaluation time limit is the number of sessions required to complete a funded trading challenge. Once again, this time limit may span a few weeks to a month. Standard evaluation time limits are 10, 20, and 30 sessions.

When selecting a funded trader program, don’t ignore the time limit! Remember, it’s your time that you are investing in your future. Perform due diligence and ensure that evaluation time limits to receive a funded trader account are reasonable.

Provider’s Terms and Conditions

Always remember that the devil is in the details! Staying current on the prop firm’s terms and conditions is imperative while trading a funded account.

The terms and conditions outline risk management parameters, payment policies, and essential business practices. By studying the terms and conditions, you can decide if the way a prop firm conducts business is right for you.

Pros and Cons of a Funded Account

Funded trader accounts do have a unique collection of pros and cons. Below are a few of the most important.

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Frequently Asked Questions (FAQs)

Below are some of the most frequently asked questions regarding funded accounts.

How to get funded as a trader?

All you need to do to get funded is pass a funded account program. Meet the profit target while respecting the risk management parameters over the evaluation period — do those things, and you’ll receive a funded account.

What is a funded trader program?

A funded trader program is a way for talented traders to earn backing from a proprietary firm. Essentially, one pays a fee (refunded if successful) and participates in an evaluation period. If the evaluation metrics are met, a funded account is awarded.

What’s the risk of using a funded trading account?

The challenge fee is the only financial risk associated with a funded trader account. If a trader fails the challenge, the fee is typically forfeited.

How much can you make as a funded trader?

The sky is the limit! If successful, the profit potential is immense as returns may be compounded over time. Initially, larger funded accounts offer more significant profit potential as they furnish more extensive purchasing power.

How do proprietary trading firms make money?

Prop firms make money in two ways: from challenge deposits and through profit sharing. When aspiring traders fail a challenge, the fee is forfeited to the prop firm; when successful traders generate profits in the live market, the firm also benefits from the profit split.