6 min read · May 8, 2024
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KEY POINTS
- A funded trading account is an account that is traded on behalf of a company by a third-party trader.
- Different types of funded trading accounts include forex, futures, stock, and options funded trading accounts.
- Several factors to consider when selecting a funded trader program include reliability, the initial sum of capital, trading platforms and tools, profit target & profit share, evaluation time limit, and provider’s terms and conditions.
If you’re a prop trader, earning a funded account is your ultimate goal. 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.
By the time you’re reading our conclusion, you’ll have learned:
- How funded trading accounts work
- The various types of funded trading accounts
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.
A proprietary trading firm (prop firm) is a company for which third-party traders trade.
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.
Funded trading accounts have several trading tests that must be completed before they become active. In practice, these tests will vary from one prop firm to another. However, regardless of the firm, the process is fairly straightforward. All you need 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 buy and pass an evaluation phase. Commonly called a “challenge,” this is your way of proving that you’re capable of being profitable. Working within a set of risk management parameters, applicants must achieve a defined level of profitability within a certain period. For instance, a prop firm may require the trader to make 10% profits while not taking a 5% drawdown within a single trading day and 10% over 60 days. More prop firms have recently been rolling out an unlimited time limit to pass challenges. Upon completing the challenge, the trader gets awarded a funded account.
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.
Prop firms often ask you to pass two evaluation/challenge stages, each with a profit target. Any profit you make on these evaluation stages are not withdrawable. But if you pass these challenges, they offer you funded accounts to trade, where you can be paid a share of whatever profit you make.
These funded accounts aren’t real trading accouts with real money, though. They’re simply simulated accounts, but the firm pays you your profit share when you’re profitable and you lose your investment capital and your funded trading account if your loses reach a certain threshold.
One of the best things about funded accounts is flexibility. When you’re funded, you have the trading capital to trade nearly anything. Best of all, you can attack multiple tradable assets simultaneously.
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.
A funded forex trading account allows the holder 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 can access 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!
A futures contract is a legally binding agreement that defines the exchange of a specific asset quantity at a future time. Futures contracts are traded with high degrees of leverage and offer the opportunity to realize extraordinary gains.
A funded futures account allows the trader 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.
A funded stock trading account allows talented traders to profit in the world’s premier equities markets. Once they complete a prop firm’s funded trader program, individuals can buy and sell stocks according to their trading strategies.
Funded stock trading accounts furnish traders with risk capital and market access. Placing trades on multiple international markets with one’s capital requires abundant legwork. You may have to open and fund numerous accounts in various jurisdictions to do so. With a funded stock trading account, the prop firm handles 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.
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 key benefit of options contracts is that they give traders strategic flexibility. By 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.
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Disclaimer: The information provided in this podcast is for informational purposes only and should not be construed as investment advice. Please consult with a qualified financial advisor before making any investment decisions.
