Potential and the resources to fulfil that potential are not always fairly distributed, and this is something a lot of proprietary trading firms try hard to fix with instant funding programmes.
The idea is fairly straightforward; as prop firms are trading with their own capital rather than taking a cut from account holders who keep their money with them, they are on the lookout for skilled investors to provide capital to.
This is important, as many investors who have the skill, knowledge and potential to succeed in markets such as forex lack the capital to do so effectively on their own. Forex is very liquid and volatile, but it tends to change in small increments, which means that considerable investment is necessary to make returns you can cash out.
It is a mutually beneficial relationship, but how do you go from day trading or simulations of financial markets to being in charge of a funded trading account?
The simple answer is to apply at a suitable firm, pay the application fee, go through either a one-step or two-step application process, meet the evaluation objectives, and get access to a live account. Meet the objectives of that account, and you start getting a profit share.
For the right trader, it can be the perfect step up to turning an interest and nascent skill at financial trading into a career, with people who can trade consistently rewarded with a growing scale of rewards.
That is the short answer, but the road to a funded account does not start with filling out an online application and paying the entry fee, nor does it strictly end when a trader gets the keys to a funded account with up to 100:1 leverage.
It is about developing knowledge, experience, strategy and a mental makeup designed with long-term success in mind.
Step One: Asking The Big Questions
The first step to a funded trading account involves asking yourself if entering the world of professional trading is the right move for you. The first step of answering that question is knowing what you are getting into.
At a basic level, a funded trading account is a trading account with a predetermined amount of capital that a trader can use to set up a portfolio within the guidelines and parameters set by the prop firm.
It allows investors to use the firm’s funds rather than their own, which enables larger trades to be made, something critical in certain trading strategies where the way to make money is through consistent, safe strategies made at a considerable scale.
It also allows a trader access to a live account without having to seek out certifications and licences, although there is obviously nothing stopping them from doing so.
This means that people who faced roadblocks through being unable to pay registration fees but clearly have the talent to trade well can get significant starting capital, and once their strategies start to pay out, use that money to kickstart their career, either continuing with their prop firm account or wherever they may roam on the markets.
There is a profit-sharing mechanism, typically scaling in favorability towards the trader the more they demonstrate their acumen and this creates a symbiotic relationship between the firm and the trader they fund.
The firm gives the trader the capital, the resources, the platform, education and access to their network of traders and peers, and the trader uses all of this to make consistent gains on the market.
With all of that in place, the next step is asking whether you feel ready to be a funded trader.
If you like the idea of having the flexibility to trade from a comfortable, personal working environment, without the pressure of a trading floor, clients or the personal financial risks that can come from leveraged trading, then applying for a funded trading account can be a great step.
It is also a good idea if you want to take an alternative path into the world of finance. Many people have pivoted from their previous careers and into finance, bringing tremendous enthusiasm, willingness to learn and a fresh perspective.
After a huge retail trading boom in 2020, a lot of people who never traded before experimented with small amounts of capital and got a taste for trading. Getting a funded account is the next logical step.
Step Two: Get Ready
Once you have decided this is the path you want to take, you can jump right into your application, but it is always best to do some preparation and reconnaissance first.
Learn the rules for a specific prop firm as well as expectations and how they are defined. Firms are very clear about what is needed from their traders and what will qualify them for profits and payouts.
For example, some firms have a requirement that all trades have a stop-loss order on them that needs to be placed within a minute of the order. Others will have a required amount of activity, all will have a maximum drawdown allowed and certain profit targets.
Check whether your trading strategy and schedule suit the firm you wish to work with. High-frequency trading, for example, is not always allowed by some firms and can lead to your account being banned and all trades closed.
All prop firms will clearly list their rules, and explain which ones are soft breaches (which necessitates risk management monitoring) and which are hard breaches (which leads to an account being closed).
Beyond this, make sure you have some kind of rudimentary trading strategy and discipline in place before you complete your application. Some application processes have a time limit, others have minimum targets and drawdown limits, and it pays to have a system in place that has the potential to work.
The best way to see if you are ready is to give a demo account a try. Most prop firms will have a demo account, free to try for a few days to let you get used to the dashboard, analytics, and access to trading platforms without any risk or consequences to your application.
This is a way to try for free and see if you can manage the requirements of an evaluation and live account. If not, then all it means is that you need to develop your fundamentals, read around and develop a style and strategy of trading that works for you.
It also lets you easily and clearly see which rules are enforced by the trading platform without accidentally stepping on a landmine and ruining your account, especially if you run a strategy or have particular tendencies that make you likely to get close to the rules.
Step Three: Make Your Application
There are a lot of different funded account types, geared towards different types of traders and with different standards.
There are three main account types available:
- Two-Step Application
- One-Step Application
- Instant Funding
Each of these account types has a different size account, going from $25,000 to $100,000, with sign-up fees that vary depending on account size, type of evaluation and any additional add-ons such as weekly payouts (rather than bi-weekly), no stop-loss and unlocking additional scaling levels.
If you are just starting out with a bit of theoretical success with demo accounts and small-scale retail trading portfolios but have not made this your career yet, it is perhaps best to start with a two-step account.
This system has a two-phase evaluation, with separate profit targets for the first and second days and a requirement to trade for three days each month.
Alternatively, for traders with some experience, there is a single-step prop firm, which removes the second five per cent profit target, albeit with lower maximum leverage and an extra minimum trading day.
Finally, there are Instant Funding plans, which skip the evaluation step and get traders started on a live account, able to immediately earn profits as soon as they start trading, and with just one single trading day required per month.
Step Four: Scale Up With Sustained Success
Once you pass the evaluation, you get a live account and can start using progressively more capital in your accounts with an increased profit share, as long as you can demonstrate discipline, consistency and a will to constantly develop your skills and market knowledge.
Once you start your account, set up a trading journal and keep track of your transactions in order to record their outcomes, as well as any notes about your methodology and mindset for particular trades.
Establish firm risk management plans and a trading strategy that avoids the temptation to trade emotionally. Much like meal prepping, it is often best to do a lot of the thinking when you are in the best headspace to do so and establish a set of criteria you can easily follow.
Keep disciplined, avoid especially volatile periods, set stop-loss orders and use every gain and every loss as a learning experience for what you can do in future to keep yourself in a position to consistently succeed.
Finally, take care of yourself. Reward your successes, commiserate rough days and remember that the minimum trading days requirement means that if something is not going well, it is perfectly fine to turn off the terminal. A diverse portfolio will not reach the drawdown limit very quickly.