Want to trade at higher positions without risking your own capital? A funded trading account can be your best option. Think of a funded account as a form of financial arrangement, where prop firms “fund” traders to make moves and earn profits. But, how do funded trading accounts actually work? And how can you choose the best account for your trading style? Let’s break it down.
Understanding Funded Accounts
The basic mechanism of a funded trading account is pretty simple: A proprietary firm gives you capital to trade and keeps a profit percentage in return. Here’s how it works.
Apply and Understand the Rules
The first step is familiarizing yourself with the rules and regulations of a prop firm. Then, you need to apply by entering your basic information and paying the registration fee.
Pass an Evaluation Challenge
Since prop firms assume financial risk for the traders, they have some entrance criteria. Most prop firms require traders to pass an evaluation challenge. This involves trading using a simulated trading account under real conditions. To pass the evaluation challenge, you need to comply with strict rules and regulations, such as drawdown limits, profit targets, maximum trading days, and risk management.
Moreover, some firms also prohibit traders from news trading and using robo-advisors. Violation of these conditions can immediately suspend your progress, which means you need to start the challenge from square one. Funding firms closely monitor a trader’s risk management style and emotional control. They are looking for skilled traders who can handle high-pressure situations.
Await Verification
Once you’ve completed the evaluation challenge, you will get verified as early as 72 hours.
Get Funded and Start Trading
Once the challenge period ends, you can start trading using the firm’s capital and earn profits. Many prop firms partner with advanced trading platforms, such as MetaTrader 5 and MetaTrader 4, to facilitate traders. You can trade multiple assets, such as forex, stocks, bonds, and commodities. Reliable trading firms also provide traders with access to educational resources and guides, enabling them to refine their skills. Pay close attention to profit splits and withdrawal requirements to avoid any surprises later on.
Choosing the Right Funded Account
Choosing the right prop firm is important for your trading journey. Partner with a firm that offers competitive profit splits, such as 80/20 or 90/10. Choose a funded account with low deposit rates to minimize your initial investment.
Carefully analyze the payout structure. Make sure the firm has transparent terms and conditions. Also make sure the prop firm offers educational resources to help guide you as a trader. Consider the reliability and reputation of a prop firm before signing up for a funded account. Read reviews and testimonials on social media platforms to help guide your decision.
Conclusion
A funded account can kickstart your trading journey. The process involves signing up for a funded account, passing an evaluation challenge, complying with trading rules, and managing risks. Funded accounts can provide you with the opportunity to explore markets that you might not be able to access otherwise.
